5 Strategies for Picking Your Perfect Retirement Date
Picking your retirement date can be stressful for many reasons, but we have some tips to make it easy and exciting!
Things to Consider Before Picking a Retirement Date
Retire at the End of the Month
Look to the end of the month first when planning your retirement date. If you work the entire month, your retirement will start the next day, at the beginning of the new month. So, for example, if you wait to retire on August 31st, you will receive your first monthly retirement benefit for the entire month of September. But say August 31st is a Thursday, and you want to finish the week and retire on September 1st. Your monthly benefit would be for October, even though you only worked one day in September.
This would leave you high and dry from September 2nd to the 30th unless you retire under the Civil Service Retirement System (CSRS), which lets you retire on the first, second, or third of the month and prorate the rest of it.
Don’t Give Up Annual Leave
If you retire with annual leave you haven’t used, it may be paid out in a lump sum to you. But if you work in a “use it or lose it” scenario, you’ll need to retire before you miss out on the opportunity to retire with leave. This is called your Leave Ending Date, which changes every year. Check here to see OPM’s Leave Ending Dates.
Avoid Paying Unexpected Income Taxes
If you have substantial amounts of annual leave when you retire, you’re probably going to cash out a big check, as mentioned above. However, that payout is taxable and will be added to all your earnings for that year. Be sure to talk with a tax professional to avoid paying more taxes than you need to. Unfortunately, planning your retirement and tax planning go hand-in-hand.
Avoid Losing Your Thrift Savings Plan Money to Penalties
A Thrift Savings Plan (TSP) is a tax-deferred retirement savings and investment plan that offers federal employees the same savings and tax benefits private corporate employees receive under their 401(k) plans. Many people rely on their TSP when they retire, but they can be unclear about certain restrictions before they pick their retirement date.
You must be 59.5 years old to take money out of your retirement savings account, like a TSP or IRA. If you intend to withdraw money before the appropriate age, then you could face the early withdrawal penalty, which can be expensive when combined with income taxes.
Luckily, there is an exception; if you retire or quit from service when you turn 55, you can take withdrawals from your TSP without an early penalty. So, if you plan to retire early, consider leaving your funds in your TSP instead of switching to an IRA.
Don’t Assume Your Federal Employment Retirement System Starts Right Away
Your Federal Employment Retirement System (FERS) benefits begin the first day of the month after you retire, but that doesn’t mean you will receive payments then. Be ready to wait because OPM’s retirement application processing time frame can be extensive–sometimes up to six weeks!
Prepare to retire with the mindset that you won’t be paid immediately and ensure you have enough funds to hold you over. Even TSP can take four to six weeks after your retirement date to request payments. You should start your retirement with at least four to six months of expenses covered.
Don’t let the future catch you off guard! Start planning today with this FREE eBook, Plan the Future for You and Your Spouse’s Long-Term Care.
At Life Enriching Communities (LEC), we’re committed to ensuring seniors feel well-equipped to plan for their future and age how they wish. Contact us today to learn more about LEC and the programs we offer, and feel free to learn on your own with resources we’ve created for those interested in our services.