You’ve been dreaming of the day for decades, and now it’s almost here. Sometime in 2018, you plan to retire. But choosing the precise day to call it quits can be a tricky decision. Make the wrong move, and you could pay a hefty financial price.
Fortunately, experts can help steer you away from making big retirement mistakes. Here are some suggestions from financial planners about the ideal time to leave your job in 2018. Keep reading to find out if you’re ready to retire.
The First Day Following Your Original Service Date
Employees who work for the government and other employers offering a defined benefit pension should confirm their initial dates of service with the human resources department before scheduling their last days on the job, said Jason Silverberg, vice president of financial planning at Financial Advantage Associates in Rockville, Md.
Silverberg advises clients to consider retiring on the date that follows the anniversary of their first day on the job. “This will give you one more full year of service credit toward your pension calculation without working beyond that date without credits,” he said.
Some pension plans also factor in an employee’s age when calculating eligibility for retirement and the monthly benefit amount. So, workers should educate themselves on their companies’ specific retirement rules.
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The Very Beginning or End of the Year
Silverberg recommends that retirees have access to cash reserves to cover three to five years of retirement expenses. That way, they won’t need to pull money out of investments such as stocks during a downturn. Another alternative is to work part-time from home.
Some people without access to ample cash reserves might plan to pull money from retirement accounts soon after stopping work, however. For such workers, the best time to retire might be at the very beginning or very end of the year.
“This way, you’re not pulling a lot of money out of your retirement accounts during a year where you might be in a higher tax bracket with earned income,” Silverberg said.
Also, be aware of your age before you start withdrawing money from retirement accounts. “If you turn 59 1/2 years old at any point during , then wait to take money from your retirement accounts until that time,” said Silverberg. “You will avoid a 10 percent early withdrawal penalty.”
When You Can Avoid a Required Minimum Distribution
Beginning at age 70 1/2 years, you are required to take a minimum distribution from retirement accounts such as 401k plans and traditional IRAs. But if you work just a few days into the new year, you will not have to take a minimum distribution on the funds in the retirement account associated with your current employer.
“For the right person, a good time to retire … is just a few days into the new year,” said Glenda K. Moehlenpah, a certified financial planner and investment advisor with Financial Bridges in Poway, Calif. “I have a client over age 70 1/2 who was planning on retiring on Dec. 31, and I convinced them to wait a week to delay the RMD from the current employer’s 401k plan.”
When You Can Maximize Social Security Benefits
For an increasing number of older Americans, retiring from one career doesn’t necessarily mean leaving the workforce. Some might also choose to stay with their current employers even after they begin collecting Social Security benefits.
In either case, Silverberg advises older clients who still earn a paycheck to hold off on claiming Social Security at least until they turn 66. Before that age — the current full retirement age under Social Security Administration rules for most considering retirement — you will be penalized if you earn more than $17,040 in 2018.
“So, Social Security will withhold $1 of benefits for every $2 earned above that amount if you claim before your 66th birthday,” Silverberg said.
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When You Celebrate Turning 70
Workers can begin claiming Social Security benefits early, at age 62. This will reduce their monthly benefit amounts, however, with the reduction based on the number of months they receive benefits before reaching full retirement age.
Employees who retire at age 66 are eligible for 100 percent of their Social Security benefits, but they can earn even more if they hold off on claiming. According to the Social Security Administration, many workers who put off collecting Social Security can receive up to 132 percent of their monthly benefit. However, that bonus stops increasing at age 70.
“If you turn age 70 at any point [during the next year], then claim Social Security,” Silverberg said. “You will not receive any monetary benefit for delaying it further.”
The Social Security Administration also recommends looking into signing up for Medicare at age 65, even if you decide to delay your Social Security claim. If you are still employed, however, check how enrolling in Medicare might impact your workplace-sponsored health coverage.
When You’ve Done Enough Retirement Research
Before retiring, have a solid grasp of how much you will spend each year. Then, develop strategies for using investment income and other sources to supplement pension and Social Security benefits. Think long and hard about how you will spend your days well before putting in your two-weeks notice and leaving the workforce.
Anyone considering retirement soon might want to try semi-retirement first and explore fulfilling activities before calling it quits for good, said Kim E. Jones, a certified financial planner with Jones Strategic Financial Planning, which has locations in Broomfield, Colo., and Denver.
“It’s a good time to retire… if you feel ready to leave your job and if you have done a thorough financial analysis as to your ability to not outlive your money,” said Jones. “Deciding to retire should not be a ‘wing it’ decision.”