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Best time in fiscal year to retire?
Old 09-12-2012, 04:59 AM   #1
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Best time in fiscal year to retire?

I searched this question on the web and found info for federal employees but nothing for those working at Megacorp. I was wondering if anyone here, like myself, is giving (or gave) thought to this question so as to maximize their company's retirement benefits.
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Old 09-12-2012, 05:08 AM   #2
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Maximize your 401K contributions, retire after reaching annual limit, don't forget to do the Roth as well. This will keep you in 15% tax bracket. No use working longer and paying 25% for the privilege.
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Old 09-12-2012, 06:21 AM   #3
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Company limits my contributions to 25%. I start the year with this pct and reduce it to avoid exceeding max contribution. At 25% I would exceed the max in November. If I do retire at the time this occurs, I'd miss out on the match for the rest of year.

Rather than spreading out catchup contributions, I'd have to increase that weekly deduction also, in order to hit that max contribution.

Also, wife works, so getting down to the 15% bracket needs to account for her income. This is more complex than I initially thought. I have a minimum of three years to go, so probably a good idea to capture all of these drivers for later evaluation.
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Old 09-12-2012, 06:28 AM   #4
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Why would one think there is one best answer across a multitude of companies?
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Old 09-12-2012, 07:00 AM   #5
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If you have any stock options, hold onto them. If you can exercise them after you retire, they are W2 income, allowing you to do a Roth contribution. For the last three years this has allowed wife and I to sock away 12k per year funded in part from the exercise.
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Old 09-12-2012, 07:06 AM   #6
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Quote:
Originally Posted by racy View Post
I searched this question on the web and found info for federal employees but nothing for those working at Megacorp. I was wondering if anyone here, like myself, is giving (or gave) thought to this question so as to maximize their company's retirement benefits.
I stopped working in late December 2011 and was on "vacation" for January and early February 2012.

It shifted income that would have been taxable for 2011 to 2012. I also changed my 401k withholding to 100% beginning in 2012 so even though I received all my accumulated vacation pay in 2012 it all went into my 401k.

Finally, since my official end date was February 2012, I was able to stay on MegaCorp's subsidized medical plan for January and February, which gave me plenty of time to shop around for and buy private health insurance.
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Old 09-12-2012, 10:11 AM   #7
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ho hum....Retirement is to much fun to be put off for very long...that said it would be better to retire in Jan. after making 6000 dollars ,earned income, than Dec. 31st....so you could make one last ira contribution...
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Old 09-12-2012, 10:56 AM   #8
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I think something to consider is if you will be receiving any lump-sum, taxable payout when you retire. If you do, then that can affect your income tax bill on the rest of your income. This did happen to me but I had other issues to take into account when I ERed in 2008. I wanted to not leave just before the annual bonuses came out in April. Had I still been eligible for company stock allocations based on my salary, I would have wanted to make sure I stuck around for that. Because I was working part-time, I was also ineligible for company match on any 401(k) contributions, so that was no longer a factor. In late 2008, I was a little concerned that income tax rates could rise in 2009 so I did not want to have any large payout subject to more taxes if I waited until early 2009.

But I realize that everyone has their own timing issues unique to their work and home situations so YMMV.
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Old 09-12-2012, 11:27 AM   #9
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At my Megacorp, they have drafted into policy that if you separate service voluntarily for a reason other than retirement (I'll get into that shortly) prior to when the annual bonus is paid out in the following year, then you forego the bonus.

Let me translate:
1) I'm considering leaving...soon
2) I'm not eligible for "retirement" by their definition (at least 55 years old with 10 years of service, or 30 years of service). I'm 50, and have 24 years of service.
3) Let's say we finish this year and our bonus payout is 20%. Let's further assume I make $100k.
4) Let's say the bonus is deposited into my account (they don't use the "declared" date, it's the date on which it's deposited to your account) on March 20th, 2013.

If my last day at work is March 19th, 2013, I get ZERO for a bonus.

For us, obviously vacation is the big one. We are not permitted to carry over vacation. I get 5 weeks/year. It would be senseless for me to leave on December 15th. If I wait until January 1st, I'd be able to take my 5 weeks, not work any days after January 1st, and have my "effective" date be early February.

Another one for us is that we have an HSA, and the company makes a lump sum deposit to the HSA annually in January. It's only $500...but it's better than a kick in the butt.

Other than that we have many linkages for benefits with companies. For example, I get 20% discount on Verizon phone cellular plans. I would want to renew a new contract prior to leaving...as the document says the discount may stay in place and is dependent on employee status as of the time of contract signing.
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Old 09-12-2012, 02:36 PM   #10
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FD, given your long tenure of service would they be willing to let you begin your vacation a bit less than 5 weeks prior to when bonuses are deposited?

In other words, if bonuses are to be deposited at the end of March and you have five weeks of vacation available, could you resign effective April 1 with your last day of work being March 1 and be on vacation from March 2 to April 1? So you would get your bonus because technically you are still an employee on March 31 and would be due ~ one week of unpaid vacation in your final paycheck.
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Old 09-12-2012, 02:56 PM   #11
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In my case, we usually get a yearly bonus sometime in August, and raises kick in on the two-week pay period that comprises the first workday in September. Yearly bonus usually isn't anything life-changing...this past time around it was $900.

Another factor is that, no matter how quickly I hit the federal limit for the 401k, my company keeps putting 4% of my salary into it. I usually try to adjust my 401k withholding as the year goes by, so that I hit the federal limit in the final paycheck of the year, but it's nice to know that I don't have to.

And, right now, I'm still young enough that I don't have 35 years of SS earnings yet, so I'm still in the phase where each additional year of work does make some difference on what my SS payment will be.

My birthday is April 2, and right now my plan is, whatever year I ultimately decide to cut loose, it will be on April 1, so retirement ends up being a birthday present to myself.

But, the more I think it through, I might at least hold out till I get the yearly bonus and raise. I tend to accumulate a lot of vacation hours, and I think I can max out at 300. If the raise is good enough, it might be worthwhile to at least hold out until it kicks in, and get those vacation hours paid out at the higher rate.

One other fly in the ointment though...I'm a gov't contractor, and our contract usually goes up for renewal every 5 years, and picked up by another company. Our contract will definitely go up again before I retire. And the new company might have a different timeline for raises and bonuses (if any).

In the end, I'll probably retire when the time feels right, or the BS bucket fills up enough...
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Old 09-12-2012, 03:26 PM   #12
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In my case, there is no benefit based on time of year, other than maxing another year of 401k and 457 if I work through May or June. No bonuses on a routine basis, other than the occasional extra week of vacation or tiny one time bonus given out around June or July. So maybe July/Aug for me? We accrue vacation leave each pay period, so no advantage to leaving at a particular time based on maxing vacation payout.

For DW, she gets 4 weeks vacation on Jan 1, so she could take vacation all of January and quit Feb 1 technically and still get paid for January. Her bonus is paid April 1, so if it is above zero, it may be worth sticking around to get it.

Those are the factors we are looking at, along with tax implications of having certain income amounts during the year.
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Old 09-12-2012, 08:36 PM   #13
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Where I work, bonuses are decided in mid-January and paid at the end of January or begining of February. If you think you are eligible for a meaningful bonus, retireing after you have banked the cheque makes sense.

Like most people, my taxes are calculated on total income over the full year, so the earlier in the year I stop earning income the lower my marginal tax rate is. This is not a motivating factor.

No matching/pension benefits so these are not an issue for me.
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Old 09-12-2012, 08:39 PM   #14
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Its good to hear some thoughts similar to mine. I always plan my 401K and Catch Up contributions to max out the limits of the law, so that'll happen the end of December. Our annual bonus and restricted stock awards are announced after the fiscal year ends Sept 30, usually the third week in November. In our company restricted stock awards are said to be for retaining talent (since they vest over a 3 yr period). So, I don't plan to announce my retirement until I have the bonus and restricted stock in hand. (No sense letting management know I don't plan on being 'retained'!) I also get 5 weeks vacation which runs on the civic calendar. So, that suggests I should retire the end of January/beginning of Febr. Lastly, a retirement planning tool on our company's website shows that my defined benefit pension check would be $60 more per month if I retire Jan 31, 2013 vs Dec 31, 2012.
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Old 09-14-2012, 01:37 PM   #15
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FD, given your long tenure of service would they be willing to let you begin your vacation a bit less than 5 weeks prior to when bonuses are deposited?

In other words, if bonuses are to be deposited at the end of March and you have five weeks of vacation available, could you resign effective April 1 with your last day of work being March 1 and be on vacation from March 2 to April 1? So you would get your bonus because technically you are still an employee on March 31 and would be due ~ one week of unpaid vacation in your final paycheck.
Yes they would. I'm not quite in the situation I wrote...just giving an example for the OP.
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Old 09-14-2012, 03:27 PM   #16
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In checking my company's HR policys I really don't see much advantage in timing. Our vacation is accumulated as we go. An annual 401k deposit is made in January which can be managed. I plan to go around the June - July timeline to enjoy the summer and move on.
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Old 09-14-2012, 04:04 PM   #17
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We get a lump sum payout of any accumulated personal leave. So it would be best if you want to retire in November or December to wait until January before retiring for tax purposes. Otherwise that check could end up being taxed at a higher rate. Yes, they'll withhold a big chunk for taxes, but you'll get a good portion back.
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Old 09-14-2012, 04:16 PM   #18
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In my case I planned to retire on March 1st which was the first date I was eligible for ER. HR told me that since March 1st marked the anniversary of my 25th year with the company, if I worked 1 more day I would get an extra 5 days vacation, which I would get in money, so I pushed my date back a day.

The company also had a Flexible Spending Account, and you decided your monthly contributions in the November before, but you could spend the entire year's sum in the first month if you wanted to and the company wouldn't pursue you for the months you didn't pay if you left the company during the year. I knew this from other retirees but HR told me of this also.

Consequently I scheduled dental work and eye tests + new glasses etc in the January and February and spent my annual FSA account while only paying into it for 2 months.
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Old 09-14-2012, 10:35 PM   #19
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In my case, I began my last year at Mega by increasing my pay period 401k contribution so that it would hit the $22k limit on April 15, which was also the day that I would receive the bonus. Since I had some capacity left in my marginal tax bracket I then did a TIRA to Roth conversion to use it up. I didn't give much notice to management because I would have lost the bonus for sure. If they had been paying attention they might have noticed that the substantial increase in my 401k contribution signalled my intention to leave, but I figured they wouldn't notice and they didn't.

I also made a large discretionary expenditure from my Flexible Spending Account which was largely at the expense of the company since my contributions up to April 15 weren't much. Of course, this wasn't taking unfair advantage of the company because the unspent FSA contributions revert to the company at the end of the year, which more than covers their losses from cases like mine.
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Old 09-15-2012, 03:05 AM   #20
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Our fiscal year starts on October 1. Salary raises (generally small) take effect then, and bonuses (also small) are paid out in the Sept 30 check. So I suppose there would be some benefit to hanging on until then or even until the end of the year, to get a bit of a salary raise. But I will probably time it so that I retire sometime in the middle of the year, maybe April or May? That way the last few paychecks can go straight into the retirement account, and by that time I will also be getting a 10% employer contribution to retirement.

Our paid leave accrues per paycheck and there is a cap on how much you can accrue (roughly 6 weeks, I think). I tend to use it up every year because we make a couple of trips back to visit my family every year. I might forego one of those trips in order to have a bit more paid leave to enjoy at the end.
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