It is that time again. It is time to review the rules for choosing a good CSRS or FERS retirement date for this year and time to figure out the “best” date to take advantage of tax breaks, lump sum payments, and computation of retirement benefits.
Choosing a good retirement date involves some homework that must begin long before you complete your CSRS or FERS retirement application. Consider attending a pre-retirement planning seminar to get assistance with the financial planning, tax issues, and planning for a life after retirement (include your spouse or significant other in this discussion if you have one)! If this is the year you have decided to begin your retirement from federal service, then this article is for you!
If you like it simple and short, then here it is:
The best date to retire in 2005 is:
Tuesday, January 3, 2006 for CSRS (and CSRS Offset)
Saturday, December 31, 2005 for FERS (and transFERS)
First of all, here are some things to consider when you are choosing your retirement date this year – or any year:
1. First Retirement Check
a. Retirements benefits begin on the first day of the month following your retirement date.
i. This means that if you retire on February 12, your first retirement check will be for the month of March. You will not be paid retired pay or salary for February 13 – 28!
ii. For those of you under FERS who do not receive credit for your unused sick leave, you may be tempted to retire on your “anniversary” of federal service. The reason for this would be to have your FERS retirement benefit computed on an exact number of years or years and months of service. Do not be tempted to do this since it may cause you to lose the salary payment for the remaining days of the month. (see i. above)
a. CSRS employees (including CSRS Offset) who retire on the 1st, 2nd, or 3rd day of the month.
i. These retirements commence the following day. This means that if you retire on Friday, September 2, 2005, your first retirement check will be dated October 1 and include 28/30 of the September retirement payment.
b. Involuntary retirements commence the day following your separation. This includes discontinued service, disability, and mandatory retirements for special groups (law enforcement, firefighters, air traffic controllers).
3. Annual Leave Accrual
a. A full-time employee who retires before completing the 80-hours of work in a biweekly pay period will not accumulate leave for that period.
b. Employees can generally carry over 240 hours of accumulated annual leave from one year to the next. Some employees may carry over more such as members of the senior executive service and those who have had leave restored.
c. Employees can accrue leave above the 240 hours during the current leave year.
d. The 2005 leave year ends Saturday, January 7, 2006.
4. Annual Leave Payment
a. Any unused annual leave is paid to the employee in a lump sum payment including accumulated and accrued leave as well as compensatory time and credit hours.
b. Generally, a lump-sum payment will equal the pay the employee would have received had he or she remained employed until expiration of the period covered by the annual leave. This means the employee may receive a higher payment for the annual leave due to an upcoming pay adjustment that occurs after retirement (typically at the beginning of each leave year).
c. Withholdings from the annual leave check include federal, state, and Social Security taxes. Retirement, insurance and TSP deductions are not withheld.
d. The lump sum annual leave payment is paid by your agency. You should receive this payment within 4 – 6 weeks of your retirement date in most cases.
e. The lump sum payment for annual leave is taxable when it is received.
5. Social Security maximum taxable earnings (FERS only):
a. For 2005, earned income in excess of $90,000 will not be subject to the 6.2% FICA withholding. This applies to FERS and CSRS Offset employees who are fully covered by Social Security. For FERS employees this could be a savings of 6.2% of any salary (including lump sum leave payments) that cause earned income to exceed $90,000. CSRS Offset employees revert to paying the full 7% CSRS contribution if they exceed the maximum Social Security earnings.
b. This might be a reason why a FERS employee would consider retiring at the end of October instead of the end of December. By doing so, they will save the 6.2% FICA tax withholding on the leave payment, but will lose 5 accruals of additional leave and the lump sum payment will mostly equal the 2005 pay rate. The other advantage is to enjoy two more months of retirement!
6. Applying for Social Security benefits (only those eligible):
a. You can apply for retirement benefits online at www.socialsecurity.gov or you can call toll-free, 1-800-772-1213. Or you can make an appointment to visit any Social Security office to apply in person.
b. If you work and are full retirement age (age 65 and 6 months in 2005) or older, you may keep all of your benefits, no matter how much you earn. If you are younger than age 65 and 6 months all year, there is a limit to how much you can earn and still receive full Social Security benefits. If you are younger than age 65 and 6 months in all of 2005, Social Security must deduct $1 from your benefits for each $2 you earned above $12,000. If you turn age 65 and 6 months during the year, there is a higher limit.
c. There is a special monthly test applied during your first year of retirement if you are under your full benefit age. This means that you can earn above the annual limit before you retire, but still receive Social Security benefits beginning your first month of retirement.
d. Only your wages count toward Social Security’s earnings limits. If you are self-employed, only your net earnings from self-employment count. Income such as other government benefits, investment earnings, interest, pensions, annuities and capital gains are not considered against the earnings limit.
e. Depending on your date of birth, your Social Security benefit will be paid on the 2nd, 3rd or 4th Wednesday of the month.
7. TSP Payments
a. Wait at least 30 days after your retirement date to request a payment from your TSP account.
b. Deadline to make a TSP withdrawal request is by April 1 of the year following the year you become age 70 ½ and are separated from Federal service, the TSP requires that you withdraw your entire account balance in a single payment, begin receiving monthly payments, purchase a TSP annuity, or use a combination of these withdrawal options.
c. Withdrawal forms for the TSP can be found at www.tsp.gov.
OK, did you understand all of that? Well if you did, then choosing the best retirement date will be a little easier.
For most CSRS and FERS retirements, it makes sense to retire on the last day of the month. CSRS employees should also see if the 1st, 2nd, or 3rd day of the following month might provide an additional benefit such as accrual of another 8 hours of annual leave or enough additional service to add another month to the computation of the retirement benefit.
Some possible retirement dates to check out this year in addition to the end of the year include April 1 (CSRS), April 30, September 2 (CSRS), September 30, and October 31.
December 31 probably makes sense for FERS employees since waiting until the end of the leave year (January 7, 2005) would not allow payment of the January FERS retirement benefit.
But why did I suggest retiring on January 3, 2006 for CSRS employees rather than December 31? Because:
” January 2, 2006 is a paid federal holiday
” January 3, 2006 is a paid work day
” Your CSRS retirement will still commence on January 4, 2006
” All but 24 hours of your lump sum annual leave will be paid at the 2006 pay rate
Next step: Request a retirement estimate from your office of Human Capital (formerly known as Human Resources and formerly known as your personnel office) for the date you are considering to be sure this is the best date for you!
Tammy Flanagan conducts training seminars for NITP. She lectures and consults with Federal employees in all aspects of employee benefits, specializing in the concerns of pre-retirement planning, mid-career planning, and new employee training.