Best Dates to Retire: Follow-Up

By Tammy Flanagan

September 4, 2009

Since September already has rolled around, those who are planning to leave federal service at the end of the year might be starting to look over your retirement applications. In larger agencies, employees must turn in their applications two to three months prior to their retirement date. Filling in the "date of final separation" box on the application can be scary. That's partly because of the word "final" in there and partly because many employees have become obsessed about finding the magic perfect retirement date.

Ever since I left government service 21 years ago and began teaching seminars, interest in the best date to retire has grown. This also could be due to my relationship with another columnist whom many of you already know: Mike Causey, who now is affiliated with Federal News Radio. Last week, he wrote a column incorporating some of my advice, titled "How to Hit the 2010 Retirement Trifecta."

I also devoted two columns of my own to this topic earlier this year:

Yet even after all the advice, readers continue to have questions. Let's take a look at a few.

I am planning to retire at the end of this year, and I want to optimize my annual leave. What's my best date to retire? Is it Saturday, Jan. 2, 2010, to receive my annuity on Sunday, Jan. 3?

Actually, the best date would be Dec. 31, 2009, for those under the Federal Employees Retirement System and Jan. 1, 2010, for those under the Civil Service Retirement System. That way, you'll be paid for all your accumulated and accrued leave, the payment will arrive in the 2010 tax year, and you'll receive any pay increase that might be granted for 2010 in the computation of the lump-sum payment. Since Jan. 2 is a Saturday, and assuming your normal workweek ends on Friday, there is no reason to make your retirement effective Saturday unless you need one more day added to your service to get another month of service credit.

The category of employee not covered in your scenarios is the one in the National Security Personnel System. They get screwed if they try to retire at the beginning of January, because they lose out on the payout for raises and awards if they are not on the rolls when they are paid out, which is the first pay period in January. If they retire to take advantage of the lump-sum leave, then they lose any award or bonus for the year.

For better or for worse, employees in this situation simply have to make a choice. To receive a payment of accrued annual leave greater than 240 hours you will have to retire before the end of the leave year (before Jan. 3, 2010, this year and before Jan. 2, 2011, next year). To receive a performance payout under NSPS and other performance-based pay systems, you generally have to be on the payroll on the first pay period of the new leave year.

This would make the best date to retire closer to Jan. 31, since you shouldn't retire past the third of the month if you want to receive a CSRS retirement benefit for that month (or beyond Dec. 31 if you're under FERS and want the January retirement check). Of course, you can have your cake and eat it, too, if you are in a base realignment and closure situation and are able to carry over more than 240 hours of leave.

I'm a FERS employee who will be retiring in the next two years. I will turn 54 on Aug. 19, 2011. I had considered retiring on Dec. 31, 2011, because that's when the last pay period and the leave year ends that year. The problem is, that's one day shy of the year in which I turn 55. I'm aware of the 10 percent Thrift Savings Plan withdrawal penalty unless I retire within the year I turn 55, wait until 59 1/2 to start withdrawals, or take an annuity. I plan to roll the TSP money over into a personal retirement account and begin drawing on it prior to 59 1/2. My question is, can I retire on Jan. 1, 2012, and still receive a lump-sum payment for all the annual leave (448 hours) I will accumulate in 2011?

There are several issues here. First of all, to be eligible to retire under FERS, you must have reached your minimum retirement age (55-57, depending on your year of birth). If you were born in 1957, then you won't be eligible to retire with an immediate benefit until you are 56, which won't be until 2013. If you leave earlier than that, it will be treated as a resignation. You will be entitled only to a deferred retirement, without the ability to reinstate your government health or life insurance coverage -- and your retirement benefit won't be payable until after you turn 56.

Second, if you leave prior to the year you turn 55, you will, as you note, be subject to the 10 percent early withdrawal penalty on your TSP funds, unless you elect to receive payments over your life expectancy or purchase a life annuity.

Finally, if you retire on Jan. 1, 2012, you will not be able to be paid for more than 240 hours of annual leave unless you are able to have your excess leave restored under BRAC rules or other reasons for granting restored leave.

I am considering retirement at the end of 2009, probably Jan. 1 or Jan. 2, 2010. Which would be the best day to cash out on my unused annual leave?

I would choose Jan. 1, 2010, if you are under CSRS, since you won't be paid for Saturday (assuming your work schedule is Monday to Friday). Retirement benefits are calculated based on a 30-day month. If you retire on the first, second or third of the month, your first retirement check will be pro-rated to 29/30, 28/30 or 27/30 of the first month's check. For example, if your monthly retirement annuity is $3,000 and you retire on Jan. 2, your January payment would be $2,800 instead of $3,000 because your retirement officially would begin on Jan. 3. If you retire on Jan. 1, your first check would be $2,900. Why give up $100 if you don't have to?

The exception would be if you needed an additional day of service credit. But since you already have the maximum service credit for CSRS (41 years, 11 months) this wouldn't be the case for you. By the way, as you probably know, you can add your unused sick leave credit to your 41 years, 11 months of service to increase the computation of your retirement benefit.

Well, there you have it. I think I've now answered just about all the questions one could think of on best dates to retire. But I've been wrong before.

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 or on WFED AM 1500 in the Washington metro area.

By Tammy Flanagan

September 4, 2009