Is it best to retire at end March - financial viewpoint

Mick70

Is it best to retire at end of March , just before the new tax year starts ?  Purely from a financial / tax viewpoint 

El_Torro

I would have thought it would be better to retire halfway through the tax year rather than at the end of one. Reason being that you pay less tax on what you earn. How much of an impact this has depends on how much you earn each week / month. Also if you still need to accrue more state pension then potentially a few months of work will cover this. 

There are plenty of reasons to time your retirement differently. You just asked for financial / tax reasons though.

Dazed_and_C0nfused

El_Torro said:

I would have thought it would be better to retire halfway through the tax year rather than at the end of one. Reason being that you pay less tax on what you earn. How much of an impact this has depends on how much you earn each week / month. Also if you still need to accrue more state pension then potentially a few months of work will cover this. 

There are plenty of reasons to time your retirement differently. You just asked for financial / tax reasons though.

But then you lose out on 6 months earnings 😳

Personally I think there are so many variables with this there is no one correct answer.  Horses for courses.

Pat38493

I don’t think there is a general answer to this.  It depends on your tax situation and your cash flow plan for the 2 tax years bridging that date.

El_Torro

Dazed_and_C0nfused said:

El_Torro said:

I would have thought it would be better to retire halfway through the tax year rather than at the end of one. Reason being that you pay less tax on what you earn. How much of an impact this has depends on how much you earn each week / month. Also if you still need to accrue more state pension then potentially a few months of work will cover this. 

There are plenty of reasons to time your retirement differently. You just asked for financial / tax reasons though.

But then you lose out on 6 months earnings 😳

Personally I think there are so many variables with this there is no one correct answer.  Horses for courses.

I'm not sure I follow your line of thinking. If someone is planning to retire soon then presumably they are in a position to look after themselves financially, therefore "losing" 6 months worth of earnings doesn't really matter. If it did matter they wouldn't be in a position to retire anyway.

Dazed_and_C0nfused

El_Torro said:

Dazed_and_C0nfused said:

El_Torro said:

I would have thought it would be better to retire halfway through the tax year rather than at the end of one. Reason being that you pay less tax on what you earn. How much of an impact this has depends on how much you earn each week / month. Also if you still need to accrue more state pension then potentially a few months of work will cover this. 

There are plenty of reasons to time your retirement differently. You just asked for financial / tax reasons though.

But then you lose out on 6 months earnings 😳

Personally I think there are so many variables with this there is no one correct answer.  Horses for courses.

I'm not sure I follow your line of thinking. If someone is planning to retire soon then presumably they are in a position to look after themselves financially, therefore "losing" 6 months worth of earnings doesn't really matter. If it did matter they wouldn't be in a position to retire anyway.

But the op was this,

Is it best to retire at end of March , just before the new tax year starts ? Purely from a financial / tax viewpoint 

So from a financial viewpoint you have missed out on 6 months wages compared to retiring at the end of the year.  If you stop after 6 months you could well be due a tax refund but that will pale into insignificance compared to the earnings you don't get.

El_Torro

Dazed_and_C0nfused said:

El_Torro said:

Dazed_and_C0nfused said:

El_Torro said:

I would have thought it would be better to retire halfway through the tax year rather than at the end of one. Reason being that you pay less tax on what you earn. How much of an impact this has depends on how much you earn each week / month. Also if you still need to accrue more state pension then potentially a few months of work will cover this. 

There are plenty of reasons to time your retirement differently. You just asked for financial / tax reasons though.

But then you lose out on 6 months earnings 😳

Personally I think there are so many variables with this there is no one correct answer.  Horses for courses.

I'm not sure I follow your line of thinking. If someone is planning to retire soon then presumably they are in a position to look after themselves financially, therefore "losing" 6 months worth of earnings doesn't really matter. If it did matter they wouldn't be in a position to retire anyway.

But the op was this,

Is it best to retire at end of March , just before the new tax year starts ? Purely from a financial / tax viewpoint 

So from a financial viewpoint you have missed out on 6 months wages compared to retiring at the end of the year.  If you stop after 6 months you could well be due a tax refund but that will pale into insignificance compared to the earnings you don't get.

Fair enough. Looks like we were just interpreting the question differently. I was looking at it from a point of view of minimizing one's tax bill and maximizing the return per hour worked. Either way I'll just assume we're both right

Either way I agree with your earlier statement that when is best to retire depends on each person's individual circumstances.

SouthCoastBoy

Dazed_and_C0nfused said:

El_Torro said:

Dazed_and_C0nfused said:

El_Torro said:

I would have thought it would be better to retire halfway through the tax year rather than at the end of one. Reason being that you pay less tax on what you earn. How much of an impact this has depends on how much you earn each week / month. Also if you still need to accrue more state pension then potentially a few months of work will cover this. 

There are plenty of reasons to time your retirement differently. You just asked for financial / tax reasons though.

But then you lose out on 6 months earnings 😳

Personally I think there are so many variables with this there is no one correct answer.  Horses for courses.

I'm not sure I follow your line of thinking. If someone is planning to retire soon then presumably they are in a position to look after themselves financially, therefore "losing" 6 months worth of earnings doesn't really matter. If it did matter they wouldn't be in a position to retire anyway.

But the op was this,

Is it best to retire at end of March , just before the new tax year starts ? Purely from a financial / tax viewpoint 

So from a financial viewpoint you have missed out on 6 months wages compared to retiring at the end of the year.  If you stop after 6 months you could well be due a tax refund but that will pale into insignificance compared to the earnings you don't get.

If you continued with this theory you would never retire, as you are perpetually losing earnings, its the position I'm in. I could retire in march but what if I stayed for another 6 months? Personally when I finally retire I plan to leave mid June, as I will rack up another years state pension although I don't need it, just me being crazy and also will have used my personal tax allowance so will withdraw from isas for rest of year. 

Bimbly

For income tax purposes, the end of the September is best because your six months of wages will be spread out across a whole year of tax allowances. So you should get a tax rebate.

Although, pension income is taxable, so if you immediately start drawing your pension, that will mitigate that. Therefore, probably best for people who are able to use savings for the following six months before drawing their pension. Or possibly those with only a small pension.

I'm intrigued why you think March would be best? I would have thought it was the worst financially speaking. The only advantage I can think of is the ease of making calculations for the financial year with regard to change in income.

sgx2000

Bizarrely I was about to post exactly the same question.

My thoughts where... that if you retire in March,
Your first draw  down will be either March or April 
and that HMRC will assume that this is one of 12 amounts and tax it correctly

Or am I just being too simple/naive ..

ex-pat_scot

There are a number of factors in play here.

1. NI. You might not have the full NI years, and working enough into the next tax year would get you another year's entitlement. (It's for this reason that I plan to work until at least June)
2. tax rebate. If you are a high earner, then you can perhaps earn up to the threshold in the new tax year, then stop. This would optimise your income tax (but possibly not the NIC). Clearly if you are a much higher earner, then this point would come sooner in the year)
3. accrued holiday. You might have significant holiday owing, and use it up at the end of your employment. (or get it paid - same outcome)
4. HMRC will assume that any income taken from pension will be a recurring monthly figure - you can talk to them and get it adjusted, but it's a faff.

There are lots of non-financial factors too.

You could work up to the summer, and then "reward" yourself with a fab holiday, using the salary you had gained since April.
Or your family might be otherwise occupied until the summer, if you have children in education or spouse at work.