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Retirement timing...big enough difference?
Old 09-09-2013, 12:28 PM   #1
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Retirement timing...big enough difference?

If a married couple where only one spouse worked (high income job) wanted to ER, what would be the better plan?

Retire in Sept/Oct after yearly company bonus (can be 20% of base pay).

Retire mid Jan to fully fund Roth for both individuals from earned income (turning in rolled over vacation plus a few weeks earnings would easily net $11,000).

If you wait too long past Jan, then you start eyeing the next year's bonus...endless trap.
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Old 09-09-2013, 12:36 PM   #2
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As a belts and suspenders kind of planner, I vote for Jan, as soon as you can sock the Roth away, or maybe late Jan if employers let you push a large percentage of your salary into a Roth 401k. You're already FI at that point, but another shot into the fax free bucket is nice insurance. Can you take vacation for as much of Nov and Dec as possible?
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Old 09-09-2013, 12:40 PM   #3
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As a belts and suspenders kind of planner, I vote for Jan, as soon as you can sock the Roth away, or maybe late Jan if employers let you push a large percentage of your salary into a Roth 401k. You're already FI at that point, but another shot into the fax free bucket is nice insurance. Can you take vacation for as much of Nov and Dec as possible?

Possible. Right now have about 11 weeks of vacation time and can roll over 6 weeks each year. You get paid for unused vacation time, but you get it as a lump sum instead of spread out like a salary (maybe that is normal). Thus if we retired in late November, the vacation time would be paid in Nov or early December and we would have no earned income for the next year. I suppose we could take a 2 month vacation starting around Thanksgiving and let it flow into the new year, then say "I quit", but it feels a bit wrong to treat the company that way. Alternative is to come back to the company and work a couple of weeks in Jan, but we would rather be in the Florida keys then.
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Old 09-09-2013, 01:47 PM   #4
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I faced a similar dilemma in that our bonuses were paid in Sept as well but my timing was driven by our house selling in November.

I retired on Feb 1 but my last day of work was in late December and I was on vacation/holiday from my last day of work to Feb 1 and put all of my gross into my 401k and with unpaid vacation I still had some earnings so I could fund a Roth for me and DW that year.

Perhaps you could propose retiring in mid Feb (using the six weeks of vacation you can rollover) and end work around Thanksgiving or some other time in 2013 you jointly agree to. If that works for them, you could either max our your 401k or arrange your 401k withholdings so you have enough earned income to max out your Roth in 2014.
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Old 09-09-2013, 07:23 PM   #5
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I did the leave in January thing.

My motivation was in pushing some (nonQual) option income into the next year for tax purposes, but there were other benefits: pushing more money into the 401(k) and the HSA (the company put their entire annual HSA contribution in in January - thanks!).

I also made a deal with myself: the additional options that vested during the extra time were "found money" so they went into a special fund that I've been spending down for various house renovation projects. That made it easier to stay in the game the extra six months from when I told my boss I was leaving...
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Old 09-09-2013, 08:06 PM   #6
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Oh, right, I will have to check but I think we get the HSA dump in Jan too...so that would be an extra $3000 or so.

Good points toward doing the Jan thing....something to think about.
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Old 09-10-2013, 03:31 PM   #7
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I suppose we could take a 2 month vacation starting around Thanksgiving and let it flow into the new year, then say "I quit", but it feels a bit wrong to treat the company that way. Alternative is to come back to the company and work a couple of weeks in Jan, but we would rather be in the Florida keys then.
When you are in the Keys, it won't feel wrong. And most Megacorps don't have similar thoughts in their process. I saw too many layoffs, many counterproductive.
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Old 09-10-2013, 10:44 PM   #8
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I always thought the worst time to leave would be at the beginning of the year due to tax rates. I.e., the money you make at the beginning of the year is at the lowest marginal rate.
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Old 09-10-2013, 11:52 PM   #9
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I always thought the worst time to leave would be at the beginning of the year due to tax rates. I.e., the money you make at the beginning of the year is at the lowest marginal rate.
Lower taxes are worse?

It worked out great for me. I earned a lot of money, put it all in my 401k so I didn't have to pay any taxes on it and goosed up my 401k. Sweet. My tax rate in my first year of retirement was 0%.
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Old 09-11-2013, 07:13 AM   #10
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I think he means leaving very early in Jan while you are paying near 0% in taxes vs leaving in say May when the money is bumping you up to the 25% bracket or higher.

Again, there is always something to make you say "just a few more months"

If we stay until May, we would be eyeing the Sept big bonus again
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Old 09-11-2013, 08:48 AM   #11
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If you are putting all the money in a Trad 401k, then January means you are putting untaxed salary into a vehicle that will be taxed when you take it out. That objection makes sense. However if you can put the money in a Roth 401k then the benefit is different and the fact you could have taken the money with very low income tax doesn't matter because you put it in an account that will be tax free.
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Old 09-11-2013, 09:07 AM   #12
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There are other reasons to not make too much in the new year. If we want to qualify for ACA subsidy, we would not want to retire in May or June as our MAGI would be well above the limit for a married couple. True that we would only need 7 months of coverage that year, but it would still be a loss of several thousand dollars in subsidy.
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Old 09-17-2013, 11:29 AM   #13
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Personally I retired in early June after maxing the IRAs and Roth 401k. Raises and bonuses were normally in August, though not as generous as OP's situation. However, in September the grapevine told me there had been NO raises or bonuses, so I didn't miss anything. The rumor mill says they might be having layoffs soon, so if I was still there I might be able to get a package. Somehow it does not seem worth it.

In retrospect, I wonder if I made the right choice in using the Roth 401k option. Now that I have actually retired early, I realize that I will have what currently appear to be better opportunities to gradually convert my traditional holdings to Roth at lower tax rates before starting SS.
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Old 09-17-2013, 12:00 PM   #14
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Taxes alone would favor waiting until January. You're probably looking at being taxed a minimum of 25% on your vacation pay if you retire after September, where as you can potentially control the taxes on it to something less than 15% in January. That's my plan in any case, to have my final paycheck paid in January.
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