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…It’s a big decision to decide when to retire…[but] it’s also important to determine the best time of the year for quitting work…[as] the specific date on which you start your retirement could impact…benefits from your former employer, Social Security distributions, and taxes to name a few…[This article identifies] 7 factors to consider as you plan the best time of the year to start your retirement.
1. If you have a defined benefit pension plan…
[then] retire on the day that follows the anniversary of your first day working there as this way, you’ll receive an extra year of service credit toward the calculation of your pension benefits.
2. If you…[plan] to start withdrawing money from your retirement account as soon as you retire…
[then] you might consider retiring either very early or very late in the year as this could allow you to avoid making retirement account withdrawals in a year when you might have earned income that would push you into a higher tax bracket.
3. If you plan to retire early…
[then] remember that you will be assessed a 10% penalty on withdrawals you make from a traditional IRA or 401k before you reach age 59½ so, if you will turn 59½ at any time during the year you plan to retire, you should wait until after your birthday to retire and begin taking distributions from these accounts in order to avoid this early withdrawal penalty.
4. If you will turn 70½ late during the year you plan to retire…
[then] you must start taking RMDs from your traditional IRA or 401(k) so, if you will turn 70½ late during the year you plan to retire, it might pay off if you delay your first RMD until April 1 in the year following…to allow your retirement funds to continue growing as long as possible.
5(a). If you work part-time and elect to start receiving Social Security benefits before you reach the full retirement age (FRA) for receiving Social Security benefits ( between 66 and 67 years old, depending on when you were born)…
[then] $1 of your Social Security benefits will be withheld for every $2 you earn above your Social Security benefits…if you earn more than $1,470 per month in 2020.
5(b). If you’re retiring before reaching FRA but expect to earn more than $1,470 a month in income, and you will reach FRA sometime during the year you plan to retire…
[then] you should probably wait until after your birthday to retire and claim Social Security benefits. This will enable you to avoid the reduction in your Social Security benefits due to the earnings test.
6. If you have accrued a significant amount of vacation pay at your employer…
[then] find out when they will pay you this money. Since this pay will be considered earned income and thus subject to the earnings test, you might want to wait until after you’ve received the funds to retire and apply for Social Security benefits.
7. If you will turn 70 years old during the year…
[then], by waiting until after you reach FRA to begin collecting Social Security benefits, you can increase the amount of your monthly payment when you do eventually start claiming benefits...This is only the case up until age 70, at which time the increases stop so, if you will celebrate your 70th birthday at any time during the year you plan to retire, you should consider retiring and filing for Social Security after your birthday…
Editor’s Note: The above excerpts from the original article by Hilary Miller have been edited ([ ]) and abridged (…) for the sake of clarity and brevity. The author’s views and conclusions are unaltered and no personal comments have been included to maintain the integrity of the original article. Furthermore, the views, conclusions and any recommendations offered in this article are not to be construed as an endorsement of such by the editor. Also note that this complete paragraph must be included in any re-posting to avoid copyright infringement.
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