What Is Microsoft’s 55/15 Rule for Retirement?
For many employees, Microsoft’s 55/15 rule is the ticket to early retirement. It’s not just a perk — it’s a game changer. Here’s how you can use it to step away early.
What Is Microsoft’s 55/15 Rule?
The Microsoft 55/15 rule means that if you’re 55 or older and you’ve worked for at least 15 continuous years at Microsoft, your unvested restricted stock units (RSUs) will continue to vest after you retire. This opens the door to early retirement, allowing you to leave the company before the traditional retirement age without losing your unvested RSUs.
Here’s How It Works…
If you meet the standards of the Microsoft 55/15 rule when you retire, any RSU grants older than a year will continue vesting on their original schedule. Your shares will trickle in quarterly, just like when you were still working. For a typical Microsoft vet, this could mean an extra $20,000–$50,000 a year — or more! That additional income can make all the difference for jump-starting your post-Microsoft life.
Why It’s a Big Deal for Early Retirement
Retiring early comes with plenty of benefits. You’ll have more time away from your career and more energy for travel, hobbies, or even a side gig.
Of course, the major downside is that you may be leaving money on the table. Not only are you losing your salary, but any unvested RSUs are forfeited when you leave the company. This can make the transition to retirement even harder than usual.
The 55/15 rule helps out by stretching your Microsoft benefits into your first few years of retirement.
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Top Benefits of the 55/15 Rule in Retirement
Income Bridge
When you retire from Microsoft, your vesting RSUs will act like a paycheck. The extra money can help cover groceries, bills, or even vacation costs while your savings stay untouched. As your shares vest on the original schedule, you’ll have a steady income stream for at least a few years, easing the shift from your salary to your retirement funds.
401(k) Investment Growth
With vested RSUs trickling in every quarter, you won’t need to tap into your Microsoft 401(k) right away. That means your investments can grow even longer, netting more returns through your 401(k) plan.
Tax Optimization
Since shares vest gradually, you can avoid a big tax hit in one year. Spreading out your income like this keeps you in a lower bracket, potentially saving you thousands of dollars in taxes.
Help with Healthcare Costs
Healthcare is often one of the biggest hurdles for early retirement. Medicare doesn’t kick in until you’re 65, leaving you on the hook for your health insurance until then. COBRA will help for a bit, but it’s still expensive — $12,000–$20,000 a year for a married couple. After COBRA runs out, private plans can cost even more.
The extra income of vesting RSUs gives you more cash to cover your insurance without draining your savings. Add in a Microsoft HSA, and you’re all set until Medicare takes over.
More Social Security Benefits
Taking Social Security benefits before reaching full retirement age results in a significant penalty. Using your RSUs to supplement your income will make it easier to hold off on Social Security until later. Then, for every year you delay your Social Security past retirement age (up to age 70), you’ll get a permanent boost in your benefits. That could mean hundreds of extra dollars every month for life!
PRO TIP: The IRS rule of 55 also helps with early retirement. As long as you’re 55 or older when you retire, you can start making withdrawals from your 401(k) without the usual 10% early withdrawal fee. Together, these perks will give you a sturdy runway for your early exit.
Watch the Fine Print
It’s worth noting that the standards for the Microsoft 55/15 rule are strict. Only RSUs over a year old qualify, and any newer grants will still be forfeited if you retire. This makes it important to plan your exit carefully to maximize your shares. If you retire mid-year, you could miss a fresh grant cycle, cutting your vesting stream short.
And of course, if you aren’t 55 yet (or you haven’t worked at Microsoft for 15 years), you won’t get any benefits from this rule. So if you’re almost there but not quite, sticking around is almost always the right call.
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Take the Next Step with TrueWealth
The Microsoft 55/15 rule gives you a rare shot at early retirement, but it’s not a one-size-fits-all solution. Will your RSUs and savings carry you through retirement? Can you dodge the tax traps?
At TrueWealth Financial Partners, we’ve guided Microsoft pros just like you through this process for years. We’re here to help you make the right choice and maximize your retirement income.
Is 2025 your year to retire? Schedule a free chat today, and we’ll be happy to answer all your questions. Let’s make your golden years truly golden.
FAQs
What exactly does the Microsoft 55/15 rule cover?
If you’re 55 years old with at least 15 years of work at Microsoft, your RSUs will keep vesting on their original schedule if you retire early. This applies to all RSUs granted at least a year before you retire.
Can I use my 401(k) right away if I retire at 55?
Yes, Microsoft’s 55/15 rule also applies to 401(k) withdrawals. You will be able to make penalty-free withdrawals from your 401(k) as long as you are 55 or older when you retire.
What happens to new RSUs if I retire early?
Even if you meet the 55/15 rule, grants less than a year old will still be forfeited. This makes it important to time your exit carefully to maximize your cash.
How long do RSUs keep vesting under the 55/15 rule?
It depends on your grant schedule — typically three to five years after retirement.
How much can I expect from vesting RSUs under the 55/15 rule?
It depends on your employee level and grant amounts when you retire. We can help you estimate your retirement income so you’ll know exactly what to plan for.
How will my RSUs be taxed?
Vested RSUs are taxed as ordinary income. The TrueWealth team will help you optimize your taxes and avoid common tax traps in retirement.
What if I’m close to 55 or 15 years — should I wait?
If you’re close to meeting the 55/15 rule, sticking it out is a no-brainer. Keeping your unvested RSUs and unlocking penalty-free 401(k) withdrawals could mean tens of thousands more in retirement.
Can I still work part-time and use the 55/15 rule?
Absolutely! The 55/15 means your Microsoft RSUs keep vesting even if you consult or gig elsewhere. Pair that with your 401(k) withdrawals, and you’ve got plenty of flexibility to ease into retirement.
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