The best day to retire is often the last day of the month, especially for those with pensions, to prevent gaps between your final paycheck and first annuity payment, with specific days like the last Friday or Saturday of a pay period often ideal for maximizing accrued leave payout and ensuring benefits start immediately. For federal employees, the final day of the month ensures your annuity begins the next month; for private sector, check your employer's specific rules for maximizing payouts and minimizing gaps.
To make the most of your accrued leave and minimize this gap, it would be most strategic to retire at the end of a pay period, if possible. Even better, choosing a pay period that ends towards the back half of the month to both maximize your accrued leave and reduce the gap before FERS annuity payments begin.
Retire at the End of the Month
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.
End of the Month: Avoiding Gaps
You'll begin receiving your annuity payment on the first day of the month after you retire. If you opt to leave on the 30th or 31st, there won't be a gap between your final paycheck and first annuity payment.
Dec 31 is optimal for retirement, leave, and taxes unless you for some reason expect a huge tax year the following year like if you're making a large tsp withdraw for a big purchase.
Waiting until January to retire could also earn you an additional year of service credit if you plan to begin receiving Social Security payments right away. Additionally, your monthly payment could rise as a result of the annual cost-of-living increase.
The top ten financial mistakes most people make after retirement are:
If you don't have enough money in cash to make it through the first months of retirement and would need to start taking withdrawals from your retirement accounts immediately, you may want to consider retiring near the end of the year or the beginning of the year.
In 2018, Certified Financial Planner Wes Moss wrote this: “For every $1,000 per month you want to have at your disposal in retirement, you need to have $240,000 saved.” (Source: WesMoss.com). He called this “The 1,000 Bucks-A-Month Rule.”
According to the 2024 MassMutual Retirement Happiness Study, most American retirees and pre-retirees consider 63 to be the ideal age for retirement (1).
Average individual retirement income: $60,000/year or $5,000/month. Median individual retirement income: $47,000/year or $3,900/month. Average retirement income for couples: $100,000/year or $8,300/month.
The 3% Rule
On the other end of the spectrum, some retirees play it safe with a 3–3.5% withdrawal rate. This conservative approach may be a better fit if: You're retiring early and need your money to last longer. You plan to leave money to heirs.
How many Americans have $500,000 in retirement savings? Of the 54.3% of U.S. households that have any money in retirement accounts, only about 9.3% have $500,000 or more in retirement savings.
To avoid an unnecessary gap between your final salary payment and your first annuity check, the most effective strategy is to retire on the last day of a month. This ensures you receive your full paycheck for that month and your annuity begins the very next day.
Normal pension age (NPA)
NPA is the age at which you can take your pension in full without reduction. If you take your pension at your NPA, your last day of service is the day before that date. Your benefits are paid from your birthday.
You can start your retirement benefit at any point from age 62 up until age 70. Your benefit will be higher the longer you delay your start date. This adjustment is usually permanent. It sets the base for the benefits you'll get for the rest of your life.
It is very possible. You plan to retire at 60 and place your life expectancy at 90, so you'll need enough income for 30 years. With $1 million, assuming your money doesn't increase or decrease too dramatically in value during those 30 years, you'll be guaranteed a minimum of $62,400 annually or $5,200 monthly.
The first mistake is that many retirees ignore (or don't understand) the financial implications of working in retirement. Social Security defines “early” retirement as any time between age 62 and 67. Some people retire early with the idea that they will continue working part time. This mistake can cost them.
Retire early in the year if…
You have a pension plan that provides an additional year of service credit on January 1, credits that are used to calculate the size of your pension payout. By waiting until the new year to retire, you might also receive a cost-of-living increase.
Frequently asked questions about taxes in retirement
Most retirement income — including withdrawals from traditional 401(k)s, 403(b)s, and traditional IRAs — is subject to federal income tax. Roth IRA and Roth 401(k) withdrawals, if qualified, are generally tax-free according to IRS rules.
Retirement Regret #1.
Retiring as soon as possible can be a priority, but retiring too early can be a big mistake. For one, premature retirement can mean gambling with your financial security in the future. If you leave work too early, you could be forfeiting some key, higher-earning years to build up your savings.
Happy retirees often engage in intellectual activities such as reading, learning new skills, or delving into creative ventures like painting or writing. They also prioritize physical wellness through consistent exercise, whether it's walking, yoga, or even team sports like Pickleball.
Moynes refers to as the 3 D's: depression, divorce, and cognitive decline. This period can be incredibly challenging as retirees struggle to find a new sense of purpose and direction without the familiar structure of their careers.