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Looking for your thoughts….wisdom, insight, etc (Long and lots of detail -- THANKS in advance.)
Basically I guess the questions are how much weight to give to various factors when considering when IN THE YEAR to retire?
Taxes? Lump sums? House sale? Spring vs Autumn housing market? Getting Medicare? Etc.
My situation:
-- Birthday mid June
-- Retiring at 65 (years from now but I’m obsessed already)
-- Selling the house and moving to the already owned, furnished and waiting retirement home
-- Current mortgage is cheaper than area rents
-- NOT getting Soc. Security (until 70)
-- Will be paid lump sum for at least 20 weeks, CTO and vacation
Ideally, I thought I’d sell in the spring of the year I turn 65. Sell house in April/May-ish, quickly give notice, give notice, retire that June .
THEN. I realized I need/want to time get on Medicare with the retirement -- AND I could be getting at least 20 weeks maybe even 30 or more in a lump sum out the door.
By the time the Medicare/medigap insurance kicks in it will be July (at the earliest)….far enough into the year that if I get a large payout, it could mean a larger tax hit – because I’ll have no pretax counterbalances for that money….versus at that point just working to January (earning another 5 weeks vaca), and getting that payout check in a year in which I’m living off just my pension. I COULD max out my 401K those last 6 months, to try to lower the taxable income a bit while I still have other pre-tax deductions like parking, job health insurance, etc.
As for Medicare the plan is to apply in late April, and get Medicare and supplemental insurances to start in July.
-- Would you retire in June even if it meant MORE than a year’s pay in one year and the tax hit from that?
-- Would you sell in the spring, and rent an apartment for six months, to get you to Dec/Jan? But short term that will cost me more per month than the mortgage and two moves
--Would you sell at year’s end? There IS a fall (winter?) housing market. I wonder if it’s that much more worth it to catch the Spring housing market even if it means an apartment for six months. I hear that the bad news is that at year’s end and holiday time fewer people are home-buying. The good news is that IF a person IS looking at that time of year, they’re more likely to be a SEROIUS buyer who has to buy at that time. And there’s less inventory competition.
As if this weren’t complicated enough….ARRGGHH!….I could sell in the spring and see if I could use some or all of my CTO and vacation to stay on the books until July, August,…heck as long as HR will let me. And “retire” after all that is burned up. That way I’ve got until August to get the Medicare straight, and I’m still on the books earning even MORE vacation. Either way I’m not at work and getting paid. (I only mention this because there was a co-worker who had 16 weeks vacation, and they made him use it, they wouldn’t cut him a check for it. But he just caved and let them do that to him he didn’t fight it and demand the check. So the last six months he was on the books he wasn’t even at work most of that time.)
Did YOU have any and/or all of these considerations? What did you – would you – do?
How did you plan your exit??
I can’t be the. only. One with these kinds of factors….
Thanks soooo much.
I retired in March at 55, so I cant really address the Medicare issue.
I did plan ahead to max out my 401K which wiped out most of my taxable salary for the year.
I used some of my lump sum payouts to buy extra time which upped my pension. Then knowing that would probably be my lowest ever taxable income I topped off the tax bracket that landed me in by taking some capital gains and converting some of a traditional IRA to a Roth IRA.
We bought and furnished with basics our retirement home about 6 months before I retired. I would not move into an apt for 6 months....too much hassle for me. Our plans to sell got delayed because we needed to help a parent deal with an illness. So we ended up putting the house on the market in August.
I'm not really convinced about the fact that buyers out that time are more serious. But, the main thing is that the biggest flurry of buyers will come when you put the house on the market so the most important thing is having your house sparkling clean, in good repair, free of clutter/staged and priced right.
^^ Thanks for the insight about the lump sum and tax strategy. As for my move. I go to the furnished retirement house now once a month. So at retirement I really will only likely take clothes and some photos that are here with me now.
My problem is I prefer to sell in spring. I want to max my lump sum payout. And I need to time getting Medicare.
But I don't want to pay more taxes on the payout than I need to, so working until December and getting that money in January would help that factor. But where do I live for six months if I sold in the spring.
IF I sell in spring…and IF the company will let me use all earn CTO and vaca the last three months on the books, I could get a contract on the house in May/June, close in June/July, maybe rent back for one month (July August) or maybe not, rent somewhere for only 3-4 months, let CTO and vaca take me to December and retire the first week in Jan.
Friends of mine sold their house sooner than expected and just lived in an extended stay hotel for 6 weeks. I could do that.
Can't wait to see how others have planned their exits, and what they recommend.
Check with your Payroll Dept. The large lump sum may all be taxed at a flat rate as Supplemental Income, regardless of what time of year you receive it.
I don't know if my story will help, but here it is.
House
My business partner and I owned a duplex, each living in a unit. She retired in 2014 and wanted to sell then. I didn't retire until May 2016.
We sold the duplex in late 2014 and I rented back my unit until May 2016.
In 2014 I bought a home in Myrtle Beach and rented it out (using a property management company) until mid-March 2016.
Starting in April I had some minor modifications done to my new home (painting, crown molding, new flooring, countertops) most of the work was finished before I moved in in May.
Work - I "vacationed" out. While my official retirement date was May 1, I was technically on vacation the last month and getting my regular paycheck and it was taxed at the normal rate. I used this month to finish packing and move. This also kept me on my employer's health insurance through the end of April.
I didn't turn 65 until July, so I had Cobra for May and June (expensive but a good precaution).
Issue - Medicare used 2014 as the year to base the rate of my monthly insurance payments. Since I had a capital gains in 2014 from the home sale I am currently paying the highest Medicare rate.
Issue - Medicare used 2014 as the year to base the rate of my monthly insurance payments. Since I had a capital gains in 2014 from the home sale I am currently paying the highest Medicare rate.
Interesting. What was the logic of Medicare using 2014 to determine your base rate? Do they always use the highest of the previous 3 or 5 years? Will be valuable to know as I approach the magic 65 age in five years time. Might impact when I decide to sell or liquidate holdings.
Medicare uses your income tax return to figure your monthly insurance payments. Income tax return for 2014 was filed in April 2015, and Income tax return for 2015 would not be filed until April 2016. So Medicare would not have had a current return to use.
Medicare uses your income tax return to figure your monthly insurance payments. Income tax return for 2014 was filed in April 2015, and Income tax return for 2015 would not be filed until April 2016. So Medicare would not have had a current return to use.
Thank you!
Important to know this stuff. Since my B-day is in June, and I will have +/- 3 months from age 65 to claim my Social Security & Medicare benefits, and taxes are due in April, I can play the game as necessary to file under the lower of two recent tax filings. Assuming my income level is close to a cut-off point.
Wait! Per the link posted by Retire in MB, the Medicare annual amounts are always based on the income from two years previous. So a large taxable event should be planned for either three years (or more) prior to filing for Social Security and Medicare, or delayed until a person has already retired and probably has a lower income.
selhers, it sounds like you are ready to go. Why wait? I was in a similar situation with a June birthday. I found that in my area real estate moved best in the dead of winter. That sounded strange to me, but my agent explained that a great many people want to be settled by the end of the school year and they needed to start in the winter to hit that time frame.
Since I stopped working at the end of February, my first year taxes were low even with some payouts for accrued vacation time. My only financial issue was healthcare. Now there is Obamacare but when I retired my only reasonable option was Cobra at over $600/month. I found that I could pay for Cobra at anytime in the first 6 months and it would be retroactive to the date I retired. I got by without needing to pay for Cobra before I was on Medicare.
Anyway you can save a lot of money on taxes if you retire a few months earlier.
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