Another goal when setting a retirement date is to increase the value of your unused annual leave. Image: Serhiy Stakhnyk/Shutterstock.com
By: Reg JonesLast week I spelled out the rules governing when you can retire and when your annuity begins. In short, FERS employees must retire no later than the last day of the month to be on the annuity roll in the following month. CSRS employees can retire up to the third day of the month and be on the annuity roll in that month.
This time I want to focus on three factors involved in picking a retirement date that produce the most payoff to you. Two involve increasing the value of your annuity through the two elements that go into the calculation: your high-3 average salary and your creditable service time, which includes credit for unused sick leave. The other involves the value of the lump-sum payout for unused annual leave.
As a rule, your high-3 gets higher the longer you work. Note, though, that your high-3 number reflects the average of your highest paid 36 consecutive months of work, not the average of your last three annual salary rates. Therefore, putting off retirement from, say, the end of December to wait until after a raise kicks in—typically in mid-January—would have little impact. That said, most employees who retire do so when they have come as close as possible to spending a full year at their highest pay level. That’s one reason there are so many retirements around the turn of the year as opposed to, say, mid-year.
When you meet the age and service requirements to retire, any unused sick leave will be added to your actual service time. Here’s how that works. Your basic annuity will be determined by a formula that includes your years and full months of service. Any hours of service that don’t add up to full month will be added to any hours of unused sick leave. For example, if the combination adds up to 174 hours, your length of service will be increased by 1 month, 338 hours 2 months, 2087 hours 1 year, and so on.
Therefore, don’t “burn off” your sick leave in the runup to retirement. Anecdotally, some employees do that by coming up with dubious conditions; management is supposed to prevent that but again, anecdotally, in some cases it doesn’t.
Another goal when setting a retirement date is to increase the value of your unused annual leave. When you retire, you’ll be given a lump sum payment for that leave. Since it will be projected forward as if you were still at work, it will be paid to you at the hourly rate in effect at that time.
Even if you retire before a new annual pay adjustment goes into effect, any unused annual leave that crosses over into the new pay year will be paid at that higher hourly rate. Therefore, if you have more unused annual leave than you can carry into the next leave year, you likely would want to retire before the new leave year begins.
With these tips at hand, you should be able to pick a retirement date that improves the dollar value of your retirement.
Next week I’ll begin cataloging some of the things that could get in the way of your making a good retirement decision.
Former head of retirement and insurance policy at the Office of Personnel Management, and longtime FEDweek contributor, Reg Jones is known throughout the federal workforce community as an authority on pay and benefits.
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