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best time of year to ER?
Old 03-06-2014, 09:27 AM   #1
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best time of year to ER?

Hi folks.

Preparing to ER in a couple years, and I'm wondering - is there a preferred time of year to resign? In particular, does it make sense to have it coincide w/ the calendar year, for tax and/or health insurance purposes?

Thanks.
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Old 03-06-2014, 09:35 AM   #2
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It is nice to make earned income so you can put into your ira one last time. So end of January would get my vote. Another good time would be the day you cash your bonus check.
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Old 03-06-2014, 09:41 AM   #3
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My vote is for just after any annual bonus hits your accounts. Companies are notorious for withholding bonus payments to about-to-be departed employees.
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Old 03-06-2014, 10:02 AM   #4
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I never really thought too much about this before. I just tended to pick April 1 of whatever year I choose to go out, because it's the day before my birthday.

We usually get bonuses, but they don't come in until August usually, and they're normally only around $1,000. While I'm grateful to get that, I figure that by the time I'm ready to retire, I'm going to value the free time more than I would that $1,000.

Right now, when that final year comes around, I'm thinking about holding on just long enough to get my Roth IRA in for the year, maybe max out my 401k. But, I just did the math, and my estimate is I could max all that out before April 1, so I might just hold on to that date.

I always look at spring as a time of change, renewal, and rebirth, anyway, so I think retiring around that timeframe would suit me perfectly.
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Old 03-06-2014, 10:18 AM   #5
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I like the idea of retiring early in the year for a couple of reasons: 1) the aforementioned last big contribution to retirement savings, and 2) the weather is improving.

Also, if you ever need to return to w*rk, the resume can always read:

Last Position 2006-2014

No one really needs to know that it was January 2014 instead of December 2014.

The winter here would have provided a real stress test to folks retiring around January 1 of this year. If there is one time of year where a little external structure might be welcome, it is when the weather is crappy and you have no motivation to go outdoors.
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Old 03-06-2014, 10:24 AM   #6
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Early in the year after bonus check hits bank. Also, don't forget your FSA set-aside. I will have to double check with DH's company, but I believe you get to spend your full allocation even though you may not have paid that amount into your account!

DH is planning to retire this time next year after bonus check payout.
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Old 03-06-2014, 10:27 AM   #7
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I vote for summer time. If you live in a cold climate and have to spend most of your first few months indoors, it might be a bit gloomy. Waking up each morning to the sun shining on your face is like being in paradise.

And ditto on the one last year for IRA contribution comments. Possibly even stuff a full year of contributions into the 401K by doubling your contributions.
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Old 03-06-2014, 10:32 AM   #8
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The day after you achieve financial independence. Staying on a couple of months for tax / cash flow benefits might apply, otherwise, the sooner the better.
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Old 03-06-2014, 10:36 AM   #9
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The day after you achieve financial independence. Staying on a couple of months for tax / cash flow benefits might apply, otherwise, the sooner the better.
It sounds logical, but does one every "achieve" FI that precisely? Even if I think I need $1M to be FI and I hit that number, the market could correct and go down 30% next month. So is FI your minimal number + 30%?

I have no idea what my official FI number is, since I can't predict what my portfolio will look like five years from now. I guess we all just have to make our best guess and cross our fingers.
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Old 03-06-2014, 11:03 AM   #10
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My whole group within the company was eliminated. Not much choice there.

DW will retire after a bonus, stock option vesting, and a full ESPP (employee stock purchase plan) period. Enough to fill her 401k and Roth. Maybe just after the 10th of the month, when she gets benefits for the rest of the month. I'll leave her 401k in place through January 2015 to see if her company will catch up to the full company contribution, which will be short due to our contributing 60% of her income for half a year.

Not sure how much of a hassle it will be to sign up for ACA health insurance outside the open enrollment period. I'm not expecting that to be too bad, but you never know.
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Old 03-06-2014, 11:04 AM   #11
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Not time of year, but as to the time of the month, near the end of a calendar month may be better (after your employer pays the health insurance premiums for the following month). You might get an extra month of HI that way.
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Old 03-06-2014, 11:12 AM   #12
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This is a good question and one I'm wondering about. Before the Affordable Care Act, I always figured I would work long enough in the year to hit the top of the 15% tax bracket. But now that might hurt you for subsidies from the ACA depending on your other income in the year. On the other hand if you can get COBRA at a reasonable rate, maybe that's not an issue.

As one more variable, I am a tax accountant so I can't really retire between January 1 and April 15th. But if I retire on April 15th I will have worked my butt off for 3.5 months but just for the same pay as I get in any other 3.5 months of the year where I'm working a lot fewer hours.

I guess in the long run, it likel doesn't matter that much - just do what feels right.
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Old 03-06-2014, 11:16 AM   #13
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I retired on the first weekday I was eligible to retire, and that was the very best day for me. I was FI and ready to retire, so at that point my time was worth more to me than any further income from continuing work.

I think that is a good test: By the potential retirement date, is your time worth more to you than the extra money you would earn by continuing to work, or the reverse? Only you can answer that question.
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Old 03-06-2014, 11:20 AM   #14
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For me it was a no-brainer to retire early in the year. I had a large amount of accrued leave that was eligible to be converted into a cash payment on my last paycheck. Having this payment fall in the same tax year as my last full year of work would have caused my taxes to skyrocket.

A secondary consideration was to work long enough into the new year to be able to contribute to my tax deferred accounts.

A tertiary consideration was the fact that there are a bunch of paid holidays starting with Thanksgiving and ending with New Year's Day that I wouldn't have gotten paid for if I left late in the year.
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Old 03-06-2014, 11:32 AM   #15
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Quote:
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For me it was a no-brainer to retire early in the year. I had a large amount of accrued leave that was eligible to be converted into a cash payment on my last paycheck. Having this payment fall in the same tax year as my last full year of work would have caused my taxes to skyrocket.

A secondary consideration was to work long enough into the new year to be able to contribute to my tax deferred accounts.

A tertiary consideration was the fact that there are a bunch of paid holidays starting with Thanksgiving and ending with New Year's Day that I wouldn't have gotten paid for if I left late in the year.
+1 My last day at work was just before Christmas, and I was on vacation/holiday from then to my last day on payroll, which was February 1.

Our firm allowed employees to put up to 100% of pay in the 401k so I changed my election to do that for the month of January so I had little earned income for that year. In retrospect I should have held on a bit longer so after fully funding my 401k ofr the year I had about $6,000 of earnings so I could fully fund a Roth for that year.

The reason for my leave date being Feb 1 rather than Jan 31 was because if you were on payroll on the first of the month you were eligible to stay on the health plan at employee rates for the whole month. So I was covered through Feb 28 which gave me ample time to line up health insurance coverage effective March 1.
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Old 03-06-2014, 11:33 AM   #16
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My back of the envelope plan has been to go early in a given calendar year. Like many, I have a decent sized equity stake in my employer earned and vested over time ... and I have 90 days post leaving to sell it all -- assuming I leave voluntarily. Having that income added to a year where I also had a full year's salary and cash bonus would be VERY tax inefficient - so I would rather sell the stock during a year in which I have relatively less income and save a bunch of tax dollars.
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Old 03-06-2014, 11:35 AM   #17
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I retired March 31 last year. I gave three months notice so they could hire my replacement and give me some time to train her. I spent six weeks of those three months burning my vacation, maxed out my IRA and most of my 401k. Didn't do much else.
My DW will retire at the end of Feb next year when her options vest. Her bonus comes in November and will give notice on the first of the year. She'll max out her 401k and IRA and I'll max out my IRA with a spousal contribution.
Spring is the best time to retire because of the good weather. Winter months can be depressing unless you're planning travel right away.
Health care ends the last day of employment, so that didn't affect the dates. We'll go on Cobra when she retires and either my company's retiree health plan or an ACA plan after that.
I'm loving retirement and can't wait until she joins me!
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Old 03-06-2014, 11:37 AM   #18
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It sounds logical, but does one every "achieve" FI that precisely? Even if I think I need $1M to be FI and I hit that number, the market could correct and go down 30% next month. So is FI your minimal number + 30%?
Agreed. I believe a lot of people overly focus on specific calculations. They worry that FireCalc gives a 98% success rate instead of 100%, or the implications of a 3.5% SWR vs a 3.7% rate. But the gray area is huge. It isn't this precise, or more specifically, the future is not likely to be a precise replication of the past. While it is often useful to have specific goals, such as $1M in savings, it is important to realize the limitations of these goals.

The best time of year to retire can be specific to each individual. Variables include salary, retirement plan options, pension, etc. There are reasons to retire early in the year (e.g., retirement contributions, a low effective tax rate on earnings if income for the remainder of the year is low), and there are reasons to retire late in the year (save 6.2% tax free on SS contributions for people above the SS limit, paid time-off around the holidays).

While it changes by a couple of days each year, the optimal day for me to retire is around February 18. By retire I mean last day in the office, not necessarily my termination date or the date my pension starts. Beginning on February 19, I start using my 48 days of accumulated vacation (the maximum I can accumulate). I'll accumulate an extra ~5 days of vacation while taking vacation since I am still an employee. This takes me to May 5, at which time I terminate from my organization. I retain employee health benefits through the end of May and then go on COBRA for 3 months. I need to begin my pension 120 days from my termination date if I want to keep retiree medical benefits, and I need to begin my pension on the first of a month. This takes me to September 1, at which point I end COBRA, begin my pension, and start retiree medical benefits. September 1 is an optimal month for me to retire due to the way my pension works. In two of the 12 months of the year the age factor associated with the pension moves up twice as much as in the other 10 months. For me, this is September 1 and March 1.

All of this may seem quite convoluted. Most people in my situation would quit work on a given day, take accumulated vacation as a lump sum, and begin their pension on the 1st of the next month. But by extending the process as described above I increase my pension service credit, age factor, and salary base. Effectively, this is worth an extra $30K mostly due to higher pension payouts.

So for me, there is an optimal day to retire. Actually, there are two days during the year, the other being around August 18.
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Old 03-06-2014, 11:54 AM   #19
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I also opt for spring or summer. The first thing I did after my last day of work was head off on some Summer travel. Afterwards I spent a glorious remaking summer near home where summer is a great season. Then winter, I had several minor medical issues dealt with, studied and revised my exercise and way of eating, and planned two more starting in the Spring. My 2 cents. Take what you wish and leave the rest.
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Old 03-06-2014, 12:19 PM   #20
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My last day of work will be June 20th of this year but my paycheck will continue through March of next year. We will be able to enjoy a two weeks summer vacation (Baltimore, Myrtle beach, DC, NY city) after this long and harsh winter and will also have earned income to fund next year's IRAs.
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