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Choosing a Retirement Date

Choosing a Retirement Date

December 27, 2023

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

Money and Taxes

One of the primary financial considerations is how your retirement date may 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 professional 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 employers' 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. However, investigate any specific rules regarding retiree health benefits from your employer.

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 when you are celebrating 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). Have a financial professional run the numbers for SSI.

If you have a pension plan, check with your employer or pension administrator to understand how your retirement date affects 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 impact your withdrawal strategy and income needs in retirement.

Ultimately, the decision to retire at the end or the beginning of the year should align with your personal and financial goals. It's crucial to assess your circumstances thoroughly, consult with financial professionals if needed, and carefully weigh the pros and cons of each timing option. Regardless of the specific date you choose, proper retirement planning and preparation are key to a successful and fulfilling retirement.

Important Disclosures:

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.

All information is believed to be from reliable sources; however, LPL Financial makes no representation as to its completeness or accuracy.

This article was prepared by WriterAccess.

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1Eligibility for Social Security Benefits