Determining the Best Time to Retire

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There are only 24 hours of separation between the last day of the year and the first day of the new year, but choosing the official calendar date of your retirement is not a trivial decision. The date you choose  may impact your retirement money, cost you more (or less) in taxes, or cause you to lose bonuses or benefits. Before you make a decision, here are some tips to help figure it out.

Money and Taxes

One of the primary financial considerations of choosing a retirement date is how it could affect your tax situation. Retiring at the end of the year may allow you to spread your income over two tax years, potentially resulting in lower taxes in your first year of retirement. However, this depends on your specific income sources, such as pensions, Social Security, and retirement account withdrawals. Consult a tax advisor to decide on a tax strategy for your situation.

Some employers offer year-end bonuses, annual raises, or other benefits. If your employer provides such incentives, retiring at the end of the year may allow you to take advantage of them before leaving your job.

Health Insurance

If your employer provides health insurance, consider the timing of your retirement in relation to your health insurance coverage. Many employer health plans run on a calendar year basis, so retiring at the beginning of the year may provide you with coverage until the end of that year. Ask your employer about any specific rules regarding retiree health benefits.

Personal Preferences

Some people prefer to retire at the beginning of the year to coincide with the holiday season or to take advantage of unused vacation days.

Consider your readiness for retirement. Do you have all your financial and personal affairs in order? The end of the year might give you more time to prepare for the transition, but it may also lead to procrastination. Also, you may not want to focus on paperwork during the holidays.

Social Security and Pensions

Your Social Security benefits are calculated based on your highest 35 years of earnings, adjusted for inflation.¹ If your earnings for the current year are lower than previous years due to early retirement, consider waiting until the end of the year for potentially better Social Security Income (SSI). Consult a financial advisor for your estimated SSI.

If you have a pension plan, check with your employer or pension administrator to understand how your retirement date could affect your pension benefits.

Long-Term Financial Planning and Retirement Savings

Assess your retirement savings and investment accounts to put a clear financial plan in place. Consider how your retirement date may affect your withdrawal strategy and income needs in retirement.

Ultimately, the decision to retire at the end or beginning of the year should align with your personal and financial goals. It's crucial to assess your circumstances thoroughly, consult with a financial advisor if needed, and carefully weigh the pros and cons of each option. Regardless of the specific date you choose, proper retirement planning and preparation could help ease your transition into retirement.

Talk to a Financial Advisor

Financial advisors at BECU Investment Services are here to help. Our team will take the time to get to know you, understand your goals and plan, and implement a financial and retirement strategy that's appropriate for you. Set up a complimentary consultation or call 206-439-5720.