Have you ever been asked, “When is the best time of year to retire?” A simple question but one which has a number of factors to be considered. Not only are there financial implications to think about but also consideration should be given to the season at the time of retirement. Talk to your clients about the following:
A. Cost of Living
Some employer benefit programs state an employee must be retired on or before July 1st (meaning the last working day would be June 30) to receive any cost-of-living increase on a pension granted for July 1st. This means an on-going pension will actually be less if your client retires in July or August compared with retiring on or before July 1st.
B. Vacation Payoff
The first week of January may be appealing to begin retirement especially if your client is carrying more than the maximum accrual for vacation. The client could get paid for the total as long as he/she retires before the end of the first pay period in January. Retiring in January also gives the person the entire year to absorb any lump-sum payoff.
C. Tax Considerations
Tax considerations and the best time to retire are different for each individual. It’s worthwhile for your client to estimate taxes based on different dates throughout the year and I strongly recommend getting advice from a tax advisor a year or two before a client plans to retire.
Regardless of when a client chooses to retire, it is important to plan activities or events to counter or coincide with the season. For example, if a client retires in January, he/she may want to start with a trip to the sunny south or take a ski holiday. However, if he/she chooses to retire in the winter months (January – March), and happens to live in one of the Northern States or Canada, your client may face many grey, cold, snowy days that can give the inaugural weeks of retirement a bleak feeling.
Retiring in the spring (April – June) and the prospect of gardening and being outdoors may be appealing. Or perhaps your client prefers the summer (July – September) and spending additional time at the cottage to officially launch their new life. The fall months (October – December) may be ideal as this is a time of completion, celebration and planning for the New Year.
When planning for retirement, speak to your client about the time of year best suited for he or she and their spouse from a financial, seasonal and goal perspective. This ‘value added’ conversation is additional evidence you are a caring advisor who wants to help with your client’s retirement planning.
Richard (Rick) Atkinson, Founder and President of RA Retirement Advisors, is an expert in pre-retirement planning. He is author of the best-selling book, Don’t Just Retire – Live It, Love It! Rick facilitates workshops for clients of advisors and others. He is available for speaking engagements. www.dontjustretire.com. Twitter: @dontjustretire.