Ill be 55 next year and have about $800k in a 401k. I see a lot of weekly sell put or covered call options that would bring in more than I currently make at my job. Can I safely retire at 55? What is the catch? Feels like Im missing something. Any knowledgeable advice would be much appreciated!
Whats the catch? Retire on $800k (@55)?
byu/LifeLog5216 inoptions
Posted by LifeLog5216
12 Comments
I’m not even close to your level or age so I can’t say I have any sound advice. But “invest with Henry” on YouTube might help with what you’re looking for. He gives info on living off your shares and how to wheel options for a steady income
Look into FI/ a FI calculator for a fairly conservative (4% safe withdrawal rate). Otherwise if you can utilize options to enhance your income then you can probably retire earlier. (But trading/managing options still takes time and effort like a job).
Recent survey says 2.5MM
The catch is that you sell puts or calls on a falling knife. Or, you sell puts on an asset you’d like to own but the growth of the asset outpaces your ability to sell CSPs on it, or selling covered calls sells you out of your position and you have to pay extra to buy back in, giving you a net loss.
How will you tap into your $800k? Will you use the rule of 55? Does your company allow it?
Next, there are no free meals in the stock market. If you go with stocks that are volatile then yes, you can get good premiums but may lose your shirt as well. For more conservative options, premiums are lower.
One strategy you can look into is selling LEAPs to guarantee income and get some downside protection. For example, if you buy Google and sell leaps 12 months out then you can collect a nice premium. If Google falls, you still get to keep the money as a hedge. If Google soars, that’s ok cause you have settled for an annuity.
Another popular choice is selling 25 or 30 delta puts or calls to augment earnings. Same risk as above.
I’m not qualified to give retirement advice. However, my take is that it really depends on how long you plan to live, what your annual costs are, and how much supplemental income you’ll have coming in from social security, etc.
It’s very possible to live a long time at a given standard before bottoming out if you have the right assets in place and stable costs.
But if you’re asking if you could expect more than the risk-free rate (4.75% and dropping) indefinitely then the answer is almost surely a no.
depend on your cost of living.
$800k is a little light without social security income and medicare. 55 to 65 is an age when you may end up with some large medical bills.
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I see a lot of weekly sell put or covered call options that would bring in more than I currently make at my job.
Are you assuming that you would win every trade when you look at these premiums? What if the trade goes against you by a lot? Can your portfolio/strategy survive a 20% or more market decline or black swan event?
The catch is that losses can be huge when selling options. Big enough to wipe out your entire portfolio. Losses are inevitable. Even if you’re selling 99% probability of profit options, 1% chance is 1 loss in a 100 trades. That 1 loss can negate your 99 profit trades or worse.
Now ofcourse a sophisticated trader can have strategies to mitigate some of the risk and have rules to limit your losses. But the point is that this is not an easy “free money” strategy that any beginner can trade.
Please don’t. If you’re on Reddit asking the questions you’re asking you’re going to find yourself needing to work again. Keep building that nest egg.
Selling covered puts or calls is NOT how you trim your nest egg. You find a yearly amount you need and collar the nest egg so that if the market goes up you gain a little and if the market goes down you lose a little. Being able to live with a stable fixed income in a multi year bear market is the storm you’re sheltering for
1) 30 years is a long time.
2) Health Insurance is expensive
3) One or two or three mistakes, which will inevitably happen, will significantly eat into this capital and you’ll have no choice to sell when things are down.
The brilliant minds of the internet always say the S&P returns 10% historically. They never account for the 2-3 years of down years which always come. You’re of the age that you have seen those years in the past. Just the cause we’ve had a good 15 year run doesn’t mean we’re not headed for another shit storm.
Finally IMO the last thing I would do with a retirement account is trade options. Certainly a few can, at least the internet says so, but most will up in the shitter. Many good stocks take bad turns with no ability for you to correct.
Tough it out at least 5 more years.