What is the best date for you to retire? The easy (and smart-alecky) answer is: “Whenever you meet the eligibility criteria, can afford to leave and feel like leaving.”
Beyond that, however, there are several things to consider. Many retirees (in some agencies it actually is a majority of employees) choose to retire near the end of the calendar year and leave year. The main reason for this is to maximize the lump sum payment for annual leave.
It is not unusual for an employee to carry over the full 240 hours of annual leave into the year in which they plan to retire. Then they try not to take any annual leave during the year, accumulating another 200 or 208 hours of leave. Assuming they take no leave in the year, they will have a balance of 440 or 448 hours of A/L when they leave. The balance could be more if it includes restored leave, “BRAC leave”, compensatory time or credit hours.
A few things about the lump sum payment should be emphasized:
- The payment does not have several deductions taken out of it:
–Retirement deductions are not withheld (7% for CSRS and .8% for CSRS Offset and FERS)
–Insurance premiums will not be taken out. If you carry your insurance into retirement, it will have been taken out of your last paycheck and will be taken out of your first retirement check.
–TSP payments cannot, by law, be taken out of lump sum leave payments.
- If you leave at the end of 2009, your lump sum payment will not be received until 2010 when you will, presumably, be in a lower tax bracket.
- The lump sum payment will be computed as if you had begun to take the leave on the first workday after you retired and used it until it expired. Leaving at the end of the year would result in most, if not all, of the payment being computed at next year’s salary.
If you are in the FERS retirement system, you want to leave no later than December 31, 2009. If you retire on that date, your first annuity payment will cover the month of January 2010 and will be received on or about February 1, 2010. Looking at the 2009 calendar, you will see that December 31st is a Thursday.
What would happen if you retired January 1st? If a FERS employee is on the rolls even one day during a month, they are not entitled to an annuity for that month. Therefore, if you retired January 1, 2010, your first annuity payment would be received on or about March 1, 2010, and would cover the month of February.
CSRS employees are treated a little differently when it comes to retiring at the end of a month. They are allowed to work up to and including the 3rd of a month and receive a prorated annuity for that month. This year that means that, in most circumstances, January 1, 2010 would be the best day to retire.
A CSRS employee who retired that day would get paid for the holiday and would receive an annuity covering January 2nd through January 31st on or about February 1st.
Why not January 3rd for a CSRS employee this year? The employee would be giving up two days of annuity (the 2nd and 3rd) for no days of pay (the 2nd and 3rd are a Saturday and Sunday). This would, of course, be different if either the 2nd or 3rd were scheduled work days.