What Time of Year Should You Retire?

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People often wonder if they can win a lottery of retirement: they ask many questions about what is the best time to retire — December 31 versus June 30 versus January 30.

To avoid falling into trouble and finding yourself in a situation where you lose the money you counted on. And that, in its turn, would not force you to resort to different loans such as Ontario payday loans with their high-interest rates.

So what to do and what information to trust?

Let’s find out!

Retiring for Tax Purposes: The Best Date

There are a few instances when the tax comes into play for choosing a retirement date (as well as other calendar-based considerations).

The Canadian government levies tax on a graduated basis: depending on if your income exceeds the tax bracket thresholds. In 2022, the federal tax brackets increase at about $50,000, $100,000, $156,000, and $222,000.

The reason taxpayers fall within many tax brackets is that provincial and territorial brackets vary.

As a result, for somebody within certain tax brackets, it might be the decision maker, deterring them from continuing to work in the year they retire. Probably not a good option for most people.

If someone has deferred employment compensation, they can retire at the end of a year; some types of bonuses (like those for senior executives) might become payable within a certain number of days of retirement.

The same thing about employee stock options, which keep working within 90 or 180 days of retirement, even though it’s still a rhetorical question for financial advisors.

Employer Matching and Benefits

Another common time for most employees to retire is from February to March — because that’s when companies pay the bonuses for the previous year.

Other considerations might include matching contributions on group retirement or savings plans mid-way through a year. Some employers also offer retiree benefits based on the years of service.

In case you have a defined benefit (DB) pension plan, you can find the retirement date based on plan formulas. For example, some pension plans offer an early retirement discount centered on years of service and employee’s age, while others don’t.

Here’s the list of benefits depending on what time of year you retire:

the first day after the anniversary of your hiring — for government workers and workers with the defined pension. If choosing this day to retire, you’ll get a full year of service credit toward pension calculation
at the very beginning or end of the year — a good option, in case you don’t have a solid cash reserve
when you can start using the Social Security benefits — before your 66th birthday, Social Security will withhold $1 of benefits for every $2 earned about the amount you claim
when you can avoid a required minimum distribution — this usually happens, if an employee works at least a few days into the new year
when you’re older than 70 y.o. — at this age, you become eligible for 100% of the Social Security benefits. However, don’t hold on too long, because it’s risky to wait till you’re 70

Make sure you understand the situation you’re in right now. Calculate your budget, the current amount of savings, and your possible options. Take time to consider which pension plan works better, or ask your colleagues for help.

Retiring for CPP and OAS

Some planning opportunities are related to government benefits, and that’s where you can step in. Choose one of the following plans:

The Canada Pension Plan (CPP) — retirement pension begins from an age of 60.
The Old Age Security (OAS) — retirement pension starts any time after reaching the age of 65.

The mentioned plans often result in more lifetime income if starting later. Some retirees may take them between their 60th and 65th birthday.

Plan Retirement at a Convenient Time

One of the non-financial considerations for retirement relates to travel and holidays. For example, a cottage owner wants to retire during the spring period; if someone likes a particular season, he or she might want to retire during this time.

Some holidays (like Christmas or Easter) might impact a decision to retire when a person wants to enjoy this time around family members.

You also have different options available depending on age. Here’s what you can start from when planning to retire:

59 ½ y.o. — the age when you can access retirement funds with no penalty;
62 y.o. — the average age when you start collecting the Social Security benefits;
65 y.o. — the age when the Medicare benefits begin;
70 y.o. — the age when your Social Security bonus stops adding to itself.

Some experts recommend holding off to retirement for as long as you can since you’ll have greater Social Security benefits. However, if you’ve always been the kind to pinch your pennies and buy only the essentials, that may not be as big of a challenge for you.

Working on Part-Time Basis After You Retire

Some people plan to keep working even after their retirement begins. This is good if you still want to take part in social life, except playing bridge or shooting gold every day.

Some professionals recommend sticking out a full-time job for as long as you can so the need to work full-time is virtually non-existent.

You’ll want to plan out how much money you’ll spend on necessities like food, but also if you plan on treating yourself to some new experiences, like traveling or buying a vacation home.

If you’ve already started receiving the Social Security benefits and you have a part-time job, beware that that benefit amount may be reduced based on your earnings. This condition is applicable before you reach a full retirement age, which is between 65 years.

If you decide to retire before reaching an FRA, and you’re expected to still have an income of more than $1,580 a month, we highly recommend waiting until after your birthday to retire and claim Social Security retirement benefits.

Conclusion

People decide to retire over a series of factors:

tax
age
season
holidays
pension plans
and more.

Among the mentioned reasons, there are plenty of considerations for people who can control a retirement date.

For more help, regarding a specific situation, you may contact a trusted financial advisor or a retirement planner. These professionals can adjust a situation to your lifestyle and budget.