We haven’t hit the end of 2010 yet and many people are curious about the best day to retire in 2011. Well, the best day to retire in 2011 is the same as it was in 2010; that is December 31st. This is especially important for those who are planning on receiving a large annual leave payment, as the leave year ends on December 31, 2011 and anyone who retires after that date will lose any excess use-or-lose leave they have accrued.
Let’s face it, one of the biggest reasons that employees choose to retire around the end of the year is to cash in a large amount of use or lose leave. Assume we have an employee who earns 8 hours of A/L per pay period and carries over 240 hours of annual leave into the 2011 leave year. If that employee does not use a single hour of the 208 hours of annual leave they will have earned by 12/31/2011, they will have a balance of 448 hours of annual leave for which they will be paid in a lump sum shortly after they retire. (Shortly generally means two to six weeks).
The lump sum payment will be received in 2012 when, presumably, the retiree will be in a lower tax bracket. In addition, if we get a comparability increase for 2012 (not a sure thing anymore) the value of the lump sum would be computed at the higher 2012 salary. This is because OPM computes the value of the annual leave as if the retired employee had begun taking if the first workday after they retired and had used it until it was exhausted. This computation would not include any within-grade increases the employee would have received had they remained on the rolls.
Retirement contributions (7% for CSRS and .8% for CSRS Offset and FERS) will not be deducted from the lump sum payment, neither will insurance premiums nor TSP contributions. This will result in a larger payment, though your payroll office might withhold taxes at a higher rate than normal.
Of course there is an exception to December 31, 2011 as the best day to retire. The exception would cover a CSRS or CSRS Offset employee who did not have annual leave in excess of the carry-over limit. They would be slightly better off retiring on Tuesday, January 3, 2012. That would allow them to get paid for two days (January 2nd and 3rd) and still receive a prorated annuity for the month.
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.