WHEN IS THE BEST DAY TO RETIRE?
OCTOBER 15, 2020
For successful federal retirement to become a reality, confusion must be banished and wise discernment should be used. One of the most obvious decisions in determining when to retire is selecting the best day to do so. While there are many important considerations between retirement eligibility and retirement date, for this blog the assumption is that the federal employee does have the necessary age and years of service to retire. For information on retirement eligibility, click here. Although there may be a wide range of reasons to pick a retirement date, like a long-planned vacation, a significant occasion, or because one is simply ready to go; there are some guidelines that may help in this decision making process. Below are three things to consider when choosing the best day to retire.
Leaving at the End of the Month
FERS employees may want to consider retiring at or as close to the end of the month as possible. The reason for this is linked to how a federal annuity is paid. FERS annuities begin to accrue the first day of the month after one retires but will not actually be paid until the following month. For example, if Carrie retires on July 31st her annuity will begin to accrue on August 1st and she will receive her first annuity payment in September. If Carrie were to wait to retire until August 1st her annuity would not begin to accrue until September 1st, and she would not receive her first annuity direct deposit until October. In this example she would go roughly two months before receiving an annuity payment. This can be a tough transition, especially for someone used to receiving a paycheck every two weeks.
Leaving at the End of the Pay Period
When considering the best day to retire it can also be helpful to look at retiring at the end of a pay period. The reason to retire at the end of a pay period rather than the middle is to accrue as much sick and annual leave as possible. Sick leave does not count toward retirement eligibility but does count toward years of service in the annuity calculation. As a reminder, the FERS pension calculation is: High 3 x years of service x 1% (or 1.1% if age 62 with 20 or more years).
Although sick leave cannot help one retire earlier by adding to the total years of service for retirement eligibility, it can be added to years of service in the above pension calculation.
It is important to note that unused sick leave counts as time served, but it is not a one-for-one conversion. Federal employees will need to reference the Credit for Unused Sick Leave Conversion Chart published by OPM (page 51 of this handbook) to determine how many service months and days may be added to the calculation. Please be careful as one day does not equal eight hours on this chart.
Leaving at the End of the Year
Did you know that annual leave has a cash value at retirement? The federal government will issue an electronic check for unused annual leave at retirement. The amount is equal to total hours of unused annual leave multiplied by hourly rate. Both current annual leave balance and hourly rate should be visible on the biweekly Leave and Earnings statement. To maximize the amount of annual leave and increase the amount payable for that time, some federal employees wait to retire until the end of the year.
To be sure, the three points listed above do not cover every possible scenario or situation that may weigh into choosing the best day to retire. At the very least we do hope we’ve provided a framework to help guide the decision making process. For more on this topic, see our video “When is the best day to retire?”
About Us
Retirement Benefits Institute provides benefits and retirement training to federal employees. Our trainers and sponsors have instructed over 12,000 federal employees, making it possible for over 2,000 individuals to obtain personal consultation and receive assistance in specific federal benefit planning to maximize their assets. Contact us for more information at (877) 864-1145 or click this link to email us.
Disclosure
The information contained in this blog should not be used in any actual transaction without the advice and guidance of a tax or financial professional who is familiar with all the relevant facts. The information contained here is general in nature and is not intended as legal, tax or investment advice. Furthermore, the information contained herein may not be applicable to or suitable for the individual’s specific circumstances or needs and may require consideration of other matters. RBI is not a broker-dealer, investment advisory firm, insurance company, or agency and does not provide investment or insurance-related advice or recommendations. Brandon Christy, President of RBI, is also President of Christy Capital Management, Inc., a Registered Investment Advisor.