Picking your retirement date can be stressful for many reasons. However, these strategies will help you prepare for your big decision. You’ll first need to know when you want to retire to pick a date. Keep in mind that some days and times of year are certainly better than others.

Retirement Date Strategies

Retire at the End of the Month

When planning your retirement date, look to the end of the month to start. 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 out the week and retire on September 1st. Well, your monthly benefit would be for the month of October, even though you only worked one day in September.

This would leave you high and dry from September 2nd to the 30th. That is unless you retire under the Civil Service Retirement System (CSRS), which allows you to retire on the first, second, or third of the month and prorate the rest of the month. 

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. However, if you work in a “use it or lose it” scenario, then you will 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 happen to 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 (TSP) Money to Penalties

Many people rely on their TSP when they retire. However, they can be unclear about certain restrictions before they pick their retirement date.

Basically, you must be 59.5 years old in order 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 penalties. It’s called the early withdrawal penalty, which can be expensive when combined with income taxes. 

However, there is an exception for your TSP. If you retire or quit from service when you turn 55, you can take withdrawals from your TSP without an early penalty. Essentially, if you plan to retire early, you should consider leaving your funds in your TSP instead of switching to an IRA.

Don’t Assume FERS Starts Right Away

It’s true that your Federal Employment Retirement System (FERS) benefits begin the first day of the month after you retire. However, that doesn’t mean you will receive payments then. Prepare yourself 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 right away and make sure you have enough funds to tie you over. Even TSP can take four to six weeks after your retirement date to be able 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 and start planning today with this FREE eBook, Plan the Future for You and Your Spouse’s Long-Term Care.

Confident Living is a continuing care at home membership program, focused on helping you remain active and independent as you age in your own home. We serve the greater Cincinnati area. For more information, contact us online or call (513) 719-3522.