The Money Mustache Community
Learning, Sharing, and Teaching => Ask a Mustachian => Topic started by: August on October 05, 2016, 11:25:19 PM
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Is there a good (or bad) time of year to turn in your notice and leave a job to FIRE? A couple factors I thought of:
1. retiring in January or February means you'd have a couple weeks of job income to account for in the following year's taxes. That would be extra paperwork you could avoid by retiring in December.
2. Maybe it would be easier to sign up for health insurance during the annual enrollment period, making that a good time to do it. Or perhaps having a job income the previous 12 months would result in a higher cost for insurance the first year of FIRE.
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When were you planning to retire and have you got a particular time of year in mind?
Circumstances are going to be different for everyone.
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I like the spring. It's just in time to really enjoy the outdoors - things blooming, days getting longer and warmer. There's something kind of appropriate and just plain feels right in getting out of the rat race just in time for the world's renewal time as well. :D
And plenty of time to figure out what to do for your first summer since school... as a free person.
It also means you will have a few months' worth of paychecks so you can max (hopefully) your and your spouse (if you have a spouse) IRAs for that year since it can only be done with earned income.
The paperwork you speak of was literally a 5 minute blip for me. I have to pull the W2 and let it auto fill in on my taxes... would have been doing messing about with paperwork/tax stuff anyway, and it really wasn't anything worth worrying about. And the ability to eek one more year's worth of IRA contributions before the gate is closed was a nice bonus.
Also, if you have great insurance through your company and have medical issues or checkups that need doing, you can get all of them out of the way early in the year on the great insurance before you leave. Definitely do things like screenings and dental checkups/xrays if you plan on not carrying dental at all (I'm not and we now pay out of pocket on that stuff).
My experience with signing up for the ACA healthcare was basically fill out the online forms, wait for confirmation, and then started paying. There was no issues with the time of year since a job separation is considered a qualifying event for being able to enroll outside the enrollment period. It was a bit boring going through all the forms and filling stuff out, but it wasn't hard, and there was no issues (knock on wood) with proving income or coverage and I am going on 2 years with the ACA. My coverage has been satisfactory (BCBS HMO silver plan with a nice subsidy).
If you have a 401k match or a bonus coming up, WAIT TO GET IT IN YOUR ACCOUNT BEFORE TURNING IN NOTICE. I made sure to wait until my 401k match showed up in my accounts. It was guaranteed according to my paperwork documents if I was employed as of 12/31 of that year, and I got it in writing just in case. As soon as it hit, I turned in my notice. I probably could have gone ahead and done so earlier and just made sure to point out the paperwork of their policy, but I don't trust corporations to do the right thing ever. And bonuses are a different animal all together - you are not owed or guaranteed a bonus at all - they are offered in general as a retention and hard work incentive, so if you have a bonus coming and choose to turn in your notice before it's distributed... you may be SOL because they can choose to not give you that if you don't intend on staying with that company.
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If you have a ... bonus coming up, WAIT TO GET IT IN YOUR ACCOUNT BEFORE TURNING IN NOTICE. ...
The key issue is really what the documents governing the bonus state. Even if you've received a deposit into your account, it doesn't necessarily mean that you are entitled to keep it. It's entirely possible for a bonus to be paid subject to a condition that it is not earned unless and until the employee remains employed for some further period. This is actually a pretty common form of bonus in certain industries.
That said, even if you fail to meet the conditions to earn the bonus, it is likely illegal for the employer to debit your account to take it back without judicial authorisation unless (a) you have consented to that writing and (b) you haven't withdrawn your consent. See 15 USC §§ 1693e (https://www.law.cornell.edu/uscode/text/15/1693e)(a) and 1693n (https://www.law.cornell.edu/uscode/text/15/1693n)(a)(2). In California, the employer cannot deduct the amount owed from later paychecks either. CA Labor Code § 221 (http://www.leginfo.ca.gov/cgi-bin/displaycode?section=lab&group=00001-01000&file=200-244). Of course, an employer can still use the normal civil litigation procedures to collect any amount owing.
My point here is read every document closely, and seek legal advice if you are unsure what something means. You cannot rely solely on money being credited to your account to mean that you've earned it.
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For my company, if you voluntarily left before the end of the year, you didn't get that year's bonus. This is awarded early March and paid mid March, and I was leery that my "award" would be 0% if I left before it was awarded.
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Personally, I'm planning on a RE date in late December so I can max out the payment for my unused annual leave (the government term for paid vacation). I can carry over a maximum of 240 hours from one calendar year to the next. But there's no limit on how much I can stockpile during a calendar year. So at the beginning of my RE year, I'll carry over 240 hours from the year before, then earn up to an additional 156 hours, for a total of 396 hours for which I'll get paid when I leave in late December. At my current salary, the total pre-tax pay-out would be $17,685 vs. $10,718 if I waited until early January to RE. In practice I probably won't get quite that much, because I doubt I'll be able to stand going an entire year without taking time off. But I'm definitely planning to boost the payout as much as I reasonably can.
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I have to leave Jan 2 or later. But the ideal date for me personally is Jan 2.
1 I get a bonus in Dec which is basically deferred salary so every day I work and don't stay til then is just lost money.
2 my company has an ESOP that is incredibly valuable. If I stay til the 2nd I keep my shares for one more year and get dividends and the new price for the year I didn't work.
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I don't have a bonus to worry about, but I do want to leave either in December or January. This will ensure that when I cash in my pension for a lump sum, it will not fall on a year with employment income, pushing me up to a higher tax bracket and taxes owed on the portion that can't be rolled into a deferred account.
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i think this is a very personal decision based on many things solved by mathematics.
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2. Maybe it would be easier to sign up for health insurance during the annual enrollment period, making that a good time to do it. Or perhaps having a job income the previous 12 months would result in a higher cost for insurance the first year of FIRE.
I retired mid-year and getting marketplace insurance was super easy. Now: getting marketplace insurance with a subsidy after having worked the year previously was difficult, but that will likely be difficult no matter what time of year you quit.
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I think spring would be a nice time to retire.
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My work pays their bonus in April. My husband's work pays their 401K match, lump sum, in April. The rules on both are that the money is earned the year prior, but you have to be employed at the date of payout. My employer makes quarterly contributions to my HSA as well, with one being in April, so working through April is a given for us with all those things lining up.
We're hoping a retire date in April allows us to front-load our 401K and HSA to try to reach the contribution limits already for the year. Also, with the extra income in those first few months, hopefully we can max out our Roth IRAs as well. Basically, most of the income in those first few months will be "spoken for" in terms of investing, which is why I think it's nice to plan on working at least a few months into whatever year you plan on retiring. It gives a nice boost to savings.
One other thing to think about is if there is a 3 paycheck month coming up. I get paid every 2 weeks, so ending on a 3 paycheck month with a nice bump to that month's savings has it's appeal. The years we're looking at retiring, that isn't until July though, so I might not hold out that long.
In terms of vacation accruals, our employer has a very generous cap on vacation accruals (~300 hours or something crazy). People who retire around here tend to just cut down on their hours and spend their vacation time actually taking vacations rather than taking the lump sum payment. This allows them to ease out of working, train in their replacement, still be covered by insurance the entire time, and still ACCRUE vacation while they work here. I can see the benefit in just cutting the cord, but for folks that are actually at retirement age, they get a lot less shit for retiring than a younger person and management is a lot more receptive to allowing them to cut down to 3-4 days a week or working during busy times only until their vacation is used up. It seems to benefit both the retiree and management. HR doesn't like it, but that just means people stopped asking HR... ha.
Lastly, if you have a Flex Spending Account (and if the rules haven't changed since the last time I had a Flex Account) money is funded 100% on day 1 of the year. You could potentially bump up your Flex contributions to the maximum for the year and spend the money immediately before retiring and get your last blast of medical/dental work done for "free." This might not be a moral way to approach this, but plenty of people have been on the reverse end of the "use it or lose it" policy and lost money by contributing more than they spend. If you've lost money in the past, consider this your chance to get it back. Conversely, make sure you actually spend the money, you've contributed before you retire. Definitely correct me if I'm wrong on this - it's been a long time since I've had a Flex. I love my HSA so much more.
I agree with spring being a nice time for non-monetary reasons as well... having nice weather and plenty of free outdoor recreation to keep you busy, having more daylight for biking, and being able to take on gardening if that's your thing all sound like great ways to keep busy.
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There's no time like the present!
+1
Is there a bad time?
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We're hoping a retire date in April allows us to front-load our 401K and HSA to try to reach the contribution limits already for the year.
You can only put in 1/12th of the annual limit of the HSA for every month you are eligible for it. So an April retirement would mean you can only contribute 1/3 of the annual limit, so be careful if you're trying to front load it.
Most folks here "retire" on January 2. As soon as you work one day in a calendar year, you are eligible to take your entire vacation for the year. They come in on the 2nd, fill out their pension paperwork, clean out their desk, and disappear for 4 - 5 weeks. If they so desire, they can come back for a last day to say goodbye to everyone and have a cake / coffee in their honor.
I agree with a prior poster. The answer to the question is really dependent on a bunch of personal information. I probably won't figure out the answer for myself until a year or two before I want to stop working.
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Many good points have already been raised above about sticking around long enough to get any 401K contributions you're entitled to, as well as other benefits.
My situation is that I'm an accountant. I will work through around April 15 the year I retire so that I can get through the audit, tax deadlines, and our annual meeting. That way, I feel that I will have done well by my employer. This also means I will get all the vacation I have accrued for the year and can be assured that my 401K matching contributions are in my account before I retire.
I will give 3 weeks' notice, even though two is only required and they may ask for more. I will allow some wiggle room, but plan a major trip or commitment so they can't hang it over my head for too long either.
In talking with friends who have retired, Spring is a good time. It allows you to adjust going into a good time of year.
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You can only put in 1/12th of the annual limit of the HSA for every month you are eligible for it. So an April retirement would mean you can only contribute 1/3 of the annual limit, so be careful if you're trying to front load it.
Hey thanks, I learn something new every day here.
I'm slogging through the IRS rulings because it makes me curious for folks paid 26 times per year instead of 24. There will be 2 months a year where they'll be over a monthly limit when they receive 3 paychecks. The IRS rulings aren't super clear here but I'm also kind of glazing over reading them...
Good point though, and now I know that this exists and can study up a bit. For some reason I thought the annual limit was not prorated. I edited my post so I don't mislead anyone :)
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You can only put in 1/12th of the annual limit of the HSA for every month you are eligible for it. So an April retirement would mean you can only contribute 1/3 of the annual limit, so be careful if you're trying to front load it.
Hey thanks, I learn something new every day here.
I'm slogging through the IRS rulings because it makes me curious for folks paid 26 times per year instead of 24. There will be 2 months a year where they'll be over a monthly limit when they receive 3 paychecks. The IRS rulings aren't super clear here but I'm also kind of glazing over reading them...
Good point though, and now I know that this exists and can study up a bit. For some reason I thought the annual limit was not prorated. I edited my post so I don't mislead anyone :)
this is good to know b/c my wife will hopefully be coming to my company and leaving hers. which would eliminate our HSA but come with way better benefits. we'd planned to max it prior to her leaving. great information there.
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You can only put in 1/12th of the annual limit of the HSA for every month you are eligible for it. So an April retirement would mean you can only contribute 1/3 of the annual limit, so be careful if you're trying to front load it.
Hey thanks, I learn something new every day here.
I'm slogging through the IRS rulings because it makes me curious for folks paid 26 times per year instead of 24. There will be 2 months a year where they'll be over a monthly limit when they receive 3 paychecks. The IRS rulings aren't super clear here but I'm also kind of glazing over reading them...
Good point though, and now I know that this exists and can study up a bit. For some reason I thought the annual limit was not prorated. I edited my post so I don't mislead anyone :)
this is good to know b/c my wife will hopefully be coming to my company and leaving hers. which would eliminate our HSA but come with way better benefits. we'd planned to max it prior to her leaving. great information there.
To clarify, you can front-load your HSA, I shouldn't have said you can only put in 1/12th per month you are eligible. What I should have said is that the IRS will penalize you if you put in more than 1/12 * months eligible * annual max. If you lose HSA eligibility for whatever reason mid-year, you just have to calculate how much you were allowed to contribute and ask the HSA administrator to refund the excess plus any earnings on the excess.
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If you leave a company early in the month you'll generally get health care through the end of the month.
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For me it is specific to get the retirement benefits from my employer - Age + Years of Service = 72 or more. I will not be getting those benefits. lol.
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If you leave a company early in the month you'll generally get health care through the end of the month.
My company used to do this but now it ends the last day!
I FIRE'ing next year and at minimum I'm staying to the end of March to get the bonus but thinking I'll probably stay to July 7, this allows me to fully fund the 401k up to the max deferral, bank 3 weeks of vacation pay (so I'll be paid til the end of July), and have more time to finish my "to do" list - lots of stuff to wrap up.
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I think the "right answer" depends not only on your individual readiness, but also on your job.
I'm a teacher. I am allowed to retire on the first day of the month OR the last day of a grading period OR a major school holiday (pretty much Christmas or Easter). Beyond that requirement, it makes sense to think about a couple things, and it is a bit of a slippery slide:
- I'll be eligible to retire on November 1 (not this year), but if I stay through the end of the year, I'll be paid for Thanksgiving and Christmas break. If I leave, I lose those days.
- If I stay through the end of the year, it makes sense to stay through exams, which are mid-January. That's a whole week of half-days, and as much as I detest state testing, those are easy days: Just hand out exams and monitor student behavior.
- This means that I can leave at the semester break. I'll finish with those fall semester students, and the new teacher can begin with a whole new set of students in the spring semester.
- Used to be that if I'd stayed through March, which is my anniversary date, I'd have received a longevity bonus, but that's no longer a thing.
- And when I'm closer to the date, I have to look at my sick days and personal days. Every 20 days that remain give me another month of service and "up" my pension a bit ... and it "rounds up" ... so if I have 60 days exactly, it's worth 3 months, whereas 61 days equal 4 months, yet 79 days still equals the same 4 months. So you can see that it makes sense to watch this very carefully in my last year. One of my co-workers who retired last year, for example, figured out that if he worked just two more months, he'd bump himself up over the 20-day mark and would gain an extra month of service -- and for his specific numbers, it put him over a moderately significant pay bump, so he judged it worth those two months' work.
- And my final job-specific consideration: I am trying to avoid the last month of school, which is always horrible for teachers.
If I have that many considerations specific to my job, I bet other job have unique considerations too -- and all those must be weighed against your personal readiness.
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- And my final job-specific consideration: I am trying to avoid the last month of school, which is always horrible for teachers.
I'm amazed that you can leave mid-year for anything other than a family emergency / pregnancy. I have several family members who are teachers and they only have like a one-month window after the end of the school year to decide to retire or not. More power to you if you have better options, I just find it odd that a school district would agree to those terms.
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A few days after Independence Day (Early July)...
I mean come on it is Independence day after all. Too many factors start at the beginning of the year that would help give me a larger nest egg.
- beginning of June I get vested by 20% more in my 401k plan (Worked with my current employer for 2 years and may look at the 5 year mark to leave)
- Company's 2% 401k match hit in the middle of March last year
- Merit raises tend to come out at the end of Feb which means a higher hourly wage for any vacation time I cash out
- A few paid holidays at the beginning of the year (New Years, MLK, and a floating holiday to use whenever, memorial day, and independence day)
- I can push to max out my Traditional IRA & even force my 401k to max out for the last year
- Save Cash from Jan
- Taxes from April and property taxes for the prior year all settled
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I have several family members who are teachers and they only have like a one-month window after the end of the school year to decide to retire or not.
Teaching is a job, not slavery. It's far better to have someone who has completely lost the will to perform the job just stop going to work than for them to half ass their way through the rest of a year. This is particularly true with teaching where that half-assing is likely to hurt a whole classroom of children.
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I retired April 1st. I couldnt face another growing season where I had to scramble to keep up with weeding only on weekends.
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A few days after Independence Day (Early July)...
I mean come on it is Independence day after all. Too many factors start at the beginning of the year that would help give me a larger nest egg.
Exactly what I did last year.
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- And my final job-specific consideration: I am trying to avoid the last month of school, which is always horrible for teachers.
I'm amazed that you can leave mid-year for anything other than a family emergency / pregnancy. I have several family members who are teachers and they only have like a one-month window after the end of the school year to decide to retire or not. More power to you if you have better options, I just find it odd that a school district would agree to those terms.
Yep, it's a job, not a missionary gig. Teaching is genuinely different than the average job (in odd ways that most people don't see), but we can retire at any point in the year -- well, first day of any month, at the end of a grading period.
Also, in high school we have one group of students for the first semester ... and a completely different group of students for the second semester; thus, leaving at the end of a semester would have zero impact on students.