Make Sick Leave Pay You for a Lifetime

Federal benefits are full of great nuggets and provide the ability to have a powerful package if you know how to coordinate them. For example, have you ever considered the impact sick leave could have on your retirement? Yes, sick leave. The time you can take or save while employed can have an impact on you years after you leave your job.

Let’s explore how this benefit, used with the right strategy, can supercharge your pension. 

Unlike annual leave, there is no limit on how many sick leave hours you can carry over each year. 99% of the federal employees we see each year know the annual leave limit (either 240 for the General Schedule (GS) pay scale or 720 for Senior Executive Service (SES)), however, most do not know they can accrue an unlimited amount of sick leave.

So, what would be the benefit of this? When you retire, your sick leave is converted to years, months, and days. Then that time is ADDED to your actual service credit time. Thus, by increasing your service credit time you are increasing your federal pension. And that lasts how long? Your lifetime, and even perhaps longer if you have a spouse and that outlives you.

Calculating Sick Leave 

To calculate how much time your sick leave is worth you will need the 2087 chart (see below). This can be found on opm.gov or by searching the web.

To convert your unused hours of sick leave into days and months, locate the number in the the table below that is closest to the sick leave balance listed on your Earnings & Leave Statement. If you cannot locate the exact number, use the next higher number nearest your exact hours, round up! After finding the number of months and days, add it to your actual service (years, months, and days). 

Only years and months are used in your pension calculation. All remaining days are dropped off. Be sure to add your sick leave time and your actual working time together BEFORE dropping off the days. This new balance of years and months will be used for the pension calculation.

Sick Leave and Retirement Eligibility

Now, it is important point to understand sick leave cannot make you eligible for retirement.

For example, if you are 60 with 19 years of service and 1 years of sick leave (2087 hours), you would not be eligible for retirement. You would have to work to age 61 to acquire the additional working year. Then your pension would be calculated with the 20 years of service and the 1 additional year of sick leave. So, your total SCD (Service Computation Date) for pension calculation would be 21 years. 

Following up on the point above: If a federal employee under FERS (Federal Employees Retirement System) wanted to use his or her sick leave to retire at MRA, be careful! For example, if this FERS employee had reached MRA age and had 29 years of service with one year of sick leave, could he or she retire on an immediate pension? Yes, however, he or she would be retiring under MRA +10 which comes with a penalty of 5% reduction for each year under 62! 

So when doing your calculations, please be very careful and consult your HR rep to confirm you have the right calculations. We advocate that you should get an HR retirement estimate to confirm HR has the same numbers you have.

Sick Leave and FERS Pension Calculation

Have all of that down? Ok great, one more curve ball.

Sick leave does not make you eligible for retirement but it can qualify you for the 1.1% boost in your pension calculation. When a FERS employee is at least age 62 and has 20 years or more in service, their pension calculation percentage increases from 1% to 1.1%. That 0.1% might not seem like a big deal, but that is a 10% increase pension increase.

So, if you don’t have the actual working time of 20 years and you have enough sick leave hours accrued, you can qualify for the increase. This could mean thousands of dollars difference over a lifetime. And as mentioned above, if your spouse happens to outlive you or vice versa then those years will be provided with a higher pension as well. 

So, bringing this all together, federal employees would be wise to consider saving as many sick leave hours as possible. Use annual leave or credit awards for days you want to take off. They have expiration tickets, but sick leave does not. Keep the sick leave and make it pay you for the rest of your life. 

James “Wes” Battle is a Financial Planner offering securities through Cetera Advisor Networks LLC, member FINRA/SIPC. Advisory Services offered through Cetera Investment Advisers LLC, a registered investment adviser. Cetera is under separate ownership from any other named entity.   2101 Gaither Rd., Ste 600, Rockville, MD 20850.

The opinions contained in this material are those of the author, and not a recommendation or solicitation to buy or sell investment products. This information is from sources believed to be reliable, but Cetera Advisor Networks LLC cannot guarantee or represent that it is accurate or complete.

For a comprehensive review of your personal situation, always consult with a tax or legal advisor. Neither Cetera Advisor Networks LLC nor any of its representatives may give legal or tax advice.