Would you believe that articles are being written about the best day to retire in 2021 already? About a quarter of 2020 is left and we’re seeing articles and charts that outline the so-called “best” day to retire when it comes to federal retirement! These articles focus, as they should, on the days that are most advantageous to retire on, whether you are FERS or CSRS. They are based on the fact that, although you can retire any day you want to once you become eligible, some days are better than others.
Often the last day of a month is the most beneficial for FERS, while a day between the last day of a month and the 3rd of the next month work best for CSRS. For those who are looking at maximizing the value of their lump-sum annual leave payout, the end of the year is generally best.
This newsletter is about the Thrift Savings Plan, so we’ll look at whether there are any days that are better than others from a distinctly TSP perspective. The answer is not as clear as when we look at FERS and CSRS, but there are some TSP related items that you should consider when you are choosing the day you retire.
If you are retiring at or near the end of the calendar year, you should be sure to max out your TSP contributions for the year if you can afford to do so. This means that you should, at the beginning of the year in which you plan to retire, divide the elective deferral amount ($19,500 in 2020 and, presumably the same in 2021)) by the number of pay days you will have (generally 26, though occasionally 27).
If you were retiring at the end of 2021 (assuming the elective deferral amount remains at $19,500), you would contribute $750 per pay period in a 26 pay day year; this would have you reaching the elective deferral amount in your final pay period. If 2021 has 27 pay periods (different payroll providers might have differing numbers of pay periods within a year), you would set aside $723 per pay period. You would also receive the full employer matching contribution, as you had contributed over 5% of your salary in each pay period.
If you’ve decided mid-year to retire at the end of the year and want to max out your contributions by the time you leave, you will want to divide the remaining portion of the elective deferral amount by the number of pay periods you will work before retiring.
Keep in mind that employees 50 and over (this includes the year in which they attain the age of 50) can contribute an extra $6,500 per year to the TSP. In 2021, the Thrift Plan will be going to “spillover” contributions, so you will need to figure in the catch-up amount along with the elective deferral amount.
These strategies assume that you can afford to contribute the entire elective deferral amount to the TSP. While some federal employees are fortunate enough to be highly compensated, giving them the ability to max out their TSP contributions, not all of us can do so. If you are among those who cannot max out, you should still try to contribute as much as you can afford prior to retirement.
You cannot contribute money received as a lump sum payment for annual leave to the TSP.