Picking a Date to Retire
Factors to consider in deciding when to go.
Is there such a thing as a best date to retire? I should probably know by now, because I’m known for coming up with an annual calendar of such dates.
As more and more federal employees are now retiring under the Federal Employees Retirement System, I have been rethinking the idea of a best date for retirement. Although it is important to carefully choose your exact retirement date, it is even more critical to complete the steps leading up to choosing the day on which you’ll go.
Next week, I’ll present the annual best dates calendar, as usual. But this week, I want to talk about assessing your retirement readiness in preparation of selecting the date that’s best for you.
Civil Service Retirement System
CSRS was designed as a single benefit plan providing a complete retirement all in one monthly retirement payment. An employee who works in government for 40 years under CSRS gets a benefit equal to more than 75 percent of his or her high-three average salary—with immediate cost-of-living adjustments and a survivor annuity for those who elect a reduced benefit.
Most federal employees hired before 1984 retire under CSRS, and they’ve known their retirement eligibility date since the day they were hired. If they were hired at age 25 or younger, they could retire 30 years later, at age 55. If you work to age 60, the minimum service requirement drops to 20 years—and at age 62, only five years of service is required to be eligible to collect an immediate retirement benefit.
There isn’t much retirement planning needed to retire under this system. There’s little Social Security planning unless you have covered employment outside of your federal career. The Thrift Savings Plan is available to CSRS employees, but is not an integral part of the retirement plan.
Picking a date to retire under CSRS is focused on the details, such as:
- Computing leftover hours of unused sick leave that won’t be used in the computation of your retirement benefit.
- Making sure all of your federal service has been documented and will be included in the computation.
- Learning about the cost and value of the survivor annuity.
- Understanding what happens if you have a former spouse with court-ordered benefits payable from your retirement.
- Knowing how the date you pick can affect cost-of-living adjustments, high-three average salary computation, calculation of the final lump-sum payment for unused annual leave and the first payment of your retirement benefit.
Traditionally, the best date for a CSRS retirement has been as close to the end of the leave year as possible, so the maximum amount of money can be paid as a lump-sum annual leave payout as well as to maintain the January retirement benefit payment at the same time.
This date for CSRS employees is generally Jan. 1, 2, or 3, since retirement on one of the first three days of the month means the current month’s retirement benefit is payable. Retiring after the third day of any month causes the retirement to start on the first day of the following month and the remainder of the current month’s benefit would be forfeited. On rare occasions when the leave year ending date coincides with the calendar year ending date, the best date would fall on Dec. 31.
The 2017 leave year ends on Jan. 6, 2018. For 2018, the date is Jan. 5, 2019.
Federal Employees Retirement System
FERS has more moving parts than CSRS, which can complicate the process of choosing the best time to separate. In addition, because FERS is more flexible than CSRS, there are many federal employees covered by FERS who will retire with partial careers of federal service because they entered their government careers later in life.
The one thing that is easy to understand is that regardless of the exact date of retirement, all optional retirements under FERS will begin on the first day of month following the retirement month. So if Sally retires on Sept. 1, Sam on Sept. 15, and Kevin on Sept. 30, all will be be entitled to their first FERS retirement benefit payment on Nov. 1 (covering October). Sally and Sam won’t receive any compensation from their date of retirement through the end of September. Kevin will get his salary through the end of September.
Although FERS includes a basic retirement benefit administered by the Office of Personnel Management, FERS employees also must consider the distribution of the proceeds of their TSP accounts and the payment of Social Security retirement benefits.
For most FERS employees, cost-of-living adjustments to their benefits will be delayed until they reach age 62. FERS employees who retire with immediate, unreduced retirement benefits are also entitled to a special FERS annuity supplement to bridge the time between their retirement and when they qualify for Social Security.
Thrift Savings Plan distributions can begin any time after you separate from federal service. When the time comes that you need to tap into this source of income, you can choose to receive monthly payments of a specific dollar amount or based on a computation using life expectancy factors.
You can claim your Social Security retirement benefit any time between age 62 and 70. The best time to claim it is after you stop working full time and when you need the additional money. The benefit at 70 is significantly larger than at 62.
Leave and Leaving
Whether you are under CSRS or FERS, getting paid in a lump sum for unused annual leave can provide a sort of do-it-yourself buyout payment when you leave federal service. Most employees can carry over up to 240 hours of annual leave from the current leave year into the next. (Certain employees, such as members of the Senior Executive Service, can carry over even more.)
In the year of retirement, employees who have at least 15 years of federal service will accrue eight hours of annual leave every pay period and can add an additional 208 hours of annual leave to the 240 hours that may have been carried over from the previous year. They can achieve this by not using their final year’s leave credit and waiting until the very end of the leave year to retire.
Getting paid for 448 hours of unused annual leave provides about three months worth of income in one lump-sum payment. That comes in handy if there’s a delay in processing your retirement application or if you’re still weighing your options for filing for Social Security and taking a TSP payout.