# Leave: Take It Or Lump It?

## Exploring the age-old question of whether it’s wise to use up your annual leave or take a lump-sum payment for it.

I plan to retire under the Civil Service Retirement System this year. My plan was to take my annual leave (at least my 240 hours that I carried over from last year), extending my date to retire rather than leaving earlier and getting a lump sum for my annual leave. But a friend told me you come out better to take a lump-sum payment for unused annual leave.

Which is the right choice? Taking the lump sum. The simple reason is that you're not supposed to take leave on your way out the door. The comptroller general has ruled that federal managers cannot grant an employee "terminal leave" if they know in advance that the employee is going to separate from federal service when the leave is used up.

But is the e-mailer's friend right that you actually would come out better financially by taking the lump sum? That's a more interesting, and more complicated, question.

Under the scenario the employee poses, here are her options (assuming she wants to retire in the middle of the year):

• Take the lump-sum payment. She can retire effective July 3 and receive a payment for 240 hours of leave. Let's assume that her hourly pay rate (which is her annual pay rate divided by 2,087) is \$59.07. The payment for 240 hours of unused annual leave would be \$14,176.80, minus taxes.
• Retire when the annual leave is used up. That would mean leaving effective Sept. 3. Most of July and August would be spent using the 240 hours of stored leave. That way, she'll receive four more pay periods worth of full salary instead of retired pay, and her retirement benefit will reflect two more months of service.

So far, it looks like using the leave and staying on the payroll makes sense. The employee figured her additional salary for staying until September would be \$18,902 before deductions (these include retirement contributions, insurance premiums and taxes). Taxes are withheld from the annual leave payment, but not retirement deductions or insurance premiums. She calculated that she would come out with about \$5,000 extra in her pocket by staying the extra two months. Also, her retirement benefit would increase by \$32 per month for the rest of her life, with annual cost-of-living adjustments.

But here's what she is missing from her computation: If she retires on July 3 and gets a lump-sum payment for unused annual leave, she can then receive a retirement check for July and August, too. Since she has 36 years of federal service, it would amount to \$6,485 per month before taxes and insurance withholdings. That's a lot of money just for waking up every day.

Under this scenario, she would end up with around \$8,000 in cash. Considering that if she stayed on the job two more months and her retirement goes up only \$32 a month, it would take her more than 20 years to break even.