How to Decide What Time of Year to Retire
When the topic of retirement comes up, most people focus on two pieces of data: the amount of money they have saved (plus any sources of income they expect to have, such as Social Security), and their age. These two pieces of information give you a general idea of when you’ll be able to retire, and as you get closer to retirement age (62 at the earliest for most people), you can usually figure out the year when retirement becomes viable. option for you.
But there is a third point you should consider: in what month will you retire? While it may not be obvious, the exact timing of your retirement decision on the calendar can impact both your finances and your mental well-being. While everyone’s busy, financial, and emotional needs are different, there are a few general considerations that can help you decide whether you should retire in January, June, or December (or somewhere in between).
Financial Considerations
Since we tend to focus on our finances when we think about retirement, it makes sense to start with financial considerations. The best time of year to retire in terms of money is different for everyone, but there are a few questions you can ask yourself to help you determine which month will work best for you :
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Advantages. Does your job pay you bonuses? Waiting until you get them makes a lot of sense unless you’re trying to limit your income in your final year (see below), and retiring a month before a big bonus pays out makes… less sense. The extra money can be a useful buffer from your regular salary, and you worked hard to get that money.
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Pensions often credit you for a year of service on January 1, so staying until the next year and then retiring immediately after that could give you a higher payout. Knowing when you’ll accrue that extra year of service is key to choosing the right month to retire.
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Social Security. The maximum taxable Social Security income this year is $168,600—anything you earn in wages after that amount will not be subject to Social Security taxes. If you expect to reach that maximum before the middle of the year, it may make sense to delay retirement until the end of the year because you’ll keep more of your money, especially if you get a bonus or cash out vacation days.
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Taxes. If you retire earlier this year, you will reduce your total taxable income, resulting in a lower tax bracket this year.
This can be tricky: if your company pays out bonuses at the end of the year, will you stay for it, even if it increases your income and you get hit with taxes? If you stay until next January to get your year of service credit, will it be worth a slightly higher payout if you go crazy from the stress? Write down important dates for receiving your benefits, including things like earned vacation days that you can cash out or 401K rollover schedules to make sure you’re not leaving money on the table. A financial advisor can help you figure out the advantages and disadvantages of retiring earlier or later this year.
Psychological considerations
The ideal time of year to retire may be the season that makes you happiest. Because many people experience seasonal affective disorder (SAD) during the winter months ( especially older adults and retirees), retiring when the weather turns cold can make your first retirement feel unpleasant. On the other hand, retiring when the warm weather arrives in the summer can be a mental boost as you go into vacation mode, making your first few months of retirement exciting and fun. Obviously, if you are a winter fan and enjoy skiing or other winter activities, this may make more sense to you – it will always be a personal choice.
Besides the weather, life events can serve as a guide. Do you have a family reunion, wedding, or other event you’re looking forward to? Retiring shortly before can give you the feeling of an open road as you can immerse yourself in the experience without worrying about returning to work or other restrictions. Knowing your personal yearly calendar will help you determine the perfect month to finally take the plunge.
Retirement should be a joyful time when you receive the reward you worked so hard for. But the feeling of reward is often a matter of timing: choosing the right time of year means you don’t feel like you’re missing out on money or experiences.