Retiring Early From Tech: Bridging the Years Before Social Security and Medicare
Many Silicon Valley professionals reach financial independence in their 40s or 50s. The decade or two before traditional retirement benefits begin requires its own plan.
A successful career in technology, combined with equity compensation and disciplined saving, allows some Bay Area professionals to consider stepping away from full-time work well before 65. The question then shifts from "how do I accumulate enough" to "how do I structure withdrawals, health coverage, and taxes across thirty or forty years." The early years are the most complex because the traditional supports of retirement are not yet available.
Social Security: later is often better
Social Security benefits can begin as early as 62, but claiming before full retirement age permanently reduces the monthly amount. Full retirement age is 67 for those born in 1960 or later, and delaying past that age earns credits until 70. For 2026, Chase reports a 2.8% cost-of-living adjustment and a taxable wage base of $184,500. For a high earner with a long work history, the difference between claiming at 62 and at 70 can be substantial on an inflation-adjusted, lifetime basis. Early retirees with other assets frequently plan to delay, using portfolio withdrawals in the interim.
Health coverage before Medicare
Medicare eligibility begins at 65. Before then, early retirees typically choose among COBRA continuation for up to 18 months after leaving an employer, coverage through a spouse's plan, or an individual plan purchased through Covered California. Premium tax credits for marketplace coverage are based on household income, which creates a planning interaction: a retiree living on savings and long-term capital gains may have a modest taxable income and qualify for meaningful subsidies, while a large Roth conversion or stock sale in the same year could reduce or eliminate them. A health savings account, funded during working years under a high-deductible plan, can pay for premiums and medical costs in this period; 2026 contribution limits are $4,400 for individuals and $8,750 for families per Fidelity.
Accessing retirement accounts before 59½
Withdrawals from traditional IRAs and 401(k)s before age 59½ generally incur a 10% penalty in addition to income tax, with exceptions. Early retirees should be aware of several:
The rule of 55. Distributions from a 401(k) of the employer you left in or after the year you turned 55 are penalty-free (though still taxable). This applies only to that employer's plan, not to IRAs.
Substantially equal periodic payments (72(t)). A schedule of withdrawals calculated under IRS rules avoids the penalty but must continue for the longer of five years or until 59½.
Roth IRA contributions and seasoned conversions. Contributions can be withdrawn at any time without tax or penalty, and converted amounts can be withdrawn penalty-free after five years. A ladder of annual conversions during low-income years is a common strategy.
Taxable accounts. Long-term capital gains are taxed at 0% federally up to $98,900 of taxable income for joint filers in 2026, per Kiplinger. California, however, taxes all gains as ordinary income.
The low-income window
The years between leaving work and beginning Social Security and required minimum distributions (age 73 for most people today) are often the lowest-income years of an affluent retiree's life. That window can be used to convert pre-tax retirement balances to Roth at moderate rates, to realize capital gains at lower brackets, and to reduce the size of future required distributions that would otherwise push income, Medicare premiums, and the taxation of Social Security benefits higher. Each of these moves interacts with the others and with health insurance subsidies, so a multi-year projection is more useful than a year-by-year approach.
Withdrawal sustainability
Retiring at 50 implies a portfolio that may need to last 45 years or more. Historical research on withdrawal rates has generally focused on 30-year horizons; longer periods argue for more conservative initial withdrawal rates, flexible spending that adjusts to market conditions, and a meaningful allocation to growth assets throughout retirement. Sequence-of-returns risk, the danger of poor markets in the early years, is highest at the start.
Location and taxes
California's income tax follows residents wherever their accounts are held. Some early retirees consider relocating; others find that family, climate, and community outweigh the tax savings. Either way, the decision should be made on lifestyle grounds first, with taxes as a secondary factor, and any move must be a genuine change of domicile to be respected by the Franchise Tax Board.
This article is educational only and is not investment, tax, or legal advice. All investments involve risk, including possible loss of principal. Consult qualified professionals regarding your circumstances.
Important Disclosures
Important Disclosures: Propulsion Capital Management is an investment adviser registered with the State of California Department of Financial Protection and Innovation. Registration does not imply a certain level of skill or training. This article is provided for general informational and educational purposes only and does not constitute investment, tax, legal, or accounting advice, nor an offer or solicitation to buy or sell any security or to adopt any particular investment strategy. The information is believed to be accurate as of the date of publication but is subject to change without notice; tax laws and regulations change frequently and their application depends on individual facts and circumstances. Nothing herein should be relied upon as a substitute for personalized advice from a qualified professional. Investing involves risk, including the possible loss of principal, and past performance is no guarantee of future results. Diversification does not ensure a profit or protect against loss. Any examples are hypothetical, are for illustrative purposes only, and do not reflect the experience of any client. Links to third-party websites are provided for convenience; Propulsion Capital Management does not endorse, and is not responsible for, the content of third-party sites. Propulsion Capital Management does not provide tax or legal advice; please consult your tax adviser or attorney regarding your specific situation.
