I guess it’s too late to write a column about the best day to retire this year. Many other writers have beaten me to the punch. In addition, most folks have already set their retirement dates, and their retirement parties are in full swing. This article is for those of you who are biding your time and plan to retire in late 2008 or early 2009 and may be interested in looking at the best dates to retire a year from now.
First and foremost, the best day for you to retire is whenever you feel like it (and meet the requirements). Once you are eligible to retire, you can leave whenever you want. It could be on the first day you are eligible, your birthday, or the day the Cubs win the World Series.
Having said that, many retirees choose to retire near the end of the calendar year. The primary reason for this choice is the ability to get a large lump-sum annual leave payment. Being able to carry over 240 hours of annual leave into the new year and then accrue and additional 200 or 208 hours, can leave one with a large lump sum payment.
The 2008 leave year ends January 3, 2009, anyone retiring on that day (or on January 2nd, if their workweek were complete) would receive 208 additional hours. Someone retiring on December 31st or January 1st would receive 200 additional hours.
The lump-sum leave payment does not have several deductions taken out of it.
- Retirement deductions (7% for CSRS and .8% for CSRS Offset and FERS) are not withheld.
- Insurance payments are not withheld, as they were withheld out of the last paycheck and will be withheld out of the first retirement check.
- TSP payments cannot, by law, be taken out of lump sum leave payments.
Also, the lump-sum leave payment would not be received until the next tax year when, presumably, you would be in a lower tax bracket. Another advantage to retiring near the end of the year is that your lump-sum payment is computed as if you had begun to take the leave on the first workday after you retired and used it until it expired. This way the bulk of the payment would be computed at next-year’s salary.
For FERS employees: The best day to retire is December 31, 2008. If a FERS employee were to work even one day in January 2009, he/she would not receive an annuity for that month. A FERS employee who retired on December 31, 2008 would receive their first annuity payment on or about February 1st and the check would cover the month of January. By working as little as one day in January, the first annuity payment would be received March 1st and it would cover the month of February.
CSRS employees whose workweek ends on January 2nd will find January 2, 2009 the best day to retire. They will get paid for the New Years holiday and January 2nd and will receive a pro-rated annuity payment (on or about February 1st) for the remainder of January. CSRS (and CSRS Offset) retirees have the flexibility to retire up through the third of any month and still receive a prorated annuity.
So get out those red pencils and circle your retirement date on the 2008 or 2009 calendar.
John Grobe’s latest book, The Answer Book on Your Federal Employee Benefits, has just been released by LRP Publications. The book is written in an easy to understand question and answer format and covers all areas of federal benefits from the perspective of an employee at various stages of their career. Order your copy at shoplrp.com.