Bree-Anna Burick Aug 23, 2024 8 min read

When Is the Best Time of Year to Retire?

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Retirement is a major milestone in the lives of most people. Whether you’ve spent most of your adult life working for the same company, or you’ve switched industries, companies, and jobs over the years, getting to the end of your professional life is both an exciting and somewhat scary proposition.

Most people find a lot of purpose and identity in their careers. Depending on the job that you have, you may have spent four or more years in college, receiving the education that you need to make your dream job a reality.

Even if you didn’t need higher education for your job, you probably went through some level of training to get to the place where you are now. Walking away from that, while exciting in some aspects, can be a daunting thought.

In addition to making sure that you’re financially ready for life without a job, there are plenty of other considerations. Many people assume that they will wake up one day, be eligible to retire, and be able to walk away from their jobs with little to no forethought, but that’s not the case at all. Instead, there are several factors that you’ll need to consider.

One of the factors that many people don’t think about often enough involves the time of year that you want to retire. Is there really any difference between retiring in January and July? Should you work a few months past the date on which you’re eligible to retire just to get to a more favorable time of year? Shockingly, that might be the right strategy for you.

If you’re in the beginning stages of retirement planning, or you’re eligible to retire today, it’s important to know the right time to retire. Fortunately, we've got you covered.

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Consider the Financial Factors

Ultimately, money is the thing that stands between most people and retirement. After all, if you could afford to live without the income that you earn from your job, you’d probably stop getting up so early on Monday mornings.

With that in mind, money has to be one of the first things that you consider when deciding when to retire. When you choose the right time to retire, you can maximize your benefits, minimize your taxes, and put yourself in a position to live on your savings and retirement accounts through your post-working years.

Throughout your career, you have paid into Social Security, a program sponsored by the federal government that provides income for millions of people, including those who are of a certain age. With this in mind, you need to reach your full retirement age (FRA) in order to maximize your Social Security benefits when you retire.

Most people are eligible to retire around their 65th birthday, but there are financial benefits associated with waiting if it’s possible to do so. If you retire before you reach your FRA, you cannot receive as much money through Social Security. Conversely, if you work past your FRA, for instance, until you turn 70, you can get an annual increase of up to 8% from Social Security.

However, this concept of retiring at a certain age doesn’t mean much when it comes to the right time of year to retire, but there is a connection. If you wait until you've reached your FRA, waiting until the end of that year can help you maximize your benefits.

Also, delaying your retirement until closer to the end of the year can help you avoid any penalties associated with withdrawing money from your retirement account early, depending on how your employer has your retirement account set up.

Finally, if you have a pension program in place through your employer, the time of year that you retire can have a direct impact on the payout options that you have. Some pension plans offer higher payouts if you retire at the end of your company’s fiscal year.

Additionally, retiring at the end of your company’s fiscal year can help ensure that you’re eligible for any year-end bonuses that you may have earned over the previous year.

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Think About Tax Implications

Unfortunately, the government still wants to get some of your money, even after you think you’re done earning. Understanding the relationship between your retirement date and your tax bill can help you minimize the amount of your hard-earned money the government gets.

After all, you probably feel like you’ve paid them more than enough over the years, and keeping as much of your money as possible when you retire can help you better enjoy the next chapter of life.

If you retire earlier in the year, you can minimize the amount of taxable income that you earn that year. If you retire in 2024, you’ll still have to file a tax return for 2025. The earlier in the year you retire, the less money you will have earned, which will lead to owing less in taxes. Your retirement timing can also impact when you start taking money out of your 401(k) or IRA without facing any sort of penalty.

Certain retirement accounts require you to take money out once you reach a certain age. In most cases, that age is 72 or 73. If you retire earlier in the year, you can usually delay that required minimum distribution (RMD) for as long as possible, which allows the money in those accounts to continue earning interest, resulting in higher payouts when you do start taking money out of them.

By carefully planning your retirement date, you can mitigate the amount that you’ll owe in taxes from these accounts, too.

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Professional Goals

Just because you’re getting closer to retirement doesn’t mean that you have to give up your professional goals, including those that can earn you some extra money. Many companies give employees bonuses at the end of the year, so holding onto your job until the year ends can ensure that you get the bonus that they’ve already budgeted for giving you.

Also, some companies have profit-sharing and stock options that pay dividends to employees who are still employed when the year ends, so walking away during the summer can disqualify you from some or all of that money.

Additionally, if you have health insurance through your employer, retiring at the end of the year allows you to get the most out of your coverage before switching to Medicare or another form of insurance.

Depending on how your birthday falls in relation to your retirement date, retiring too early may mean that you have to pay for COBRA insurance until you’re Medicare eligible, which can get quite costly.

You may also have some loyalty to your employer. With this in mind, planning your retirement in a way that allows you to finish major projects and train your replacement is a noble thing to do and shows your appreciation to the company that has kept you in gainful employment.

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Personal Considerations

Finally, consider your own personal preferences and goals. After all, you’re the one who has worked for decades and is now in a position to retire.

If you hate wintertime in your area, consider retiring at the beginning of winter and spending some time in a warmer climate. If you have some friends and family who you haven’t got to spend time with, consider retiring at a time that allows you to have an extended visit with them.

Perhaps you have children and grandchildren who don’t live close by. Retiring during the spring or summer can allow you to travel to where they live and spend time with them before school starts, or you can host your grandchildren for the summer at your home.

Think about what matters to you personally, and choose a retirement date that allows you to get the most pleasure out of your post-work life.

Enjoy Your Retirement

Whenever you ultimately decide to walk away from your job and embrace the next chapter of your life, it’s important that you’ve put yourself in a position to enjoy it as much as possible. Gone are the days of waking up to an alarm clock, punching a time clock, and counting down until home time.

Instead, you’ll be in charge of making your own schedule every day, seeing the places that you’ve always wanted to see, and spending quality time with the people you love the most.

By planning properly, you can maximize your financial assets while embracing your life’s next chapter. Happy retirement!

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