Making a Date With Retirement
Considerations in picking the optimal time to move on.
Next week, I’ll present my annual Best Dates to Retire column. I look forward to preparing it every year. It’s a particularly popular topic as employees get closer to retirement under either the Civil Service Retirement System or the Federal Employees Retirement System. Helping people select the best retirement date was one of the first things I learned to do when I became a federal employee benefits specialist in the 1980s.
With more and more employees now retiring under FERS, it makes sense to think in terms of not just one, but three best dates. FERS retirement involves applying for the FERS retirement benefit, Social Security retirement benefits and Thrift Savings Plan withdrawals. Each of these could be done on a different date. Although it’s important to carefully choose your formal retirement date, under FERS it’s even more critical to figure out exactly how much income you’ll need in retirement and when you’ll begin receiving your benefits.
When I refer to a best date to to retire, I’m assuming that the would-be retiree has achieved eligibility for an immediate voluntary CSRS or FERS retirement. For CSRS employees this is generally at age 55 or later with 30 or more years of service, or at age 60 with 20 or more years of service, or at age 62 or later with a minimum of five years of civilian federal service. For an immediate voluntary FERS retirement, the age and service requirements are similar to CSRS, but the minimum retirement age of 55 is gradually increasing to age 57, depending on your year of birth.
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 annual leave can be accumulated for a large lump sum payout before the “use-or-lose” deadline. The lump sum can include all of the accumulated and accrued annual leave on the books at the end of the leave year.
This best date for CSRS employees to maximize their lump sum annual leave payout 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.
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 government later in life.
The one thing that’s easy to understand is that regardless of the exact date of retirement, all voluntary optional immediate retirement benefits under FERS will begin on the first day of month following the retirement month. So whether you retire on Sept. 1, Sept. 15 or Sept. 30, your retirement will commence on Oct. 1, with your first benefit payment due Nov. 1, covering the month of October. The difference, of course, is that if you work until the end of September you’ll get your salary for the whole month.
Remember, the guidelines about benefits and the best dates to retire for most employees do not apply in the following situations:
- A postponed FERS MRA + 10 retirement: This is a provision of FERS that allows you to retire with benefits beginning immediately if you have 10 years of service and have reached your minimum retirement age (at least 55). Your annuity is reduced for each month you are under age 62. To avoid the reduction, you can postpone payment.
- Disability retirement benefits generally commence the day after separation or the final day in a pay status when an employee meets the requirements to be eligible for a retirement benefit.
- Involuntary early retirement (or discontinued service retirement) benefits begin on the earlier of these two days: the day after separation, or the day after pay ceases and the applicant meets the age and service requirements for the annuity.
- A deferred retirement benefit under CSRS starts generally at age 62. Under FERS the commencing date will depend on how much service was performed prior to separation and whether the individual is trying to avoid an age penalty.
Finally, some federal employees, such as law enforcement officers, air traffic controllers and firefighters, are subject to mandatory retirement. For them, retirement benefits start the day after separation if the employee is retiring in the month that is subject to mandatory separation.