It’s that time of year again. Are you thinking about retiring next year? This column is designed to help you find the most advantageous date for your departure. (If you’re planning to retire sometime this year, check out my Best Dates to Retire 2013 column.)
Keep in mind that setting your specific retirement date is not the same as deciding when you can afford to retire or for that matter, when you are mentally prepared to retire. This column is designed for those employees who are financially ready and mentally prepared to transition to the next phase of their lives. For some, that will involve a traditional retirement, complete with travel plans, possibly relocation to a retirement destination and lots of leisure activities. For others, it is a steppingstone to a new career.
Before we look at the calendar, here are a few things to remember.
The 30-Day Retirement Month
A retirement month is not exactly the same as a work month or for that matter, a calendar month. The Office of Personnel Management pays retirement benefits based on a 30-day month, so that each month of retired pay equals 30/30 of your benefit amount. That requires adjustments to the standard calendar. For example, if you retire on Friday, Feb. 28, 2014, you would be credited with three additional days of service, so that February would appear to have 30 days.
Timing Under FERS
For optional, voluntary retirements under the Federal Employees Retirement System (when you’ve met the age and service requirements to retire with an immediate benefit rather than a deferred retirement or a disability retirement), your retirement will begin the first day of the month after you retire. It doesn’t matter if you retire on the 1st, 15th, or 30th of the month, your optional FERS retirement will always begin on the first day of the following month.
For example, if you retire on Saturday, Jan. 11, 2014, you would be paid your salary through that date (or more likely Friday Jan. 10). Your first FERS retirement check would be dated March 1, covering the month of February. In other words, you would not receive salary or retirement benefits for Jan. 12-31. Nevertheless, this might be a good date to retire, because you could gain more than you lose. Consider the value of your monthly retirement benefit compared to your salary for Jan. 1-11 (eight days or 64 hours of salary pay) and an additional leave accrual. Also, remember that for FERS employees, you need to retire after Dec. 31, 2013 to credit 100 percent of your unused sick leave toward your retirement calculation. You also would gain an opportunity to contribute a little more to your Thrift Savings Plan account. Oh, and one more thing: You only have to report to work seven of the eight days you’d be paid for, since Jan. 1 is a holiday.
For 2014, the leave year officially ends on Jan. 10, 2015. This also could be a good date for a FERS employee to consider retiring instead of Dec. 31, 2014. Although many FERS employees retire on the last day of the month to gain a full month of salary followed by a full month of retired pay, it is definitely worth considering a mid-month retirement around the end of a leave period, especially if you are retiring with less than 30 years of federal service so that a month of retired pay is worth less money than a week or two of salary.
CSRS: The Three-Day Grace Period
For Civil Service Retirement System employees, the best retirement date is usually either the last day of the month or the 1st, 2nd or 3rd of the month. If your retirement commences on one of the first three days of the month, then you would be entitled to 29/30, 28/30, or 27/30 of that month’s retirement benefit. Under CSRS, there is a three-day grace period each month that allows employees to choose one of the first three days of the month as their date of final separation and receive a retirement benefit for the remaining 27, 28, or 29 days of that month. This grace period is not available under FERS or for employees who transferred to FERS from CSRS.
End of the Leave Year
You’ve probably noticed how many employees retire at the end of the calendar year. It’s likely they’re trying to retire at or near the end of the leave year. In January 2013, OPM received more than 22,000 new retirement claims. In February, the agency got more than 20,000 additional claims, which may have included claims for employees who retired before the end of the 2012 leave year that ended on Jan. 12, 2013. By comparison, in an ordinary month, OPM gets 7,000 to 8,000 new claims.
The reason for the difference is the annual leave lump sum payment. In most cases, if you carry over leave into the new leave year, you’re limited to 240 hours. During the year, your balance of annual leave can exceed 240 hours, as long as you don’t carry over more than 240 hours into the next leave year. If you retire before the new leave year begins and you don’t use any of the leave you accrued during the final year of your employment, it’s possible to have a leave balance of 448 hours (240 carried over plus 208 earned at the rate of eight hours per leave period). This balance is then multiplied by your hourly pay rate (your annual salary divided by 2,087) and sent to you in a lump sum payment (minus tax withholding.) There are no retirement contributions or insurance premiums withheld from this payment. You are also not permitted to contribute to the TSP from this payment, because it is not considered part of your basic salary.
These are a few of the considerations to keep in mind as you weigh exactly when to retire. Are you ready to look at the best dates for 2014? Click on the link below to download the calendar.