Aug 8, 2024
Most people think a lot about the year they'll leave work but don't give much consideration to the exact month and date. They should.
The specific time of year you retire matters a great deal in terms of your finances and your fulfillment. Consider these five key issues to ensure you pick the optimum moment to hand in your notice.
Your Social Security checks
If you're planning to claim Social Security upon retirement, you must first consider the impact that your exit date has on your benefits. That's because there are early filing penalties and delayed retirement credits applied for every month you claim Social Security either before or after your full retirement age (FRA).
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FRA used to be 65 for everyone but is now based on birth year. For those born in 1960 or later, it's 67. For anyone born in 1959, it's 66 and 10 months and for anyone born in 1958, it's 66 and eight months. You must start benefits in the month you hit this milestone and not a moment sooner if you don't want them reduced. For example, if you're turning 66 in January 2025 with an FRA of 66 and 10 months, retiring in October would be the best choice to get your full benefit.
On the other hand, if you want the absolute maximum benefit, you'll have to retire the month you turn 70. Any sooner would reduce your checks and any later would mean giving up money for no reason since delayed retirement credits can only be earned until 70.
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Your retirement plan
Your workplace retirement plan rules can also impact the right time of year to retire.
If you're getting a pension from an employer, it'll probably start on the first of the month. Stopping work on the last day of the month means you won't go without pay as your pension will begin right away.
Also, if your pension provides credits for work time, they may be awarded at the start of the year or on your work anniversary. In that case, retiring soon after earning another service credit makes the most sense. For example, if your work anniversary matters and you started work in June, think about retiring in July.
If you don't have a pension but do have a 401(k), it often makes sense to retire after you've had a chance to max out your employer match for the year rather than leaving this money on the table. If you must hit a specific work milestone for past employer contributions to vest, it's also worth waiting for that to happen so you can keep all the contributions your employer made on your behalf.
Your health insurance
If you're getting health insurance through your employer, you may be in for a rude awakening once that runs out. Individual marketplace plans are rarely as good as group coverage and can be much costlier.
While you're typically allowed to remain on your employer's plan for up to 18 months under the Consolidated Omnibus Budget Reconciliation Act (COBRA), your employer will likely stop paying premiums once you're no longer working. As a result, your contribution to your premiums may increase dramatically. So, to minimize health expenses, you may want to wait until the month you turn 65 or later to retire so you can go straight to Medicare.
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It's also worth noting that employers often pay health insurance premiums at the start of the month. Quitting shortly after your premiums are paid might mean a month's worth of free coverage.
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Your workplace bonuses
Most companies pay out bonuses at set times, such as a holiday bonus around December.
If your company offers a bonus on a regular schedule, consider staying employed with them until you get your cut. In other words, retire in January instead of November so you can get paid your Christmas bonus instead of passing it up.
Your taxes
Your tax situation will likely change after retirement.
Retiring early in the year before you've earned your full annual income will help you limit your taxable income from your job and potentially avoid taxation on Social Security benefits. Those taxes kick in once provisional income is above $25,000 for single tax filers and $32,000 for married joint filers.
Your personal goals
Finally, think about what makes the most sense for your personal goals.
If you live in a colder climate, do you want to retire in winter and be stuck at home all day in bad weather? If not, spring may be best so you can jump right into gardening or other outdoor hobbies. On the other hand, if you're eager to become a snowbird and travel south instead of coping with another cold winter, you may want to retire in the fall so you can get on that plane before the snow comes.
Just be sure that whatever you do, you've considered the impact on your taxes, health insurance, retirement plans and Social Security so you don't end up with any regrets.
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Christy Bieber has 15 years of experience as a personal finance and legal writer. She has written for many publications including Forbes, Kilplinger, CNN, WSJ, Credit Karma, Insurify and more.
