5 Ways the Month You Retire Affects Your Wallet

When it comes to retirement , timing isn’t just about the year you decide to hang up your work boots — the specific month can have a significant impact on your finances. Dr. Barbara O’Neill, CFP, owner/CEO of Money Talk and author of “Flipping A Switch: Your Guide to Happiness and Financial Security in Later Life,” shared her expert insights on how your retirement month can affect your wallet.

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“The saying ‘timing is everything’ can apply to the timing of how the month that people elect to retire can affect their finances,” she said.

Here are five ways the month you retire affects your wallet .

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IRMAA Payments

If you’re among the 8% of retirees with higher incomes, you might be familiar with the Medicare income-related monthly adjustment amount (IRMAA) surcharge. But did you know your retirement month could affect whether you pay this surcharge?

“IRMAA … is based on modified adjusted gross income (MAGI) two years prior to the year that benefits are received,” O’Neill explained. “If someone retires, say, June 30 instead of December 31, their MAGI might not be large enough to trigger a IRMAA surcharge two years in the future because they only have a half-years’ worth of income. If they stay for a full year of pay, their last year on the job could trigger IRMAA.”

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Tax Implications

Your retirement month can also impact your tax bracket.

“If someone retires before the end of the year, say April 30, they will only have a third of their full-year income, which could result in being in a lower marginal tax bracket vs. waiting until December and staying in the same tax bracket with full pay,” O’Neill said.

To navigate this, she recommended a proactive approach: “A pro-forma tax return with projected changes in income is recommended, along with adjusted income tax withholding, if needed, to avoid over-withholding or under-withholding.”

Raises and Bonuses

Timing is crucial when it comes to raises and bonuses.

“Special income payments often occur at a specific time of the year. If people retire just a month — or even a week — too early, they will miss them,” O’Neill said.

She provided examples: “Many companies pay bonuses or stock options at year-end around the holidays. Workers who separate from service in September, for example, may miss out on a final annual bonus, depending on employer policies. Ditto for missed raises that may also take effect at a specific time of the year.”

O’Neill added that some raises might even come with retroactive pay — for example, if it took a while to settle a union contract. Workers who leave too early miss out, so make sure to time it correctly.

Vacation and Benefits

Your retirement month can affect your accrued benefits.

O’Neill shared a personal example: “When I worked at Rutgers University, new vacation leave started on July 1 of each year. If employees retired on June 30, they missed out on another year of paid vacation days. If they retired in July or August, however, they could use up their new vacation days and still enjoy most of the summer months.”

She advised employees to be aware of more than just vacation days — they should also be aware of the rules around the timing of payouts for sick leave payments and the timing of pension payments. These are things that might be affected by retirement month, so make sure to look into it.

Off-Peak Discounts

Finally, your retirement month could affect your ability to take advantage of off-peak discounts.

O’Neill shared, “Some retirees may elect to start their retirement during months of the year when there is a lower cost for goods and services, thereby saving money.

“Think ‘shoulder season’ (i.e., early spring and autumn) for cruises and travel destinations that are on retirees’ ‘bucket lists’ or off-peak months to save on moving expenses (e.g., PODs, moving trucks) if they plan to relocate.”

By planning the month around your specific needs, you could end up saving money.

This article originally appeared on GOBankingRates.com : 5 Ways the Month You Retire Affects Your Wallet