What's the best month to retire?
- Charlie Horonzy
- Jan 27
- 4 min read
It may seem like an insignificant detail, but the month you retire plays a big role in your success. What’s the best month to retire? There are pros and cons to each option – December, January, or any of the other times of year. Let’s talk about it.
But first – hello! I’m Charlie.
I help people retire in Chicagoland and across the country in a tax-efficient way. You may want to earmark these other blogs about financial planning for people in Illinois and other places in the United States.
Let’s go!
It’s a life change
The first thing to think about, before we start analyzing what month is the best time to retire, is this.
Remember that this is a life change.
Instead of getting up every day and going to work, you’re likely to be spending more time at home. It can be a difficult emotional transition. Ask yourself this:
How much does the weather play a part? Am I okay retiring when it’s cold out? Or, would I be happier making this change when it’s warm and sunny outside?
What other seasonal factors may have an impact?
What are my busiest and least busy times of year, outside of my work?
How will the choice of retirement month impact my relationship with family? Are there certain times when family will be more or less available, that I should consider?
Alright, now that we’ve gotten the general ideas out of the way, let’s get to the good stuff; what month is the best one to retire?
Should you retire in the month of December?
When people think about the best month to retire, December is the first month that comes to mind. There are several benefits to retiring in December, and also some drawbacks.
It makes it easy to calculate your year-end bonus. Instead of pro-rata, you get awarded a bonus for the entire year.
By remaining at your job until the end of December, you will lock in a full year of work. This could benefit you if you are accruing time for a pension or waiting for 401k account contributions to vest.
By stopping work before you get to a new tax year, you create a dramatic drop in your income, which then decreases your tax rate. This is beneficial if you are considering a Roth conversion or plan to do some harvesting of capital gains.
The biggest potential drawback is the risk of triggering a higher Medicare IRMAA. By working until the end of the year, you earn more income for that tax year. This may push you into a higher IRMAA bracket and trigger Medicare surcharges. Remember that IRMAA is assessed on a two-year lookback basis. The effects may not be felt immediately.
By the way, please do not interpret any of what we’ve said as tax or financial advice. There are so many different factors to consider, all highly specific to your personal situation. If you are looking to retire, please seek the help of a financial advisor or CPA – and by the way I happen to be both! If you’d like to meet with a financial planner serving retirees in Chicago and across the country, set up a time.
What about January?
If December retirement doesn’t appeal to you, the next logical month to consider is January.
The key benefit of retiring in January is that you essentially create a lower tax year, compared to the year before. This can be useful if you are thinking about taking capital gains or doing a Roth conversion.
Another advantage may be that it could potentially relieve you from the rush that getting it all done by the end of the year creates. People who retire in December might make hasty decision just because the deadline looms. If you are eligible for healthcare through January, you may enjoy the extra time afforded to you for making a transition to Medicare or other types of healthcare coverage.
By working at least part of January, you will have earned income for that calendar year. This allows you to make IRA contributions, and you’ll also be able to contribute to your 401k. If your employer matches contributions, that’s even better!
If you retire in January, as opposed to working the full year, you would reduce the amount of income for the year and possibly avoid receiving lower Social Security benefit under the Social Security income test.
One last thing – and this is purely psychological – is the mental aspect. The holiday rush can be stressful for many people, and a huge transition like retirement may be hard to handle at the same time. Retiring in January, or even later in the year, may provide a fresh perspective which could allow you to make decisions with more clarity.
Should you retire on your work anniversary?
We’ve heard of folks waiting to retire until the anniversary month of their start date. In one case, it meant that the person was able to earn another year of service credit for their pension. Read the fine print and know what your company’s policy is.
By waiting until your annual work anniversary to retire, you also may qualify for a bonus or earn the right to stock options or RSUs, depending on the vesting schedule for your company.
Have you run the numbers?
Thanks for reading our blog about the best month to retire. In this article we covered the key decision factors you should consider when timing your retirement. We also talked about the benefits and drawbacks of retiring in December and January, the two most popular retirement months.
As you can see, there are many dimensions to the question of what month to retire. It’s best to run the numbers and get a clear financial plan to guide you in this important decision.
My name is Charlie and I help people retire in a way that minimizes what they pay to Uncle Sam, whether they are retiring in Illinois or elsewhere. I am a CPA and a financial planner. If you’d like to set up a time to talk about tax-efficient retirement planning for people in Illinois or elsewhere, please schedule a time.