Choosing Your Best Day to Retire

Many articles have been written about choosing the “best” day to retire when it comes to federal pensions, both CSRS and FERS.  Although you can retire any day you want to once you become eligible, some days are more advantageous 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.

When it comes to the Thrift Savings Plan, are there any days that are better than others?  Not as much as there are with CSRS and FERS, but there are some items that you should consider when you are choosing the day you retire.

First, 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.  The means that you should, at the beginning of the year in which you plan to retire, divide the elective deferral amount ($18,000 in 2017) by the number of pay days you will have (generally 26, though occasionally 27).  If you were retiring at the end of 2017, you would contribute $693 per pay period in a 26 pay day year; this would have you reaching the elective deferral amount in your final pay period.  You would also receive the full employer matching contribution, as you had contributed over 5% of your salary in each pay period.

Second, if you are retiring before the end of the calendar year, you should try to max out your contributions for the year.  You would use the same strategy outlined in the above paragraph; that is, divide the elective deferral amount by the number of pay periods that you will work over the course of the year.  If you were retiring at the end of October, you would work 19 pay periods.  $948 per pay period would bring you up to the elective deferral amount by the day you retire.

Keep in mind that employees 50 and over (this includes the year in which they attain the age of 50) can contribute an extra $6,000 per year to the TSP.  Each pay period, the employee working 26 pay periods would contribute $231 and the employee working 19 pay periods would contribute $316 in order to max out in the “catch-up” contribution by the time of retirement.

Both of these strategies assume that you can afford to contribute the entire elective deferral amount ($18,000 in 2017) 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 get in as much as you can afford.

When it comes to retirement savings, more is always better than less.  In an article that appeared several months ago, I used the TSP calculator to compare the savings of hypothetical employees who saved 5% and 10% respectively in the TSP over a 30 year federal career.  Both employees started at $45,000 per year and received annual pay increases of 1% per year.  Their accounts grew at a rate of 5% per year.  The difference in their TSP balances at the end of 30 years was $171,279.01.  Almost $200,000 for an additional 5% of salary per pay period!  If you’ve still got some time to go before you retire, don’t wait — start contributing more to