5 Replies Latest reply on Apr 19, 2013 11:04 PM by jkom51

    When to cash in

    TroutBum
      As I grow closer to cash-in time I realize, more and more, how complicated things can be. I used to think I would retire the first Friday in July (our fiscal year change) of whatever year. Seems it isn't all that simple.
       
      We receive payment for a portion of our accrued sick time, vacation time up to 30 days, and a bonus for long term employees. In my case that adds up to about $40K that will be paid (before taxes) upon retirement. But how does that effect social security? I'm not sure how much money I'm allowed to make while collecting SS but I'm pretty sure it isn't that much at age 61. Add to that half a year's salary and I'm sure it doesn't work.
       
      So does it make sense that I retire on the last day of the calendar year and start SS in a year when my only other income will be savings dividends and retirement income? Of is it better to retire as planned and just wait until the following year to apply for SS? Or maybe wait for another 5 months and start SS after my next birthday?
       
      I'm aware that a visit with my SS office will answer these questions (or create new ones) but thought it might be a worthwhile discussion to have with others as we grow nearer the time to retire.
       
        • Re: When to cash in
          jocee
          You can not begin collecting SS until you are 62 unless you qualify for disability.  SS payout is based on your age when you begin to draw SS and what you have  earned during your working career. 

          If you have totally retired when you start drawing SS, the money you earned earlier that year doesn't limit the amount of SS you will get.  It is only if you continue to work while collecting SS that your benefits can be reduced.
           
          The issue you will face is on federal income taxes.  Up to 85% of your SS benefits can become taxable if you have earnings and pensions, etc over a certain amount.  So if you earned your salary half a year, it might be better to wait until the next calendar year to start SS to avoid paying more taxes on your SS.
           
          Yes, it would be a good idea to talk to SS because each person's situation is different and you want to maximize your benefits and minimize your taxes.
            • Re: When to cash in
              TroutBum
              Thanks for the reply. I knew I couldn't collect SS prior to age 62 but did not know that money earned prior to retirement wouldn't limit SS earnings. I haven't committed to a retirement age but it will likely be 63.
               
              Thinking about federal tax brings about a whole new set of issues to consider. In some ways it seems like possibly a good choice to retire on the last day of the calendar year, request my severance payment be issued during the following year (I don't even know if that's legal), then hold off from initiating SS until yet another. That my wife plans to work a couple more years makes the decision even more involved.
               
              This all isn't something I'm worried about, just thinking out load/online. I've been meeting with my retirement counselor annually and will be increasing the frequency to semi-annually starting next January. Seemingly small decisions can have a big impact.
               
                • Re: When to cash in
                  jocee
                  It is good to plan this out by thinking ahead.  When I did volunteer taxes we ran into many people who had made big mistakes handling retirement payouts, etc.  By the time we saw them, it was too late to undo the mistake.  I was always amazed at the lack of guidance or perhaps lack of understanding on these very important issues. 
                  Each person is different so I guess there can't be a one-size fits all printed card for everyone to follow.  However, the issue is important enough that there should be more generalized information. 
                    • Re: When to cash in
                      JerryD
                      I second TroutBum's caution on making non-reversible decisions. Many retirement related decisions fall in this category. Research, research, research, before proceeding. A good financial analysis using a spreadsheet or adviser would be a good approach.
                    • Re: When to cash in
                      jkom51
                      It is especially important to look at your options for both retirement and SocSec when you are in a spousal relationship.
                       
                      There are a few important tricks in claiming SocSec that may help ONLY if applicable to your situation. "Claim and suspend", for example, works great if one spouse has a much higher benefit than the other - but if their benefits are similar in amount, it won't help at all.
                       
                      There are many spousal strategies, but you have to take into account each spouse's age and Earnings Record, and you have to know the rules in order to implement them properly.
                       
                      So do your research FIRST - Google spousal benefits, and start reading! - and then see how different retirement dates will affect your own financial planning. Confirm with your HR dept. what they can legally do and what they can't (just in case). Make an appt with SocSec to go in and talk to them with your list of questions for the various scenarios you two can choose from, to see which ones are viable.
                       
                      Run your #s again. Talk to your spouse not only about taxes, but what are your back-up plans if something goes wrong? What if one of you suddenly has a health issue? What if a natural disaster or market meltdown affects your best-case financials? Always make certain you and your spouse are "on the same page" and have your legal docs updated and in force.