Retirement represents the culmination of a long and successful career for many people. It's a well-deserved transition towards a post-career life filled with time to explore and try new things. However, beyond the excitement of this milestone lies the practical consideration of timing. While people often consider the “magic number” for retirement age, the specific month you may choose to retire could offer strategic advantages depending on your employer's structure and your individual circumstances. (It’s important to know that this idea of the “best month” is subjective and is based on a number of important individual factors to you.)
We want to share some of the factors to consider that may influence which month you choose to retire. Carefully selecting your retirement month may help you maximize your benefits and may minimize any potential disruptions for both yourself and your employer.
Employer benefits packages often include health insurance, pensions, and bonuses, and it’s important to understand how these benefits are calculated. Retiring at the end of the company's fiscal year—which might not coincide with the calendar year—may help you receive full benefits and avoid confusion during the handover period. Defined benefit pension plans might also have vesting schedules tied to your anniversary, so retiring near that date could maximize your payout. Stock options with exercise deadlines or vesting cliffs are another factor to consider when choosing your retirement month.
If you expect to rely on withdrawals from retirement accounts early in retirement, consider how those withdrawals might impact your tax bracket for the year. Consulting a tax advisor can help minimize your tax burden in this transition year. Once you reach age 73, your required minimum distribution (RMD) kicks in and you'll be required to take minimum withdrawals from certain retirement accounts.
The final month you choose to retire can also have financial implications on your unused paid time off (PTO). If your employer offers a cash-out policy, retiring at the end of a pay period or month may help you receive the most money for your accumulated vacation or sick leave. If your employer has a “use-it-or-lose-it” policy, scheduling your remaining vacation days leading up to your retirement could help maximize those benefits.
If you plan to enroll in Medicare for your health insurance coverage, consider your eligibility date. Medicare Part A—also known as Hospital Insurance, covering hospital stays and other inpatient care—is free at age 65 if you enroll in Social Security, but may have a monthly premium if you don’t. Part B—also called Medical Insurance, covering outpatient medical services—requires monthly premiums. Retiring close to your Medicare eligibility may minimize the gap in coverage you might experience.
You may also consider when your deductible resets with your employer plan, because retiring mid-year might leave you with a higher out-of-pocket expense before your deductible resets under a new plan.
If you have a Health Savings Account (HSA), retiring at the end of the year lets you maximize your contributions and may save you more on taxes. HSAs are great for managing healthcare costs in retirement. Flexible Spending Accounts (FSAs) may make you use the money by the end of the year or lose it. Retiring early in the year helps you avoid losing any unused FSA funds.
Market and economic conditions may influence your overall retirement strategy, but they play a less direct role in choosing the specific month to retire. Stock markets and the economy tend to move over longer periods. Picking a single “better” month for retirement based on short-term changes is challenging. The long-term health of your portfolio is important to pay attention to, as well as your overall investment strategy and risk tolerance.
While the market may be unpredictable, there are aspects of your retirement planning that you can control like looking to maximize employer benefits, minimize tax implications, and adjust your spending habits to ensure your savings last. We always recommend working with a licensed financial advisor you trust to help you create a retirement plan.
While your retirement is about you and your career accomplishments, some may want to consider how it will impact their employer. Many companies operate on fiscal calendars that differ from the traditional year-end. Retiring close to their fiscal year-end—which may occur around June or December—allows for a smoother knowledge transfer. Budgets and plans for the next year are typically finalized around this time, minimizing disruption. You may discuss a handover of your tasks to help with any transition.
Your knowledge is valuable. Choosing a retirement date that allows ample time to share that knowledge benefits the company. Balance your needs with a smooth transition for colleagues, and allow for open communication so your team can prepare and adjust.
The truth is, there is no one “best month.” There are a number of factors that can influence your ideal retirement timing including your financial situation, healthcare needs, employer considerations, and personal preferences, all playing an important role in what month you choose to retire. What’s most important is that you choose a retirement date that sets you up for a smooth transition and a fulfilling new chapter in your life.
Interested in learning more about when it may be time to retire? Consider attending one of our retirement seminars or webinars, hosted by experienced financial advisors who may be able to help you.
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