Reg Jones Expert's View

It’s getting to that time of year again. The time when employees who are eligible to retire start thinking seriously about doing that. And the first question most of them ask is this: “What’s the best day to retire?”

Unfortunately there isn’t any one “best day” – but there are two primary considerations.

ADVERTISEMENT

First, the rules differ based on the retirement system you are in. Second, it depends on which financial outcome is most important to you.

If you are covered by FERS (including those with a CSRS component in their annuity), no matter which day in a month you retire, you’ll be on the annuity roll in the following month. So, for example, if you retired on December 31, 2020, you’d be on the annuity roll in January 2021.

The rules for CSRS, (including CSRS Offset) are slightly different. If you retire on the first, second or third day of a month you’d be on the annuity roll that month. For each of those three days, your annuity for that month would be reduced by 1/30th. So, if you retired on January 3, 2021, your annuity payment for January would only be for 27/30ths.

Which date works best for you depends on a number of things. For example, if you were on the annuity roll in January 2021, you would only be entitled to receive 11/12ths of the annual cost-of-living adjustment (COLA) in January 2022. On the other hand, if you were on the annuity roll in December 2020—meaning you’d have to retire by December 3—you’d be entitled to the full amount.

Another factor is your annual and sick leave balance. First, note that you retire anytime other than the end of a pay period, you won’t receive credit for the annual and sick leave you would have earned for that pay period.

Unused sick leave is not cashed out but rather is added to your actual service in your annuity calculation; in sum, each 174 hours adds a month’s worth of credit, with any remainder discarded. If you’ve worked a long time and/or have used relatively little sick leave during your career, this could add months or even a year or more of service time.

In contrast, the value of unused annual leave is paid out to you as cash. If you retire before the end of the leave year—which will be January 2, 2021 in this case—you can cash in the full amount to your credit even if it is above the maximum (generally, 240 hours) that a federal employee can carry from one leave year to the next.

The payment reflects the pay you would have earned if you had stayed on the job, meaning that it will include any pay raise you would have received in that time. General federal raises—it most likely will be 1 percent in 2021—take effect as of the first full pay period of the year, which will start January 3 in this case.

Thus, the closer you are to the day on which the new leave year begins and the annual pay increase goes into effect, the more of those hours will be paid at the higher rate.

Best Day to Retire for Feds in 2021?

What it Takes to Be a TSP Millionaire

Immediate Retirement Under FERS

Report: Phased Retirement for Federal Employees

FERS Retirement Guide 2021