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A senior couple kayaking in a lake.Most of us have dreamed of the day when we’ll retire and hang up our hat on our 9-to-5 gig. We’ve envisioned how wonderful it’ll be not to have long commutes to work, and to sleep in or spend our days doing the things we love most. However, the million-dollar question is this: Financially speaking, when is the best time to retire? Most people don’t do much research to determine the optimal time for retirement.

If retirement is an option for you in the next few years, it’s important to pick the best time for you. The year and month you retire can greatly affect your benefits and vacation pay, and can have implications on your Social Security benefits and taxes. Here are several considerations to carefully weigh out:

Consider Your Reasons

Gone are the days when most Americans retire at age 65 after working for the same employer their whole career. These days, people choose to retire because they have reached a milestone to receive pension credits, such as 25, 30 or 35 years of service with their employer. Others retire because their employer is downsizing or they need a lifestyle change with more time to spend doing leisure activities or traveling. Some people choose to retire because they’ve built up their savings or investments to a point where they feel comfortable leaving the workforce. Also some married people coordinate their retirement time based on their spouse’s work plan and finances.

Lifestyle and Expenses

Developing a retirement plan and budget review are very important. Your cost of living and lifestyle preferences should be big considerations when selecting a time to retire. How are you accustomed to living? Do you have a significant amount of monthly expenses, such as a hefty car note? Do you enjoy traveling and plan to build frequent travel into retirement? Do you have dependents whom you take care of, such as grandchildren or an ailing parent? If you answered yes to those questions, then those are major considerations before retirement. Start by mapping out your monthly post-retirement income and expenses. This includes medical expenses, food, utilities, insurance, taxes and incidentals. This also involves assessing your savings, estimating your income reduction after retiring as well as accounting for any other post-retirement fluctuations with your expenses.

Timing is Key

Employees can choose any day of the week to retire, including a Saturday, Sunday or federal holiday. For some public and private company employees as well as federal employees, their retirement takes effect on the first day of the month following the employee’s actual retirement date. This ensures that your first retirement check pays for an entire month. Some companies use your retirement day or the following day as your effective retirement date.

Paid Days

If you’ve accrued a large number of vacation days at your retirement, inquire ahead of time when you’ll receive a lump sum payout for your unused days. Companies handle vacation payouts differently, and most don’t payout for more than 240 hours of vacation time. Many companies wait a month after your retirement to pay it out. It’s important to delay applying for Social Security until after your vacation payout because the lump sum raises your earned annual salary and can impact your Social Security payout.

In addition to vacation days, some companies pay retirees for their personal and sick days they’ve accrued, too. For many, vacation and personal days reset on December 31, so retiring in January may be a good decision to maximize your payout amount.

Social Security

Working Americans are eligible for receiving Social Security benefits early at age 62, however full retirement age is considered age 65 or later. Waiting to file for your benefits can boost your benefits by as much as 28%. Some Americans are unaware that waiting to file for benefits can pay off. The older you are when you file for Social Security, the higher your annual payment, until you reach age 70. For example, if you qualify for $18,000 annually at age 62, your annual benefit increases to $24,000 if you wait till age 66 to start collecting.

Pension Payouts

Pensions that guarantee monthly income for life are a thing of the past! Although it’s rare to find an employer with a pension plan, taking a lump-sum payout now may be better than running the risk of your pension plan being restructured down the line. Another reason why people are retiring sooner is because many pension programs are underfunded and lead to lower-than-expected monthly payouts.

Regardless when you choose to retire, ensure that you have enough time and resources to accomplish all of the things you’d like to in your retirement years. Consider your hobbies, interests and financial resources. Returning to the workforce post-retirement is also a common trend among Americans. According to the Insured Retirement Institute, in 2013, 29% of retirement-age Americans planned on working during retirement. Post-retirement jobs are great supplemental income to consider when planning retirement.

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