In my articles, I promised to provide real steps that you can take to enhance your retirement outlook. To that end, I’d like to discuss the power of having a coordinated leave strategy, or how to get an extra year of service without having to get one year older or stay one year longer.
We call this the Enriched Leave Strategy (ELS) for career feds.
This is a longer read, so please stay with me. It will be worth it!
Annual Leave vs. Sick Leave
For our purposes, we will discuss sick leave and annual leave. Additionally, we will be looking at annual leave carryover rules for Non-SES feds.
Here is a flyover of some of the basics.
Annual leave accumulates at an increasing rate over your federal career ranging from four hours per pay period in your first three years to when the formula tops out after fifteen years of service at eight hours per PP. Contrastingly, sick leave accumulates at a steady rate of four hours per pay period.
Annual leave allows for a fixed maximum number of hours for “carryover” from one year to the next while sick leave features no such cap.
For the purposes of this article, I would like you to think of your annual and sick leave as pools of money.
Ecomonic Value of Annual and Sick Leave: An Example Federal Employee
For this example, we will use a fictitious Sample Fed (SF) with a salary assumption of $80,000. This translates to an hourly rate of approximately $38.46.
So, if SF is a full-time career fed, SF will accumulate annual leave worth $153.84 and sick leave worth $153.84 every pay period. Let’s further compound those numbers over the course of the year leading to annual and sick leave value of $3,999.84. (Note this is for the first year of employment only.) I offer this exercise to help bring a tangible economic value to the various types of time off.
Now here is another wrinkle: these dollars can increase in value over time.
Let’s assume that our Sample Fed (SF) never got a promotion or merit raise over his or her career. (Kind of unlikely, but go with me on this).
Let’s further assume that SF received an average pay increase of 2% per year over a 30-year career. This would result in SF’s salary increasing to over $144,000 per year. This means that the value of SFs annual and sick leave figures would grow to $276.92 per pay and $7,200 per year. (Remember, this comparison only uses year 1 figures; annual leave accumulation increases with time.)
Saved leave is not static. Its value grows as your career grows! It’s real money!!! And the best time to build up to the hours for buyback in retirement is as early as possible in your career. (Save low, sell high)
Now let’s return to the annual leave carryover rules. The maximum amount of unused annual leave that can be carried over until retirement is 240 hours. So, if SF has a final year salary of $144,000 and will receive a payment at retirement for the unused annual leave, that payment will be over $16,000.
Value of Sick Leave
Let us now turn to sick leave. Accumulating sick leave over the course of SFs career does not feature the opportunity for a lump sum payout at retirement. Neither does it feature a maximum or cap on how many unused hours can carry over from year to year.
Theoretically, SF could accumulate 3,120 hours of unused sick leave over the 30-year career, or 1.5 years of additional service for retirement calculation purposes.
To be clear, I am not proposing that consuming zero sick leave is a realistic notion.
I do want to stress that an accumulation of unused sick leave can and will boost your pension at retirement.
I do believe that we can be strategic with our sick leave utilization.
I don’t know about you, but I recall being healthier when I was younger than I am today. So, I’m thinking I used less sick leave back then. Feds are in a great position to stockpile sick leave for the possibility of health challenges later. But if you are fortunate not to face those challenges, all is not lost. Sick leave will be added to your service time in the calculation of your pension. How much of an impact might that be? Let’s examine.
For this example, let us assume our SF reached 30 years of service for retirement with 2,087 hours of unused sick leave (about 2/3 of the maximum). That’s one extra year.
Serve 30 years, receive a pension based upon 31 years. What might that mean in dollars? If we assume a high three of $141,000, this will mean an extra $117.50 per month or $1,410 per year.
To be clear, this involves nothing more than being attentive to leave and having a strategy for maximizing its impact on your retirement. I meet and serve retiring feds nearly every day, and believe me, I don’t know any that would turn down an extra $117 per month.
Leave Utilization Strategy
So now that we’ve laid out the basic information and economic value of the respective leave packages, let’s dig into strategy.
Have a plan to coordinate your utilization of annual and sick leave to produce the best outcome for you at retirement.
Fair warning. I’m going to get pretty geeky here. But it will be worth it, I promise.
Accumulating Annual Leave
For now, we will begin with how SF can accumulate annual leave. In the first 3 years, SF will earn 4 hours of annual leave for every pay period. So, the formula is 4X26=104 Hours of annual leave in each year. If SF takes 2 one-week vacations each year, by the end of three years, SF will have accumulated 72 hours of carry-over leave (Remember the maximum limit is 240 hours).
Now, at year 3 SFs formula for leave accumulation becomes more generous and will credit 6 hours per pay period. Now the formula is 6×26=156 hours of annual leave for the year. Assuming SF continues to enjoy two 1-week vacations per year, now 76 hours will be available each year for carry-over (toward the 240 hr. maximum). This means that in just a little over 2 years (in addition to the initial three years), SF will have reached the 240-hour cap.
YAY. AND?????
Now SF will have 76 hours of use or lose annual leave each year until the 15th year of employment ( Yes, I know year five will be less, approximately 60 hours). That use or lose annual leave is available to use INSTEAD of sick leave.
You want me to blow vacay days when I’m sick?
Not blow, strategically utilize. We want to structure our leave use with an eye toward what builds for the future. Use or lose does not; unused sick leave can. In years 3 through the end of year 14, SF will have 76 hours of annual leave per year to use in lieu of 76 hours of sick leave.
Now, for the sake of the detail nerds like me, let’s finish out SFs annual leave choices over the remainder of a 30-year career. Beginning in year 15 (and through year 30), SF will accumulate 8 hours per pay period for a formula of 8 x 26=208 hours of annual leave. Deducting the 80 hours for SFs 2 weeks of vacation now leaves 128 hours of use or lose leave (Remember that number; it will be important in a minute.) Again, SF will have the opportunity to use those hours in lieu of sick leave.
(Spoiler alert for the next section where I cover sick leave accumulation. The maximum annual sick leave that can be earned is 104 hours per year.)
So, what would take place if SF chose to strategically compile annual leave to reach the 240-hour maximum as early as possible and then opted to utilize use or lose annual leave in lieu of sick leave?
Let’s take a look with the following assumptions: SF would use 2 weeks of annual leave each year and save the remainder until 240 hours is reached. Upon reaching the 240-hour maximum total for carryover, SF would then utilize any remaining use or lose annual leave instead of sick leave.
SF would accumulate total hours of unused sick leave in the following amounts by time period:
- Years 1 til 3: None ( 24 hours per year added to rollover annual leave)
- Years 3 through 4: None ( 76 hours per year added to rollover annual leave)
- Year 5: 60 hours (After 2 weeks’ vacation taken and 16 hours added to rollover)
- Years 6 through 14: 608 hours (76 hours per year available after 2 weeks’ vacation taken)
- Years 15 through 30: 1560 hours (128 hours per year available after 2 weeks’ vacation taken)
- For a total of 2,228 hours
NOTE: This does not include ANY unused sick leave that SF may not have used in years 1-4. I just wanted to keep this example clean.
2,228 hours of annual leave used in lieu of sick leave would mean that at least 2,228 hours of unused sick leave would be accumulated to be added to SFs retirement calculation.
Now we go into the weeds. When it comes to calculating retirement for Feds, a day is officially 5.797 hours. The formula to arrive at this comes from dividing the official federal work year number of 20,87 hours by 360 days (for retirement the year is made up of 12, 30-day months). This means that a “retirement month” equals 174 hours.
2,228 divided by 174 equals 12.8 months. (The .80 part would not be added to the retirement total)
That is over 1 year of additional service time! Just for having and following a strategy.
Now to tie up the loose ends; remember in years 15-30 SF had 128 hours of use or lose leave and would only need to offset 104 hours of sick leave (the formulaic maximum accumulated for the year).
So, there would be an extra 24 hours of use or lose leave each year (or an extra 3 vacation days) to use here and there. Tack those on to a week with a Monday holiday and you have a nice 5-day weekend, almost like another week off.
Accumulating Sick Leave
Now let’s flesh out the basics and touch on SFs sick leave formula on computation.
From the first year of SFs employment, SF will accumulate 4 hours of sick leave per pay period. 4 x 26=104 hours of sick leave. Extrapolate that over 30 years of service you reach the 3120 hours of sick leave that I previously mentioned.
Now back to the main point. SF picked up an extra year of service without a lot of heavy lifting. I have been helping feds for nearly four decades. Believe me, I have heard many feds tell me that “they just can’t do one more year”. What they would have given to be able to “just add” a year to their formula.
Please understand that I am not proposing a work-life of depravation or Spartan living. Nor do I mean to imply that if you did not start strategic use on day one of your career that all is lost. The best time to begin to handle leave strategically is today. Further, I am pleading on behalf of your future self to approach your annual and sick leave by thinking of them as assets with a true dollar value.
I ask you to approach these benefits with intentionality, mindfulness, and above all, a strategy, one that will enrich you.
Have you ever wondered how much use or lose leave is just burned at the end of the year? I have. Have you ever wondered how much use or lose leave is lost? I have. Have you ever wondered just how easy it might be to handle leave better? I have. And today I have shared the result of my wonderings and the resulting strategic solution with you with the express goal of helping you add a full year of service to your retirement calculation. No matter where you are in your federal career, this strategy can help.
Key Takeaways
So here are the takeaways and action steps:
- From your leave and earnings statement, identify your current sick leave total.
- Subtract that total from 2,087.
- Divide the remainder by the number of years between today and your desired retirement date.
- Use the above table to determine how many potential hours of use or lose leave you have available each year between now and your retirement date.
- Divide the number from Step 3 by the number from Step 4 for how many years it will take to reach 2,087.
- Start doing it.
Important! Even if you cannot reach 2,087 with your remaining years, these steps will STILL help. Likewise, if you are able to accumulate MORE than 2,087, GO FOR IT!
My final statement revolves around health. I know that illness and injury are a part of life. If you are reading this, it is my sincere hope that you are spared serious health issues. I recognize that it is also possible that this plan could be disrupted by a serious health event. Nevertheless, I believe that having a strategic approach to managing the assets of annual and sick leave will usually result in a better outcome.
It is my hope that you will find this helpful toward an even more rewarding and enriching federal career. Or as I say when I close the FedLife podcast: It’s your FedLife! Please make it a great one, because you deserve it!
All for now.
Quick Reference Tables
Annual Leave Accumulation
| Years 0 until year 3 | 104 hours per year |
| Years 3 through 14 | 156 hours per year |
| Years 15 until retirement | 208 hours per year |
Sick Leave Accumulation
| Years 0 until retirement | 104 hours per year |
Dan Sipe, founder of Serving Those Who Serve, has nearly four decades of experience in fed-focused financial planning and serving the federal community. His mission is to help federal employees achieve financial security and fulfillment.
Written by Dan Sipe. The information has been obtained from sources considered reliable but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of the author and not necessarily those of RJFS or Raymond James. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Investing involves risk and you may incur a profit or loss regardless of strategy suggested. Every investor’s situation is unique and you should consider your investment goals, risk tolerance, and time horizon before making any investment or financial decision. Prior to making an investment decision, please consult with your financial advisor about your individual situation. While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of RJFS, we are not qualified to render advice on tax or legal matters. You should discuss tax or legal matters with the appropriate professional.
