Advice on picking actual FIRE date

[ca-rn]

Set to FIRE in 2025 to meet Rule of 55.  Need advice to pick the actual month/day.  Currently work part time w/full healthcare benefits.  I could stay longer but I have worked enough and saved enough. 

Single filer, live in CA w/progressive LA taxes, no kids.  Home will be paid off and need to buy healthcare via ACA.

Home, brings rental income (1700-3500k/month) will be paid off early in 2025 before FIRE day.

Read if one retires in beginning of month- healthcare is covered the rest of the month.  Is that true for all employer paid healthcare?

Have a few hundred hours of vacation time that I won't be able to use up by the next year.  This will be paid out as earned income (I believe).

Will have a future pension that I plan to lump sum and roll into an IRA, invested following AA.

RothIRA convert every other year alternating w/ACA credits or slow traveling internationally about 1/2-3/4 of the year w/short term US coverage while I RothIRA convert.

Because vacation cash out will bump up income and rental income, I won't qualify for any ACA credits for 2025 no matter what month I retire.

Tentatively planning to retire after hire date to get "credit" for year to year worked though have no idea if it does anything.

Don't have an immediate trip planned.  Will probably take time to marinate being really retired and work on some home improvements that I've been putting off.

Advice?

[Nutty]

Congratulations!  Normal advice is after yearly bonus or pay raise kicks in.  For me with bonus in the spring, May or June is the most popular time.

After hire date to get a pension bump is also good.  If none of these apply, your choice.

[secondcor521]

Miscellaneous thoughts:

1.  The Rule of 55 is unusual in that you only need to separate from service in the year you turn 55, not after you turn 55.  So from a "Rule of 55" perspective, any date in 2025 works.

2.  The "healthcare the entire month if you retire in that month" is not true of all companies.  It was true of my last employer, but has not been true for others.  Check with your HR department.

3.  I Roth convert every year instead of every other.  I do take ACA subsidy loss into consideration and view it as an additional parallel tax system.  I don't think there's much tax benefit in alternating - at least, I haven't seen any arguments for that idea.

4.  You might be able to "take" your vacation time at the end of your work career.  This may extend your actual retirement date.  So if you have 60 days of vacation time and want to leave work on April 2nd, then it may make sense to ask your employer to take those 60 days of vacation time starting around February 3rd.  So you last actual day in the office is February 3rd but your health insurance might run through April 30th.  This has value if you really want to leave and have stock options that don't vest until April 1st or something like that.

It's been a while, but on the ACA, you probably need to sign up for coverage by the 15th of the month in order to start ACA coverage on the 1st of the following month.  So by April 15th in the example dates from the previous paragraph.

You didn't ask, but if you retire early in the year, that might impact your tax planning for 2025 because your income might be relatively low.  As an example, I did a Roth conversion in my first year of retirement.  I also changed my 401(k) deferral down to just whatever was matched; I didn't actually want the tax deferral because my retirement year was a low income year.

[mistymoney]

I also changed my 401(k) deferral down to just whatever was matched; I didn't actually want the tax deferral because my retirement year was a low income year.

Interesting! I was thinking about it oppositely, but this makes so much better sense!

[ATtiny85]

I also changed my 401(k) deferral down to just whatever was matched; I didn't actually want the tax deferral because my retirement year was a low income year.

Interesting! I was thinking about it oppositely, but this makes so much better sense!

Just be sure to work out your own plan (duh!)

I haven’t gotten to that level of detail personally so appreciate secondcor521’s plan as something to add to the list to consider. Need to throw in 401k Roth as well into the mix I think, depending on one’s exact situation.

[secondcor521]

I also changed my 401(k) deferral down to just whatever was matched; I didn't actually want the tax deferral because my retirement year was a low income year.

Interesting! I was thinking about it oppositely, but this makes so much better sense!

Just be sure to work out your own plan (duh!)

I haven’t gotten to that level of detail personally so appreciate secondcor521’s plan as something to add to the list to consider. Need to throw in 401k Roth as well into the mix I think, depending on one’s exact situation.

Roth 401(k)s came along after I retired, so they were n/a in my case.  But definitely everyone should look at their own situation.

[ChpBstrd]

Either take the vacation time or sell it back to the company. If it is all paid out at the end you'll be in a high tax bracket for that one paycheck and will have to wait a year to get your taxes back as a refund.

Can you sell back or use some of this vacation time this year, and have a chance at making  the ACA subsidy next year?

[ca-rn]

Miscellaneous thoughts:

4.  You might be able to "take" your vacation time at the end of your work career.  This may extend your actual retirement date.  So if you have 60 days of vacation time and want to leave work on April 2nd, then it may make sense to ask your employer to take those 60 days of vacation time starting around February 3rd.  So you last actual day in the office is February 3rd but your health insurance might run through April 30th.  This has value if you really want to leave and have stock options that don't vest until April 1st or something like that.

It's been a while, but on the ACA, you probably need to sign up for coverage by the 15th of the month in order to start ACA coverage on the 1st of the following month.  So by April 15th in the example dates from the previous paragraph.

You didn't ask, but if you retire early in the year, that might impact your tax planning for 2025 because your income might be relatively low.  As an example, I did a Roth conversion in my first year of retirement.  I also changed my 401(k) deferral down to just whatever was matched; I didn't actually want the tax deferral because my retirement year was a low income year.

#4 is a great idea to extend health care coverage!  I will be sure to look into this!  Many coworkers get elective surgeries done to use up sick time and continue benefits but I don't want/need surgery.

At this point I'm not considering Roth conversion b/c I would most likely work until mid year and if I can, extend using vacation, can actually make it to next year (if counting part time hours) and rental income will take me into the 24% tax rate.

My lower tax years will start 2026 w/just rental income/dividends/interest (estimating about 50-60k). 

[ca-rn]

Either take the vacation time or sell it back to the company. If it is all paid out at the end you'll be in a high tax bracket for that one paycheck and will have to wait a year to get your taxes back as a refund.

Can you sell back or use some of this vacation time this year, and have a chance at making  the ACA subsidy next year?

Yes, secondcor521 made the same great suggestion of using the vacation time to extend healthcare coverage.  I don't know if my managers will approve but I'll be sure to ask!

Otherwise may just quit earlier in the year so with the vacation pay out it'll equal what I make for the whole year but will end up needing to buy healthcare insurance.

With just rental income/dividends/interest it'll be about 60k gross and will see if that offers any subsidies. 
Also thinking about slow traveling and buying international coverage w/limited US stay.

[SpareChange]

Curious....if your vacay time all pays out on final check, could you just set your 401k/403b/457 deduction to 100% on that check?

[secondcor521]

Curious....if your vacay time all pays out on final check, could you just set your 401k/403b/457 deduction to 100% on that check?

You probably can set it very high.  Since some paycheck deductions have to occur regardless of how much you defer into your retirement plan, you probably can't set it to 100%.  But you might be able to do 75% or something in that range.  Your employer's HR should know the max.

It may not be a good idea, though; see my comments earlier in this thread on tax planning.

Finally, it's possible you'd hit the maximum annual deferral, so that would be another limiting factor.

[ixtap]

Curious....if your vacay time all pays out on final check, could you just set your 401k/403b/457 deduction to 100% on that check?

In many systems you are no longer an employee at that point and ineligible to participate in the 401k. That is, they pay out vacation time precisely because they have done all the termination paperwork.

[SpareChange]

Thank you both. Great info. When I asked both my 403b administrator and HR department that question I got the runaround and no final answers. I have about 32k in my PTO bank.

ixtap, I kinda think my system works that way, based on what little my 403b admin told me. May consider the option of dropping to prn first, which triggers pto payout, in order to deduct to 403b or 457.

ca-rn, one thing to consider...my 403b match is split in two. One part is deposited every paycheck, the other in the 1st quarter of the following year. In order to receive that last part, I have to be an employee on the last day of the year otherwise I lose it. Kinda narrows my options for leaving if I care about the money. :). Hopefully your plan isn't as restrictive.

[Greystache]

I decided to retire at the end of the year for several reasons:
1. It just felt right to finish the year and start my new life in the new year.
2. My employer had paid time off for Thanksgiving and the whole week between Xmas and New Years day so I wanted to hang around for that.
3. It made planning for ACA simpler. I wanted to manage my income to minimize ACA costs. Starting the year with no employment income made this simpler.
The one issue I had with the end of the year retirement was that our annual bonus was distributed in March. I kind of expected to get little or no bonus but was surprised to get the full bonus. It almost screwed up my ACA costs (see number 3 above).

[ixtap]

I decided to retire at the end of the year for several reasons:
1. It just felt right to finish the year and start my new life in the new year.
2. My employer had paid time off for Thanksgiving and the whole week between Xmas and New Years day so I wanted to hang around for that.
3. It made planning for ACA simpler. I wanted to manage my income to minimize ACA costs. Starting the year with no employment income made this simpler.
The one issue I had with the end of the year retirement was that our annual bonus was distributed in March. I kind of expected to get little or no bonus but was surprised to get the full bonus. It almost screwed up my ACA costs (see number 3 above).

I have suggested Mr. Ixtap go through November. We would hopefully just not deal with COBRA for December, get on ACA for next year. He might miss out on the bonus, but that just isn't going to move the needle on anything except cash management.

He is leaning towards turning in two weeks notice when he meets with his manager today, but I am pretty sure his manager (who has also been his mentor for much of his career) will try to talk him out if it. At least, he has the last three times...

[fuzzy math]

Getting credit for another year worked past your hire date only really matters if you haven't vested in your retirement or if you have a pension that looks at whole year increments.

A lot of what you're asking you need to do some research with your company. Hopefully HR has online manuals so you don't have to ask. Your retirement plan rules should help with any contribution schedule questions. Ideally you'd be able to max out your 401k and anything else before you quit. If you played your cards right you could work just long enough to contribute to the max out and then leave with very little earned income on paper.

It sounds like you could quit at the beginning of the year if you wished. Does the couple months more of income really matter to you or could you do it early? It might put your annual income under the point where you could qualify for ACA.

[Ron Scott]

Does your employer have an HR department? If so, they might have ideas too as they go through this quite a bit.

[ca-rn]

Getting credit for another year worked past your hire date only really matters if you haven't vested in your retirement or if you have a pension that looks at whole year increments.

A lot of what you're asking you need to do some research with your company. Hopefully HR has online manuals so you don't have to ask. Your retirement plan rules should help with any contribution schedule questions. Ideally you'd be able to max out your 401k and anything else before you quit. If you played your cards right you could work just long enough to contribute to the max out and then leave with very little earned income on paper.

It sounds like you could quit at the beginning of the year if you wished. Does the couple months more of income really matter to you or could you do it early? It might put your annual income under the point where you could qualify for ACA.

I heard my HR used to hold retirement classes but stopped during Covid and never resumed.... I have a fellow coworker that is also planning to retire next year at 65 and they are going thru the same confusion.

I could probably retire beginning of the year but w/rental income (hopefully I don't jinx myself, we have softening rents in my neighborhood) and vacation payout- it'll take me over to qualify for ACA.  W/rental income and standard deduction, I should qualify for a bit of ACA credits.

[ca-rn]

Does your employer have an HR department? If so, they might have ideas too as they go through this quite a bit.

Ha! where would be the fun in doing that!?!?

Actually its very convoluted to contact my HR.  Recently due to security updates, I can't even access the HR site to even check my paycheck from my phone or laptop at home anymore.  And once I'm at work, work keeps us too busy to call to find out how to reset and poof goes another week! 

[markbike528CBX]

Sooner is better than a later date.

Since “Rule of 55” is your main trigger, have you verified that your 401k plan allows partial withdrawals?
“Rule of 55” allows you to make penalty free withdrawals before 59.5, but does not mandate that a 401k plan must allow partial withdrawals before 59.5.
https://smartasset.com/retirement/401k-55-rule


Sooner is better than a later date.
The rest of the criteria are “picking up pennies “ compared to the joy of retirement.

[Much Fishing to Do]

I had always thought for my last year I'd pour all my paycheck into my 401k and make the last day when that is maxed...thus making some money but still keeping MAGI near zero for the year for the ACA subsidy/taxes etc.  But agreed with others this is prob all talking about pennies compared to the stache, so in the end prob more important to time it with whatever activity/weather you want to start retirement with!

[FireLane]

Have a few hundred hours of vacation time that I won't be able to use up by the next year.  This will be paid out as earned income (I believe).

I may have missed something, but why can't you use up your vacation time rather than cashing it out? It sounds like you're all set financially, so you should start reclaiming as much time as possible for yourself. That would be my preference in your situation.

If you start taking vacation aggressively, beginning now, do you have so much banked that you wouldn't be able to use it up even by the end of 2025?

[Turtle]

If your company has an HR manual, I’d recommend reading it for any details which you could leverage in your favor as far as timing goes.

Sometimes companies front load some of their benefits in January - HSA incentives, for example.

Another example - a lot of companies require a person to be employed on the 31st of December or they miss out on things like bulk 401k matching/annual bonus (if the company pays either/both during first quarter of following year).

Personal example - my company pays 401k match as it is earned, but that also means that even if I were to leave in January and get paid my previous year’s bonus in March, I would forfeit getting the 401k match on that last bonus check.  So my timing will be sometime between April-June most likely, for the best use of HR benefits in my own situation.

[ca-rn]

Thank you both. Great info. When I asked both my 403b administrator and HR department that question I got the runaround and no final answers. I have about 32k in my PTO bank.

ixtap, I kinda think my system works that way, based on what little my 403b admin told me. May consider the option of dropping to prn first, which triggers pto payout, in order to deduct to 403b or 457.

ca-rn, one thing to consider...my 403b match is split in two. One part is deposited every paycheck, the other in the 1st quarter of the following year. In order to receive that last part, I have to be an employee on the last day of the year otherwise I lose it. Kinda narrows my options for leaving if I care about the money. :). Hopefully your plan isn't as restrictive.

Thank you, I will look into that.  (un)Fortunately my employer matches a measly 1% into 401k.  So if I end up losing it, it won't be too much. 

[ca-rn]

Sooner is better than a later date.

Since “Rule of 55” is your main trigger, have you verified that your 401k plan allows partial withdrawals?
“Rule of 55” allows you to make penalty free withdrawals before 59.5, but does not mandate that a 401k plan must allow partial withdrawals before 59.5.
https://smartasset.com/retirement/401k-55-rule


Sooner is better than a later date.
The rest of the criteria are “picking up pennies “ compared to the joy of retirement.

Yes, I've verified my 401k plan allows partial withdrawals earlier this year.  I didn't specifically ask if its limited to once per year or can be more often but they did respond "yes". 

Honestly, I don't have a specific retirement plan.  Live a simple clean frugal life. I work 2 days currently- some weeks its great and other weeks not so. 

I could continue working part time except I've met my latest FIRE goal and each year it seems I hear of more coworkers being diagnosed w/cancer/terrible illness/death which makes me want to RE even if I don't have exciting retirement plans.

[ca-rn]

Have a few hundred hours of vacation time that I won't be able to use up by the next year.  This will be paid out as earned income (I believe).

I may have missed something, but why can't you use up your vacation time rather than cashing it out? It sounds like you're all set financially, so you should start reclaiming as much time as possible for yourself. That would be my preference in your situation.

If you start taking vacation aggressively, beginning now, do you have so much banked that you wouldn't be able to use it up even by the end of 2025?

Can't take vacation due to chronic short staffing.  On a rare occasion I can leave work 1 hour early.  Way more common to be asked to stay overtime vs getting to leave early.

[FireLane]

Have a few hundred hours of vacation time that I won't be able to use up by the next year.  This will be paid out as earned income (I believe).

I may have missed something, but why can't you use up your vacation time rather than cashing it out? It sounds like you're all set financially, so you should start reclaiming as much time as possible for yourself. That would be my preference in your situation.

If you start taking vacation aggressively, beginning now, do you have so much banked that you wouldn't be able to use it up even by the end of 2025?

Can't take vacation due to chronic short staffing.  On a rare occasion I can leave work 1 hour early.  Way more common to be asked to stay overtime vs getting to leave early.

Well, that seems like the real problem!

Your vacation time is part of your compensation package. You have a right to use it. If your employer is understaffed, that should be their problem, not yours.

By skipping vacation and agreeing to work overtime when they ask, you're making it possible for them to ignore this problem at your expense. That's a burden you shouldn't take on yourself.

Especially if you're close to your FIRE number, you have leverage. You should tell your boss (not ask) that you intend to use some of the time you've accumulated. What are they going to do when you retire? They'll have to hire more people then - you might as well give them an incentive to start trying now.