Financially planning your exit

Looking at how to handle the <1 year before ER. Big expenditure coming up (garage workshop) but honestly I can probably do that cheaper, better, happier with myself as general contractor rather than the "fork over the money and wait until move in day" kind of project. Besides, taking my time with it will probably be a great introduction to further projects in retirement!

But, I have questions about how people planned their exit finances when they left megacorp. Most retirements here seem to happen early January. I'm thinking May/June for two reasons:

1. Max out the 401K those few months. With just a small paycheck after those deductions taxes will be low to non-existent.
2. Stock purchase plan year begins/ends in May. Lets me take advantage of that one more time--assuming the market is good.

Non-financial reason--May/June is a great time to be getting out of the house. Don't want to retire then be stuck in the house for winter. Want to get the shop going and maybe hit the road on a motorcycle for a couple weeks to break with the office.

How did you handle the timing/finances of your break from the corporate world? Anything you did particularly right or wrong?

ArkTinkerer

Timing for me had a little to do with stock option vesting schedule (although I did leave about $100K in non-vested stock on the table), plus when I planned my exit, they offered me a stay-on bonus through the first quarter, which I took. It also gave me the opportunity to put another $22,500 into 401k, which in retrospect I'm very happy about. I feel like I timed things pretty well for what I wanted.

My entire attitude changed once I was locked in on an exit date - the little things didn't seem to bother me any more. Plus, when April 4th, 2014 rolled around, it was a beautiful time of year.

I had an HDHP with HSA. I overcontributed to the HSA, so had to get the excess withdrawn in order to avoid a significant penalty. The bank charged about $30 in fees to get this done.

If you have an FSA, make sure you use it up before you leave.

I retired in June. I considered waiting till the following April - that would have given me another ESPP window and a bonus... plus the opportunity to put more in my 401k. But the idea of freedom was stronger than the ESPP gains and 401k contributions.

In the big picture, there wasn't enough money on the table to keep me there.

I think you can always find financial reasons to stay longer.

For the big-ticket items we wanted to pre-fund before I gave notice... we set money aside OUTSIDE the retirement nest egg. Having time, we were able to save about $13k on our paver driveway. (We were the labor, rather than paying for labor.) We have also spent set-aside money on new windows. (We're about 2/3's through our window replacement project - DH is the labor on that.) And we have money set aside for our master bath remodel and our BIG trip next summer. (8-9 weeks in europe with the kids.) That money is not included in our retirement calculations nor in our rainy day/emergency funds. If we save enough on our home projects, perhaps we'll have more to spend for other fun stuff.

I'm in the glide path now. Taxes on a SERP disbursement the month after I retire has me planning to resign January 5, 2015 giving two weeks notice. That will keep all of the SERP from being in the 33+% tax rate (I'd trigger the ACA penalties). I plan on going to 100% of pay (less benefits cost, SS & Medicare) going into my 401k which will keep me from having any additional taxable income. If asked I'll agree to work into the first week of February but no more.

DW and I have been buying some big ticket items recently but they are more related to us recently moving into a new house that we intend to be in until the assisted living facility takes over so we want to do things right.

I finally got my Vanguard financial plan started. I'm waiting for the second plan and meeting now.

We're rolling DW's cash balance out of her retirement plan to her IRA rather than taking an annuity. Taking the annuity just adds peanuts on top of her spousal SS benefit in a few years due to WEP.

DW just retired, finally. She delayed an extra couple of months to pick up a final bonus check. She could have gone earlier if she had been allowed to "retire" instead of simply leave. Turns out there is no such thing as "retirement" at her company, now that there are no retirement benefits anyway. If she had qualified for retirement back before benefits were frozen, then she could have "retired" and picked up a few retirement benefits. She qualifies for "retirement" under the old rules now, they just don't apply any more.

She found that out on her first "last day at work". That meant she had to work another month so that she was on the payroll when the bonuses were paid. No big deal for her, but watch out for the little things like that!

I did max out the 401k so that her take home pay was about $50 per check for the first six months of the year or so. We did the ESPP though the first six month period. I also found out late that we couldn't opt out of ESPP at any time Like I thought we used to be able to do. That tied up her ESPP contributions until after she quit.

All ended well. I don't think we left any easy money on the table at least.

ArkTinkerer said:

....How did you handle the timing/finances of your break from the corporate world? ....

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My last day of work was the last workday prior to the Christmas holiday in 2011. My last day on payroll was Feb 1, 2012. I was on holiday/vacation in between but did do a couple small bits of work during vacation - responding to emails and attending my retirement party.

It worked out great. My vacation pay exceeded my annual 401k contribution so I changed to 100% deferral and maxed out my 401k for 2012. I was on firm health insurance until the end of February since my last day on payroll was in February.

I spent the winter sorting out our health insurance that started March 1, converting my 401k to my IRA, refining my AA, etc as well as a fair amount of puttering around, skiing, hockey games, snowshoe walks and typical winter activities.

Since I chose to have my vacation pay deferred into my 401k, I had a minimal amount of earned income that year.

Here is my plan
Bonuses come by 3/15
Max out 401K. $23K by 4/30. 75% contribution rate.
Work until 6/30 to get an additional 1000 hours (another year) credited towards pension. Two extra months to get ~8% more.
Work until 7/1 to get July benefits. One day to get 30 days of benefits.
Work until 7/5 to get 7/4 holiday. Work one more day and get paid for two.

I gave notice in early April, about a month after my company's annual bonus and stock cycle. I got talked into staying until late July to help with the transition for my replacement. And then worked a couple days per week on a special project until all my accrued vacation was gone in November. As it turns out, the timing was not that great. I could have stayed a few more months and vested another big chunk of stock. But by this time, I was pretty much "checked out." Spent a lot of time between July and November getting financially organized: pension decision, mortgage decision, health insurance, 401K-to-IRA, AA, tax efficiency changes, etc.

I timed my last day of work to coincide with when I thought I would finish the one project I ahd been working on for nearly 2 years. I was working only 2 days a week (12 hours) and I gave them about a month notice. I left at the end of October (2008) so I had already received my annual raise and bonus back in April. I had become ineligible for additional company stock allocation in December due to my low hours worked so there was nothing to keep working for there. I basically did not want to continue my lousy commute as the weather got colder.

Furthermore, as a big piece of icing on the cake, the markets were tumbling downward throughout the last half of 2008 so I was able to take the proceeds of the company stock I sold back to the company (I had to) and buy shares of a bond mutual fund at rock-bottom prices, giving me an extra bonus a I began my ER.

LOL! said:

If you have an FSA, make sure you use it up before you leave.

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I believe you can spend more than you have contributed to an FSA. I.e. you could specify $2000 for the year, spend $2000 in early Jan, then quit and only have contributed $100. You do have to spend it before you quit, but eyeglasses are expensive...

This was the rule 5 years ago. Obamacare changed FSA's to allow you to rollover $500 so you would want to double check to make sure this is still the rule.

I quit a week after deciding that the politics were poisonous sand item editable, but one thought on HDHP health coverage if you have it or will buy it: from that point of view, earlier in the year is better. I changed to a new job once in September, we blew through the $2,500 family deductible that year, then blew through it again early the next year due to DH's health issues. Ouch. Try not to put yourself in the position of resetting the deductible paid to zero late in the year.

If, instead , you have a flexible spending account, which us use it or lose it, you have the use of the full annual amount on January 1 even though you haven't contributed it all. Good time to load up on designer eyewear (including sunglasses) before you resign!

Senator said:

Here is my plan
Bonuses come by 3/15
Max out 401K. $23K by 4/30. 75% contribution rate.
Work until 6/30 to get an additional 1000 hours (another year) credited towards pension. Two extra months to get ~8% more.
Work until 7/1 to get July benefits. One day to get 30 days of benefits.
Work until 7/5 to get 7/4 holiday. Work one more day and get paid for two.

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Like your screen name, it sounds like you know how to milk the system.

pb4uski said:

Like your screen name, it sounds like you know how to milk the system.

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LOL. Made me laugh at work.

ArkTinkerer said:

Looking at how to handle the <1 year before ER. Big expenditure coming up (garage workshop) but honestly I can probably do that cheaper, better, happier with myself as general contractor rather than the "fork over the money and wait until move in day" kind of project. Besides, taking my time with it will probably be a great introduction to further projects in retirement!

But, I have questions about how people planned their exit finances when they left megacorp. Most retirements here seem to happen early January. I'm thinking May/June for two reasons:

1. Max out the 401K those few months. With just a small paycheck after those deductions taxes will be low to non-existent.
2. Stock purchase plan year begins/ends in May. Lets me take advantage of that one more time--assuming the market is good.

Non-financial reason--May/June is a great time to be getting out of the house. Don't want to retire then be stuck in the house for winter. Want to get the shop going and maybe hit the road on a motorcycle for a couple weeks to break with the office.

How did you handle the timing/finances of your break from the corporate world? Anything you did particularly right or wrong?

ArkTinkerer

Click to expand...

I retired on November 9th, 2009, which was the first working day after attaining retirement eligibility. I was waiting for retiree health care. I considered working another few months to add my 2010 contribution to the TSP (=401K), but decided against it. Also, if I had waited until the following June, I would have turned 62 and my pension would have gone up considerably. I decided against that, too. During the last six months before retirement I even used up all my backlogged accumulated vacation time by working two weeks off, one week one, and repeat, rather than taking payment for it.

For me, these were the right decisions. They wouldn't be for most people! But I was exhausted, fed up, worn out, burned out, and just barely limping through to the finish line - I had HAD it. (My initial username here was "Want2Retire", and it fit. ) I had to work two years past FI to qualify for (subsidized) retiree health insurance; and all that time I was socking away most of my paychecks, so by the time I could retire, money wasn't as much of a factor as it could have been. When asked, I told management that my agency didn't have enough money to entice me to stay and I wasn't kidding.

I have never regretted it for a minute. Retirement has been all that I had dreamed of and more. I have never thought, "Gosh, I wish I could be back at work for a while longer, slaving away at 6:00 AM and dealing with the joys of office politics, meetings, and phony deadlines, just so that I could have a few extra bucks in my retirement budget".

Good luck in your retirement plans!

This didn't apply to me but I know two people who made the same small adjustment to their retirement date for the same reason.

My dad was going to retire after working his last day on July 1, 1994. But befre he actually left, he learned that by working one day in the third quarter of 1994 he would delay receiving his first pension check by 3 months. He therefore made earlier his retirement date by one day, to June 30, 1994, so he could receive his first pension check for the third quarter of 1994.

A coworker of mine had the same thing happen to him in 2003. He was going to leave after working on October 1, 2003 but after learning the same thing my dad learned, he made earlier his retirement date by one day, to September 30, 2003, so he could receive his first pension check for the 4th quarter of 2003.

For those of you would-be retirees who plan to leave and start receiving pension checks right away, take note of this in case you plan to leave around the end of a calendar quarter.

scrabbler1 said:

This didn't apply to me but I know two people who made the same small adjustment to their retirement date for the same reason.

My dad was going to retire after working his last day on July 1, 1994. But befre he actually left, he learned that by working one day in the third quarter of 1994 he would delay receiving his first pension check by 3 months. He therefore made earlier his retirement date by one day, to June 30, 1994, so he could receive his first pension check for the third quarter of 1994.

A coworker of mine had the same thing happen to him in 2003. He was going to leave after working on October 1, 2003 but after learning the same thing my dad learned, he made earlier his retirement date by one day, to September 30, 2003, so he could receive his first pension check for the 4th quarter of 2003.

For those of you would-be retirees who plan to leave and start receiving pension checks right away, take note of this in case you plan to leave around the end of a calendar quarter.

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We didn't have that problem, but DW did make sure to work one day into the month in order to get benefits for that whole month. Not worth delaying a pension for, but a common tactic. It also allowed me to wait until DW actually finally retired before signing up for individual health insurance prior to the 15th of the month deadline for starting coverage the following month.

Typically people retire from our university in June to become eligible for the pension COLA increase sooner. I left in mid December and officially retired on March 1st after burning up my accumulated vacation balance.

I decided that my retirement date would be on (or near) my 55th birthday. A totally arbitrary decision. However, leaving in December had some advantages. I got to use Christmas, New Years, Martin Luther King, and Presidents holidays as well as a winter administrative holiday. Every month I was in the system I accrued 2 more days of vacation. I used 9.5 weeks of vacation balance because I felt that 3 more months of service credit was more valuable in the long run than the cash. Even so, on March 1st I still cashed out 4 days of vacation.

I had delayed until I was eligible for retiree health insurance so I out in for retirement exactly on that day, with 25 years service. I did delay it when HR were kind enough to point out that if I waited a day then I would get an extra week's vacation that I could then take as cash. Best paid day's work I ever did.

As I'm nearing the day I finally set a date (thinking of my 55th birthday early next year) I wish to thank all those who have replied. VERY useful thread.

Not to state the obvious, but be sure to check your 401k plan documents before over contributing. For example, my plan does not permit contributions >50% of gross pay, and you don't want to hit the IRS maximum before the end of the year (or before the big day) and lose out on any company match.

And what's this "pension" thing I keep reading about?

This thread just reminded me of something. I now direct an explative to all of you for reminding me of it. In a friendly sort of way, of course.

Before the company quietly changed their policy, this was supposed to be the week I retire. I have enough accumulated vacation time to not come in next Monday and not have to terminate employment until the end of the year. Last year (without announcing it) anyone that resigns (we have no retirement benefits to claim) will be cashed out for any remaining vacation time. I get a little over 4 hrs of vacation time for every week so by taking vacation you add additional vacation time in addition to getting the 401k and medical benefits.

Oh well, we were taken over by a British company a few years back and they are merging our benefits and policies. The vacation/retirement practice had been the norm and it definitely cost the company money over the present practice. One thing I've always noticed is that the Brits have a very sharp pencil in all things financial.

I've been trying to take as much vacation time as I can consistent with not making it too obvious I'm leaving and supporting the projects I'm on.

2B said:

This thread just reminded me of something. I now direct an explative to all of you for reminding me of it. In a friendly sort of way, of course.

Before the company quietly changed their policy, this was supposed to be the week I retire. I have enough accumulated vacation time to not come in next Monday and not have to terminate employment until the end of the year. Last year (without announcing it) anyone that resigns (we have no retirement benefits to claim) will be cashed out for any remaining vacation time. I get a little over 4 hrs of vacation time for every week so by taking vacation you add additional vacation time in addition to getting the 401k and medical benefits.

Oh well, we were taken over by a British company a few years back and they are merging our benefits and policies. The vacation/retirement practice had been the norm and it definitely cost the company money over the present practice. One thing I've always noticed is that the Brits have a very sharp pencil in all things financial.

I've been trying to take as much vacation time as I can consistent with not making it too obvious I'm leaving and supporting the projects I'm on.

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I can see how that might help them financially--your pay is only part of your compensation and benefits like insurance, 401K match, etc are not free. I do think you are entitled to those anyway--they got your time up front. Like money in the bank you are entitled to some interest no matter how measly.

But it does seem easy to avoid--go on vacation until you use your time and then come back and work one day.

2B said:

Before the company quietly changed their policy, this was supposed to be the week I retire. I have enough accumulated vacation time to not come in next Monday and not have to terminate employment until the end of the year. Last year (without announcing it) anyone that resigns (we have no retirement benefits to claim) will be cashed out for any remaining vacation time. I get a little over 4 hrs of vacation time for every week so by taking vacation you add additional vacation time in addition to getting the 401k and medical benefits.

I've been trying to take as much vacation time as I can consistent with not making it too obvious I'm leaving and supporting the projects I'm on.

Click to expand...

Hmm, I never thought this angle before. At my company, when you resign, you simply get the vacation time paid out to you. They never let us use up our vacation days to finish out our term of employment, which would let us keep adding to vacation, 401k, etc.

Our company also doesn't let us take more than two straight weeks of vacation, without special approval. I accrue 7.7 hours every two weeks, which comes out to 25 days per year.

My original plan had been to retire around my birthday, April 2, of whatever year I decide. Our raises kick in around that time, so the leave would be paid out at the higher rate. And that would give me enough salary in to do another year's worth of Roth IRA, plus a good chunk of the annual limit for the 401k. My company lets you put in up to 75%.

I'm starting to think it might not be bad idea, when the time finally comes, to start using up my vacation in large chunks, and work as little as possible, to stay on the company dole for health insurance, 401k, etc a little while longer.

But then, I don't know how I'll feel, once I started trying that. Instead of enjoying the extra time off, I may end up just hating the limited amount of time I'm at work, all the more. That's happened in the past, when I had part time second jobs and started cutting back on the hours when I didn't need them as much.

ArkTinkerer said:

But it does seem easy to avoid--go on vacation until you use your time and then come back and work one day.

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I can't just leave for 3 1/2 months as much as I'd like to. It would be too obvious and someone in HR would decide my end date earlier than I want. I am scheduling as much as I think I can get away with. I have two weeks off scheduled for October. I don't work most Fridays and then only if a project needs to be put back on schedule or a client meeting is scheduled. The weeks of Thanksgiving, Christmas and New Years are also scheduled off. Even with all this I'll still end up with 7 to 8 weeks to get cashed out next year.

I have a serious taxable event that will occur within a month of my termination. I would much rather give ~20% of it to the government than about ~35% if I retired now.

To avoid any possible surprises my resignation date is scheduled for 5 January 2015. Two weeks notice is considered normal with people frequently being asked to finish out projects that may take a week or two more to complete. If I am not critical to a project, I'll suggest they waive the two weeks and I'm out that very day. The only thing "retirement" means with my company is that they hold a department lunch at a local Mexican restaurant. Other than that you're simply no longer an employee.

I'm reading this thread with a lot of interest. In Oct we will have a discussion with a planning professional to understand how to fund our retirement (something I don't feel comfortable just going ahead and doing without some expert input on how to "pay" myself). Once I know how that can/will work I will be able to accurately pick a ER date and determining whether it makes sense to max out 401K for 2015 in the first few months, stay to a bonus date (if there are any) and how to use up the vacation. I was thinking about the cash out of vacation but the discussion here about still being on the payroll is a very good point. Of course the company could refuse my vacation request (I currently have about 200hrs on the books).

My first date I thought about was July but it could be moved back to Feb. I think in Feb we get our stock purchase plan so I'd probably stay until at least then. I'm seriously thinking about sooner rather than later