When Is the Best Time of Year to Retire?

Choosing the best time of year to retire is largely subjective as it can impact your taxes, healthcare costs, retirement account withdrawals and Social Security benefits. Retiring early in the year might allow you to benefit from lower tax rates, retiring later could maximize your Social Security payments, and aligning your retirement date with the end of a fiscal year could maximize employer benefits, such as bonuses or retirement plan contributions.

If you need help figuring out when is the best time to retire for you, a financial advisor can walk you through specific options. 

If you retire at the earliest eligible age of 62, your benefits could be reduced by as much as 30%. Waiting until your full retirement age (typically 66 or 67) allows you to receive full benefits, while delaying retirement until age 70 can increase your monthly benefits by up to 8% per year. Timing your retirement carefully can help you maximize your Social Security income, but there are also tax implications that affect the best time of year to retire.

Retiring at the end of the year allows you to maximize your income. This can boost your final year’s earnings but could push you into a higher tax bracket, especially if you’re already taking Social Security benefits or withdrawing from retirement accounts.

If you plan to start withdrawing from retirement accounts or receiving Social Security benefits, retiring in the middle of the year can provide a strategic tax advantage by reducing your taxable income, which may keep you in a lower tax bracket. You can also spread your tax liabilities over two tax years, potentially reducing the overall tax burden.

This option is often the best time of year to retire for many pension holders, because it can add a cost-of-living increase to your benefits after January 1. If your company does quarterly bonuses, it can make retiring after Q1 a viable option.  

If your best age to retire is before you turn 65, you’ll need to consider insurance costs and coverage options to cover the gap until Medicare kicks in. This could involve staying on your employer’s health plan through COBRA, purchasing a private plan or relying on a spouse’s insurance which may depend on enrollment dates that are already on the calendar. 

For those retiring at or after age 65, the initial enrollment period (IEP) for Medicare begins three months before your 65th birthday and ends three months after it. Retiring during this window ensures that you have timely coverage without incurring late enrollment penalties. 

The timing of your retirement can also affect how you manage withdrawals from retirement accounts like 401(k)s, IRAs and Roth IRAs.

Required minimum distributions (RMDs). Once you turn 73 (75 if you were born in 1960 or later), you are required to take minimum distributions from your traditional retirement accounts. To calculate RMD the IRS will use your account balance at the end of the previous year, your life expectancy and a few other metrics so if you retire late in the year, you may need to start RMDs sooner. Retiring earlier in the year might give you more time to plan your withdrawals and manage your tax liability.

Roth IRA conversions. A Roth IRA conversion involves moving funds from a traditional IRA to a Roth IRA, where future withdrawals are tax-free. The timing of your retirement within the year can affect your taxable income, which in turn impacts the tax liability of your conversion.

Retiring early in the year, when your income is lower, creates an optimal window for a Roth IRA conversion since the lower taxable income could place you in a lower tax bracket. This allows you to convert more assets with less tax burden. 

Beyond financial and health considerations, your personal goals and lifestyle preferences could also influence the best time of year to retire:

• Personal milestones: Significant personal milestones, such as paying off your mortgage, your children’s graduation or a spouse’s retirement, can provide a natural transition point.
• Seasonal preferences: Your preferred lifestyle during retirement might also dictate the best time of year to retire. For example, if you enjoy traveling or hobbies that are weather-dependent, you might choose to retire in a season that aligns with those activities.
• Emotional preparedness: Retirement is a major life change, and emotional readiness is just as important as financial readiness. Some people find that retiring at the end of the year provides a sense of closure, while others prefer to retire in the spring or summer when the weather is more conducive to outdoor activities and social gatherings.

Choosing the best time of year to retire depends on your financial security, healthcare coverage and personal fulfillment. By carefully considering  whether you’ll choose to retire at the beginning, middle or end of the year, aligning your retirement date with your financial and personal objectives will help you transition smoothly into this new chapter of life. Consulting with a financial advisor can ease the burden by ensuring these decisions are well-informed by the scope of your assets and estate.

• A financial advisor can help you analyze investments and manage them for your retirement plan. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
• If you want to figure out whether you have enough money saved for retirement, SmartAsset’s retirement calculator can help you get an estimate. 

Photo credit: ©iStock.com/LaylaBird, ©iStock.com/Jacob Wackerhausen, ©iStock.com/pixdeluxe