June 19, 2009Remember this old adage? "Give a man a fish and he'll eat for a day, but teach a man to fish and he'll eat for a lifetime."
I am going to try that out on the topic of picking the best retirement date. I'll give you the rules and show you how to apply them to your situation. It's actually very simple. The hard part is knowing if you can afford to retire -- and even more important, what you're going to do to fill up the extra 40 to 50 hours you'll have every week.
Ready? Let's go.
The following chart shows the date your Civil Service Retirement System or Federal Employees Retirement System benefit will start if you are leaving under optional, immediate retirement. "Optional" means you're eligible to retire when you leave federal service and "immediate" means your retirement will begin the month after you go. Consult with your agency's retirement benefits specialist if you are retiring under discontinued service, disability, postponed or deferred retirement, since the annuity beginning date is determined differently for these types of retirement.
|Date You Leave||Date Retirement Will Start|
|1st, 2nd or 3rd day of any month||
CSRS: Following day
FERS: First day of the following month
|4th through the last day of the month||CSRS and FERS: First day of the following month|
Suppose Anne decided to retire today, June 19, 2009. That would mean:
For CSRS Employees Only
If you're under CSRS, you should always consider leaving on one of the first three days of the month. For example, July 3, 2009, is a great date to retire. Here's why:
Spring, Summer and Fall
Many federal employees choose to retire at the end of the year. But there are valid reasons to consider leaving earlier:
End of the Year
One big reason many employees retire at the end of the year is they can save up annual leave hours beyond the normal use-or-lose limits. For example, if Paul carries 240 hours of annual leave (the limit for most federal employees) from 2008 into 2009 and then decides to retire at the end of 2009 (Thursday, Dec. 31, if he is under FERS or Friday, Jan. 1, 2010, if he is under CSRS), he could save up 25 or 26 accruals of annual leave (200 to 208 hours if he is in the eight-hour category) by not using any annual leave during 2009. This will be added to the 240 that he carried over from 2008, making him eligible for a lump-sum payment for 440 to 448 hours of unused leave. Here's a column I wrote about this: Taking Your Lumps (Jan. 19, 2007).
If you're considering departing in the final days of a year, remember one thing: receiving a big lump-sum payout the following year for unused annual leave along with 12 months of retirement income could push you into a higher tax bracket in your first year of retirement. This is especially true for those who are retiring on a Friday and starting a new nonfederal career on a Monday, adding additional earned income to retirement benefits.
Of course, the impact of a change in tax brackets can be slight. And if your income is high enough that the alternative minimum tax applies to you without consideration of the lump-sum leave payout, then getting all the money in one year actually could be a good thing. Also, the accumulated leave and the final salary will qualify you to contribute to an IRA.
These are circumstances you should consider as you contemplate the best date to call it a career. Now it's your turn: Get out the calendar, and go to work.
Tammy Flanagan is the senior benefits director for the National Institute of Transition Planning Inc., which conducts federal retirement planning workshops and seminars. She has spent 25 years helping federal employees take charge of their retirement by understanding their benefits.
For more retirement planning help, tune in to "For Your Benefit," presented by the National Institute of Transition Planning Inc. live on Monday mornings at 10 a.m. ET on federalnewsradio.com or on WFED AM 1500 in the Washington metro area.
June 19, 2009