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  • Should you retire at the beginning or the end of the month?

    • February 23, 2021
    • Retirement, Taxes

    You may have asked this question before, or maybe you have never even considered it. Although the day of the month you decide to retire on will have no bearing on how much you will receive, it impacts you in other ways.

    As a FERS employee, it is better to retire on the last day of the month because no matter what day of the month you retire, your official retirement date is always the first of the following month. You would then receive your first annuity check on the 1st of the next month. For example, if you were to retire on the 15th of March, you would be in limbo until the 1st of April, when your retirement date would take effect. You would then receive your first annuity payment on the 1st of May. Retiring on the last day of the month will lessen the gap between when you retire and when you will get your first annuity check.

    For civil service employees, it's a little different. We suggest that you retire on the 1st through the 3rd day of the month. Retiring within that time frame will mean that it will become effective the next day; you will then receive your first check at the beginning of the following month. Once again, this will lessen the time between the day you retire and the day you receive your first check. If you retire any day after the 3rd of the month, your retirement doesn't become effective until the first of the following month. So, say you retire on the 15th of June, your retirement will not take effect until the 1st of July. Then you will have to wait another month before you receive your first annuity check.

    With all of that said, ultimately, the decision is yours.

    Bonus: Retiring at the beginning of the year versus the end of the year depends on how much money you make, what tax bracket you are in, and if you have annual leave coming to you. Say that you're married and right on the threshold of moving up to the next tax bracket in a regular work year, and you carry-on all of your annual leave; you will get that as a lump sum which has to be taxed. This could bump you into a higher tax bracket, so you may have to pay more in taxes. It will always be a case-by-case basis, depending on if you are single, married, or if your spouse works. With that being said, there's no specific benefit of retiring at any time of the year. Whenever you're ready, you should retire; just be aware that there could be tax consequences.
    Disclaimer: We always advise you to seek out tax advice from a tax specialist.