When Should You Take Your Final Paycheck To Save Thousands When You Retire? LFG Daily - October 15, 2025

Dream Bigger, Sleep Better

Luke Lloyd, CEO Lloyd Financial Group

When to Take Your Final Paycheck: The Smart Tax Move Most People Miss

As you approach retirement, one of the most overlooked — yet potentially impactful — financial decisions you can make is when to take your final paycheck.

It may not seem like a big deal, but the timing of your accrued vacation days, sick days, and any lump-sum payouts can have meaningful tax implications. The difference between taking that check in December versus January could mean thousands of dollars in your pocket — or in the IRS’s.

Here’s the Situation:

Let’s say you’re retiring at the end of the year. After decades of hard work, you’ve built up a nice reserve of unused sick time and vacation days. Many employers offer a lump-sum payout for that unused time — sometimes adding up to a full extra paycheck or more.

If that payout hits your bank account in December, it’s added to your current year’s income — potentially pushing you into a higher tax bracket, especially if you’ve had a strong income year.

If instead, you officially retire on January 1st, and that check is processed in the new tax year, you might find yourself in a lower income bracket, since you’ll likely have reduced wages, no bonuses, and no work income for the rest of that year. That means a potentially smaller tax bill.

Example:

• Scenario 1: Retire December 31, 2025You receive your $10,000 accrued sick/vacation payout along with your final salary in 2025.Your total income for 2025: $180,000 → Payout taxed at your higher marginal rate (say, 24%).

• Scenario 2: Retire January 1, 2026That same $10,000 is paid in 2026, when your income may drop to $60,000 (from part-time work, Social Security, etc.).Now, the payout could be taxed at just 12% or 22% — saving you a few thousand dollars just by timing it right.

  
  

Other Considerations:

• Social Security & Medicare Taxes: If you’ve already maxed out your Social Security wage base for the year, additional pay in December may not be subject to that 6.2% tax. That could slightly offset the benefit — but it’s still worth running the numbers.

• Roth Conversions: If you plan to do Roth conversions in your first retirement year, delaying that final paycheck could open up more room in lower brackets.

• Employer Retirement Contributions: Confirm with HR whether waiting until January affects any employer matches or pension credits.

  
  

The Bottom Line:

When you retire, how you leave matters just as much as when you leave.If you’re within a few months of retirement, talk with your financial advisor and tax professional about strategically timing your final paycheck, sick day payout, and any deferred compensation.

A simple calendar adjustment could help you dream bigger, sleep better, and start retirement with more money in your pocket — not Uncle Sam’s.

Don’t leave your financial future up to chance. Let’s build a plan that gives you confidence today and peace of mind for tomorrow. Click here to schedule a meeting — I’m here to help you take the next step toward financial freedom.

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Colin Symons, CIO Lloyd Financial Group

China said they would fight to the end on the trade war and sanctioned five US shipping subsidiaries, effectively matching similar US action. This started the stock market on its back foot.

Then, the stock market took off after US Trade Representative Greer said the meeting between Trump and Xi was still on.

Towards the end of the day, Trump put out an angry Truth post about China not buying our soybeans and perhaps restricting cooking oil, sinking markets a bit, again.

The US and China had staff level talks in Washington DC.

Powell’s speech seemed to mostly be about prepping the market for the end of QT (Quantitative Tightening,) which would be accommodative for liquidity. He also admitted that they did QE (Quantitative Easing) for too long.

EZ Industrial Production, NY Fed Manufacturing, and the Fed Beige Book should give us some data, today.

What does it all mean? Generally constructive moves yesterday, particularly Powell sounding more dovish. China trade negotiations drag on for two-way risk.

Don’t leave your financial future up to chance. Let’s build a plan that gives you confidence today and peace of mind for tomorrow. Click here to schedule a meeting — I’m here to help you take the next step toward financial freedom.

Book a Meeting with LFG

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