Is 2025 the year you plan to finally retire? In some ways, beginning your golden years now might be a great idea.
However, there also could be some big drawbacks to stepping away from work this year.
Here are a few reasons why 2025 might be the perfect year to retire — and a few red flags that might keep you working for at least one more year. We begin with the pros of retiring this year.
1. Stocks have soared over the past two years
At the end of 2022, things looked pretty grim for investors. The 12 months that ended that December marked one of the worst calendar years ever for the S&P 500 index.
But things turned around in a hurry, and 2023 and 2024 were the best back-to-back years for stocks since the epic bull market run of the 1990s.
If you remained invested over the past couple of years, it is likely that your portfolio is in much better shape than you might have expected a couple of years ago. Retiring at a time when the market is near all-time highs means you will have more cash to tap into as you start your golden years.
2. Bond yields are up
Whenever the Federal Reserve begins to cut its target federal funds rate, bond yields typically fall. But even though the Fed cut rates three times in 2024, bond yields have risen.
That is great news for those who want to keep a lot of money safely tucked away during retirement. A few years ago, new retirees who wanted to move money from stocks to bonds faced the prospect of very meager returns. That is not the case right now.
3. Annuity rates are attractive
Annuities offer the promise of steady, risk-free income. However, the size of the payout is closely tied to current interest rates.
When interest rates were near zero a few years ago, annuities did not look particularly attractive. But rates are much higher now, making 2025 a potentially good time to lock into an annuity with a higher payout.
Just remember that if the Fed cuts rather further, annuities are likely to become less attractive again. For more on this retirement tool, check out “Considering an Annuity? Now’s the Time to Act.”
4. Savings account rates remain relatively high
Most retirees dial down the level of risk they take with their money, at least compared with when they were working and retirement was still years or decades away. If you plan to move money into ultra-safe savings accounts, you should still get a decent return on those savings in 2025.
In addition, the Fed has signaled that it expects to make fewer rate cuts in 2025. So folks probably don’t have to worry about rates diving in the near future.
5. Home prices may correct in some retirement havens
As we recently reported, some experts — including the U.S. Senate — believe home prices nationwide may be due for a correction. And prices already are falling in some retirement havens, such as Florida and Texas.
So, if you plan to retire in 2025, it’s possible you will have the chance to score a bargain in the new community where you plan to retire.
6. Trump might eliminate taxes on Social Security
Most of us lean heavily on Social Security benefits to fund our retirement. However, around 40% of people pay taxes on a percentage of their Social Security income. This usually happens if you have other substantial income in addition to your benefits.
President-elect Donald Trump has said he wants to do away with these taxes. If Trump makes good on his promise, it should provide some financial breathing room for those who retire and apply for Social Security benefits in 2025.
For more, check out “8 Groups Who Can Expect New Tax Breaks Under Trump.”
Why you might not want to retire in 2025
While there are some good reasons to retire in 2025, there are also a few potential drawbacks to quitting work for good during the year. Here are some reasons to think twice before retiring in 2025.
1. Stocks are due for a correction
What goes up eventually comes down: History suggests that a period of huge gains in the stock market often ushers in a correction, or even a crash.
No one can say for sure where stocks are headed, but it would be foolhardy to count out the possibility that stocks might correct sharply in 2025. If that happens, newly minted retirees might rue their decision to stop working.
2. Older workers can save more in retirement accounts
A recent change to federal law means that beginning in 2025, retirees between the ages of 60 and 63 can make bigger catch-up contributions to their retirement accounts than ever before.
However, you cannot make these contributions unless you continue to work and earn income. For more about how things are changing, read “IRS Hikes Various Retirement Account Limits for 2025 (Including the First IRA Catch-up Hike in Ages).”
3. Trump might eliminate taxes on tips and overtime
During the presidential campaign, Trump promised to eliminate taxes on both tips and overtime pay.
Now that Trump is president-elect, he will have a chance to make good on that pledge. In fact, it appears Congress is interested in making that promise a reality, as we detail in “4 Ways Republicans Want to Slash Your Income Taxes Under Trump.”
Time will tell if they follow through. But if they do, it means those who retire from jobs that offer tips or overtime pay will not be able to benefit from the change — in other words, they will pass up the chance to earn tax-free income and use it to further fatten their retirement savings.
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