When to Leave to Get Paid the Most for Your Leave
The pros and cons of working all the way to the end of the federal leave year.
A federal employee recently wrote to me with this question:
I was told I have to retire by Dec. 31, 2023 to get paid for my leave that is more than the 240 hour limit to carry over into 2024. Another person told me that I can work right up till the last day of the leave year, which is Jan. 13, 2024. Do you know which is correct?
The short answer is that you can work up until the last day of the leave year if you wish. Now let’s look at the more difficult question: which date is better?
A leave year begins on the first day of the first full biweekly pay period in a calendar year, and ends on the day immediately before the first day of the first full biweekly pay period in the following calendar year. For most federal employees, the 2023 leave year ends on Saturday, Jan. 13, 2024. Therefore, employees may earn one additional accumulation of annual leave during the 2023 leave year by waiting to retire until Jan. 12 or 13. For a full-time employee, the extra amount will be four, six or eight hours, depending on the employee’s leave earning category.
According to the Office of Personnel Management, most employees can carry over a maximum of 240 hours of accrued annual leave to the next leave year. "Use or lose" annual leave is the amount of accrued leave that exceeds the employee's maximum limitation for carryover into the next leave year. Employees must use their excess annual leave by the end of a leave year or forfeit it. They receive a lump-sum payment for any unused annual leave when they separate from federal service.
For anyone considering retirement at the end of 2023 or start of 2024 to maximize their lump sum annual leave payout, the key question is: Does it make sense to leave on Friday, Dec. 29, 2023, or stay on the rolls until Friday, Jan. 12, 2024?
To decide, it’s important to weigh the value of a month of retirement benefits against the value of a biweekly paycheck. Here’s a scenario involving a hypothetical employee under the Federal Employees Retirement System that may help you assess your options.
- Length of service on Dec. 31, 2023: 30 years, 0 months, 20 days
- Age at retirement: 64, allowing the retirement benefit to be computed using the 1.1% factor instead of 1%, with no FERS supplement payable
- High-three average salary: $76,000
- Final salary rate: $80,000
- Gross salary biweekly: $3,067 (before retirement, taxes and insurance withholdings)
- Gross monthly retirement benefit with maximum spousal survivor election: 30 x 1.1% x $76,000 = $25,080 - $2,508 (10% spousal survivor reduction) = $22,572, or $1,881 per month (before taxes and insurance withholding)
The advantages of retiring on Jan. 12, 2024 include the following:
- A slight increase to the high-three average salary.
- An additional month of retirement by staying an additional 12 days (added to the 20 days of “leftover” service this employee had, adding $6 a month to their retirement benefit.
- An additional eight-hour leave accrual, resulting in $306 more in the employee’s lump sum leave payout before taxes. All of the leave would be paid at the 2024 salary rate if the employee delays retirement until Jan. 12, 2024. Retiring on Dec. 31, 2023 would require that 80 hours be paid at the 2023 pay rate and the remaining hours at the 2024 rate.
- An additional pay period for Thrift Savings Plan contributions. For most payroll systems, pay period 26 ends on Dec. 16, 2023. By retiring on Jan. 12, 2024, the employee could conceivably contribute two entire paychecks to the TSP, although the agency matching would only be on the first 5% of contributions.
The advantage of retiring on Dec. 31, 2023 is that you’d receive a retirement benefit payment for the month of January 2024. If you retired on Jan. 12, 2024, your retirement check would come March 1, 2024, for the month of February.
In this example, the gain of waiting a little longer to retire outweighs the loss of one benefit payment. For a younger FERS employee who’s entitled to the FERS special retirement supplement, the numbers may be a lot closer, since the supplement could add another $1,000 or more to their benefit. Remember that each situation is different and the only one that matters is yours.
Here is how the end of the leave year stacks up over the next five years:
- The 2024 leave year ends on Jan. 11, 2025 (eight days of salary after Dec. 31, 2024
- The 2025 leave year ends on Jan. 10, 2026 (seven days of salary after Dec. 31, 2025
- The 2026 leave year ends on Jan. 9, 2027 (six days of salary after Dec. 31, 2026)
- The 2027 leave year ends on Jan. 8, 2028 (five days of salary after Dec. 31, 2027)
- The 2028 leave year ends on Jan. 6, 2029 (five days of salary after Dec. 31, 2028)
Of course, maximizing your lump sum annual leave payment is only one consideration when choosing your best retirement date. Understanding your federal retirement and insurance benefits, having a solid financial plan and learning how to employ tax strategies are all key elements to a successful transition to the next chapter of life.