Is There a Best Day of the Year to Retire?
Taking into consideration the time of the month and the time of the year can make a difference in your retirement income.

This common question comes from those who are fortunate enough to have the flexibility to decide. The reality is that the date is often a compromise between you and your employer. A combination of that employer’s benefits, as well as IRS rules, should help you decide which day makes the most sense for you. In today’s article, we are going to cover three options and the potential benefits that come with each.
July 31
As a general rule, the end of the month is good for those with pensions, as those often start on the first day of the month after retirement. In this scenario, retiring on the 31st means that you won’t have a gap in pay.
The midyear strategy has to do with condensing all income into one calendar year so that you’ll see a drop in taxes the following year. This could be accomplished on December 31 if it weren’t for the lump sums that are often paid out in the months following your retirement. This may include bonuses, commissions, unpaid vacation and sick leave.

Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
If you see a significant drop in your tax bracket in the following year, you should evaluate Roth conversions and capital gains recognition. This is a tax sale.
December 31
As above, December 31 has the benefit of a full month of income with the pension starting the next day. This is a common date for federal employees, who are the kings and queens of gaming the retirement system. Retiring on December 31 is likely to maximize your unpaid annual leave check.
There’s a drawback, though: That lump sum will come next year. So, between that and your pension, you are unlikely to see a big drop in income taxes.
January 1
Pensions seem to be a recurring theme. Certain employers’ pension plans credit a year of service, for calculation purposes, on January 1. Similarly, you may get a cost-of-living adjustment by staying until January 1. This varies by employer.
This one makes sense for those who are retiring after required minimum distribution age. The money in your current employer’s retirement plan was exempt from RMDs due to the still-working exception. However, that RMD starts in the year you retire, even if that’s December 31.
In other words, if you retire on December 31, 2023, you will have two RMDs from your employer plan in 2024. The 2023 RMD will have to be taken by April 1, 2024, and the 2024 RMD by December 31, 2024.
If you retire on January 1, you’ll have only the 2024 RMD in December.
Other considerations
Vesting of retirement plans. I have seen six-figure sums left on the table by walking away before employer matches in retirement plans are fully vested. You will always get the money that you contributed. However, the employer match will follow some sort of vesting schedule that you need to outlast in order to keep that money.
Vesting of stock options. Stock options are a retention tool. Any unvested options will be forfeited when you are no longer retained. Here’s the thing: This is a moving finish line. Typically, employers will keep issuing new options on an ever-extending vesting schedule. At some point, you just need to pull off the Band-Aid.
Health care. This maze will be a topic of a future article. The most important thing for our clients is to ensure you have a plan between retirement and Medicare eligibility. Often, COBRA serves as the bridge. If that’s the bridge you want to use, you’ll need to work backward from age 65 to see when you can retire, based on how long your COBRA coverage will last.
People spend too much time trying to game this system. Of course, you don’t want to leave free money on the table, but it’s more important to ensure that you have enough than it is to decide between December 31 and January 1.
If you want one final check of your math, you can use this free software to see where you stand.
Related Content
Get Kiplinger Today newsletter — free
Profit and prosper with the best of Kiplinger's advice on investing, taxes, retirement, personal finance and much more. Delivered daily. Enter your email in the box and click Sign Me Up.
After graduating from the University of Delaware and Georgetown University, I pursued a career in financial planning. At age 26, I earned my CERTIFIED FINANCIAL PLANNER™ certification. I also hold the IRS Enrolled Agent license, which allows for a unique approach to planning that can be beneficial to retirees and those selling their businesses, who are eager to minimize lifetime taxes and maximize income.
-
DIY Retirement Planning: A Smart Move or a Risky Endeavor?
You can cut the cost of retirement planning by doing it yourself. But for something this important, it might be wiser to call in the professionals.
By Jennifer Lahaie, RICP®, CTS™, CAS® Published
-
Galentine's Day: A Time to Promote Financial Literacy Among Friends
Here are three things women can do to help their friends gain financial knowledge and confidence.
By Stacy Francis, CFP®, CDFA®, CES™ Published
-
DIY Retirement Planning: A Smart Move or a Risky Endeavor?
You can cut the cost of retirement planning by doing it yourself. But for something this important, it might be wiser to call in the professionals.
By Jennifer Lahaie, RICP®, CTS™, CAS® Published
-
Galentine's Day: A Time to Promote Financial Literacy Among Friends
Here are three things women can do to help their friends gain financial knowledge and confidence.
By Stacy Francis, CFP®, CDFA®, CES™ Published
-
These Two Issues Are Critical to Efficient Retirement Planning
You're saving hard for retirement, but if you're not thinking ahead about taxes and the cost of health care, your savings — and your legacy — could be at risk.
By Cliff Ambrose, FRC℠, CAS® Published
-
How to Use Good Debt (While Identifying and Avoiding Bad Debt)
Not all debt is bad, but knowing the difference between good debt and bad debt and how to use them can help you get ahead financially and stay ahead.
By Mike Decker, NSSA® Published
-
Four Potential Tax Changes to Keep Your Eye On
Many taxpayers may be surprised by a larger tax bill if the TCJA isn't extended. Check out these proactive strategies to help mitigate some of the impacts.
By Adam Frank Published
-
What Can Happen if You Live Together Without a Cohabitation Agreement?
Lots of people live together without being married, and there's nothing wrong with that, but if things go south or one partner dies, complications can ensue.
By H. Dennis Beaver, Esq. Published
-
Six Risks of Delaware Statutory Trusts in 1031 Exchanges
Here's how proper preparation can help you successfully navigate these DST risks, from market uncertainties to structural limitations.
By Daniel Goodwin Published
-
Financial Strategies Borrowed From the Big Game's Playbook
Like the best football teams, you can win at financial planning by executing a strategy, making halftime adjustments and staying focused on the ultimate prize.
By Frank J. Legan Published