Janet Kidd Stewart
The month you retire can affect benefits and vacation pay and have implications for Social Security benefits and taxes.
Dreaming of a long spring break? Depending on your financial situation, it may pay to wait:
Collecting Social Security?
If you're working when you begin collecting Social Security and are younger than the program's full retirement age, your benefits could be reduced if you make more than $14,160 in wages for the year. This generally gives an incentive to retire sooner rather than later in the year to earn the most you can without exceeding that limit.
In the first year of retirement, however, you can get a full Social Security check for any whole month you are retired, provided you earn $1,180 or less for that month.
This is in addition to the reduction in benefits due to beginning to collect before full retirement age. (See http://www.socialsecurity.gov.)
Delaying Social Security?
Another reason some retirees may want to retire later in the year has to do with tax planning. Higher income workers, for one, may want to do so to push the start of benefits to the following year and avoid the earnings test. Plus, delaying benefits gets you closer to your full retirement age and full benefits.
Lots of vacation pay?
If you have accrued vacation pay at retirement, note when you'll receive that lump sum. Some companies don't pay until a month or so after you've retired. Vacation pay is considered earned income, so delay applying for Social Security benefits until after you've received that check to avoid the earnings test, said Edward Zurndorfer, a financial planner in Silver Spring, Md.
In the military?
Zurndorfer has written several articles for military retirees on how federal benefits are affected by retirement dates. Check out http://www.myfederalretirement.com/public/315.cfm.
Private employers also may have their own timing quirks that affect how final pay or pensions are calculated, so consult your benefits department to see how you may be affected.
Workers thrust into retirement in January or February may be eligible for extended health-insurance premium subsidies under COBRA, the federal legislation that allows workers to remain on group health plans after they leave their employer. For terminated workers, the subsidy pays 65 percent of the premium.
Converting an IRA?
In 2010, holders of traditional IRAs can convert them to Roth IRAs without income restrictions. If you're planning to make a conversion this year, and are retiring later in the year, you may want to consider pushing off the taxes due on the conversion until 2012, which is allowed this year only. By then, in theory, you could be in a lower bracket because you are retired.
Have a retirement question? Write to email@example.com, or via mail at Your Money, Chicago Tribune, Room 400, 435 N. Michigan Ave., Chicago, IL 60611.