When the subject of retirement comes up, most people focus on two pieces of data: The amount of money they have saved (plus any sources of income they expect to have, like Social Security), and their age. Those two pieces of information give you a broad idea of when you’ll be able to retire, and as you approach retirement age (62 years old at the earliest for most people) you can usually hone in on the year that retirement becomes a viable option for you.
But there’s a third data point you should consider: What month will you retire? Though it may not be obvious the precise timing of your retirement decision on the calendar can have an impact on both your finances and your psychological wellbeing. While everyone’s employment, financial, and emotional needs are different, there are a few broad considerations that can help you decide if you should retire in January, June, or December (or somewhere in-between).
Financial considerations
Since we tend to focus on our finances when we think about retirement, starting with financial considerations makes sense. The best time of year to retire will be different for everyone in terms of money, but you can ask yourself a few questions to determine what month would be best for you:
Benefits. Does your job pay out a bonus? Waiting until you collect it makes a lot of sense unless you’re trying to limit your income in your final year (see below), and retiring a month before a big bonus payout makes … less sense. The extra cash can be a useful buffer during your transition from a regular paycheck, and you worked hard for that money.
Pensions often credit you with a year of service on January 1, so holding out until next year and then retiring immediately after can give you a higher payout. Knowing when you’re credited with that additional year of service is key to choosing the right month to retire.
Social Security. The Social Security maximum taxable earnings this year is $168,600—anything you earn in wages after that amount won’t be taxed for Social Security. If you expect to hit that maximum before mid-year, it might make sense to delay retirement until later in the year because you’ll keep more of your money, especially if you’ll be getting a bonus or cashing out vacation days.
Taxes. If you retire earlier in the year, you reduce your overall taxable income, bumping you into a lower tax bracket for the year.
This can get complicated—if your company pays out bonuses at the end of the year, do you stay for that even if it balloons your income and you’ll get socked with taxes? If you stick around until next January to get your year of service credited, will it be worth the slightly higher payout if you go insane from stress? Make a note of the significant dates for your benefits, including stuff like earned PTO days you can cash out or vesting schedules for 401Ks, to ensure you’re not leaving any money on the table. A financial advisor can help you figure out the advantages and disadvantages of retiring earlier or later in the year.
Psychological considerations
The perfect time of year to retire might just be the season that makes you happiest. Since many people experience seasonal affective disorder (SAD) in the winter months (especially seniors and retirees), retiring just as the cold weather sets in might make your initial retirement experience a miserable one. Retiring just as the warm weather kicks in during summer, on the other hand, can be a psychological lift as you shift into vacation mode, making your first few months of retirement exciting and fun. Obviously, if you’re a fan of winter and enjoying skiing or other winter activities, that might make more sense for you—it’s always going to be an individual choice.
Aside from the weather, life events can provide a guide. Is there a family reunion, destination wedding, or other event coming up you’re looking forward to? Retiring just before can give you a sense of open road, as you can go all-in on the experience without worrying about getting back to work or other limitations. Knowing your own personal calendar for the year can help you pinpoint the ideal month to finally take the plunge.
Retirement should be a joyous moment when you take the reward you’ve worked so hard for. But ensuring it feels like a reward often comes down to timing—choosing the right time of year means not feeling like you missed out on money or experiences.