Expert's View

Last week I spelled out the rules governing when your annuity begins and some considerations for picking a date. In short, FERS employees have to retire by the last day of a month in order to begin earning an annuity in the following month. CSRS employees can retire up to the third day of a month and still receive an annuity roll in that month.

This time I want to focus on choosing a departure date that increases the dollar value of your retirement. There are three ingredients: your high-3 average salary, your unused sick leave, and your unused annual leave.

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Once you’ve met the age and service requirements to retire, which I spelled out in my last article, you are ready to compute your annuity. That annuity will be based on a fixed formula with two variable elements: the average of your highest three consecutive years of basic pay (your high-3) and your years of creditable service.

As a rule, the high-3 gets higher the longer you work (the exception would be a situation such as a temporary assignment at a higher level). Therefore, most employees who are eligible to retire do so when they have come as close as possible to spending a full year at their highest pay level. That’s usually the end of a year following an annual pay adjustment.

For most employees, annual pay adjustments occur on the first pay period beginning on or after January 1. This year, employees received raises ranging from about 2.8-3.5 percent, varying by locality, effective January 5.

Assuming there will be a pay raise in 2021—it most likely will be 1 percent—the effective date will be January 3, 2021.

Then there’s sick leave. If you are a CSRS employee, when you retire, any unused sick leave will be added to your actual service time. If you are a FERS employee with a CSRS component in your annuity, any sick leave you had on the books before you transferred to FERS that doesn’t exceed you current sick leave balance will be added to your actual service time.

The more sick leave you have, the greater the increase in your annuity will be. Here’s how that works. Your basic annuity will be determined by a formula that includes your years and full months of service. Any service that doesn’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.

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 that leave will be projected forward as if you were still at work, it will be paid 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.

However, if you have more unused annual leave than the maximum you can carry into the next leave year (in most cases 240 hours) and you can’t use the excess before the end of the current leave year, you may want to retire before the new leave year begins. As mentioned above, for most employees that date is January 3, 2021.

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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.

Looking Ahead to Cashing in Annual Leave

TSP: Markets May Be Rotating; S Fund vs. C Fund

Thinking about Retirement- Picking a Date

Supplement Paid to FERS Retirees Until Hitting 62

FERS Retirement Guide 2021

TSP Investors Handbook, New 7th Edition