Now that the congressional supercommittee has failed in its effort to get an agreement on deficit reduction, agencies face the prospect of automatic reductions in their budgets. With so much uncertainty about the future, it’s no surprise that there is a groundswell among those who are eligible to retire to do just that.
For employees outside the U.S. Postal Service, whether you are a Civil Service Retirement System or Federal Employees Retirement System employee, the opportunity to jump ship couldn’t fall at a better time. That’s because the 2011 leave year ends on Saturday, Dec. 31. That date is advantageous in comparison with the 2012 leave year — which will end Jan. 12, 2013 — for a couple of reasons.
If you are a FERS employee, the Dec. 31 date is good news because you have to retire no later than the end of a month to be on the annuity roll in the following month. Step over the line by one day and you won’t be on the annuity roll until the following month. Retire by Dec. 31, 2011, and you’ll be on the annuity roll in January 2012. Retire at the end of the leave year in 2012, and you won’t be on the annuity roll until February 2013.
The 2011 calendar also is good news if you are a CSRS employee. Although you can retire up to the third day of a month and be on the annuity roll in that month, by retiring Dec. 31, you won’t lose 1/30th of that first month’s annuity payment for every day you are still on the payroll.
Further, by retiring at the end of the pay period, you’ll get credit for any annual and sick leave you earned during that pay period. If you work outside the Postal Service, you’ll get paid for all your unused annual leave, including the use-or-lose leave that would have been lost if you retired after the new leave year begins.
Two exceptions to the above information apply at the Postal Service: The 2011 leave year does not end until Jan. 14, 2012. And there are limits on how much annual leave a Postal Service employee can cash in.
Another advantage for retirees: Because your income in the year after you retire, including any lump-sum annual leave payment or buyout you receive, will usually be lower than it was while you were working, there’s a good chance that your tax bracket will be lower, too. On top of that, part of your annuity won’t be taxable. You can find out how much of it will be tax exempt by reading IRS Publication 721, Tax Guide to U.S. Civil Service Retirement Benefits, available at www.irs.gov.
Is there any downside to retiring on Dec. 31, 2011? The obvious one is you’ll have less income than you did while you were working. And even though that decrease will be offset by outlays you won’t be making, such as for transportation, you’ll still have less money coming in every month.
Another downside: In the past, your lump-sum payment for unused annual leave would have been increased by the new, higher hourly rate that would have gone into effect in the first pay period on or after Jan. 1. However, with the pay freeze in effect, there will be no increase.
Also, at first, you won’t even receive your full annuity.
The Office of Personnel Management can’t pay you the full annuity you are entitled to until it finishes adjudicating your claim, a process that now takes an average of 133 days. That means retiring FERS employees who are eligible for the special retirement supplement can’t immediately receive that payment. Since the supplement approximates the Social Security benefit an employee earned while covered by FERS, that can be a budget breaker.
Further, due to the flood of retirement applications and shortfalls in recruiting and training staff, OPM has a bigger backlog of retirement claims. An avalanche of applications at the end of the year could worsen the situation.
So if you are going to retire, make sure you have enough money to pay your bills until you receive your first full annuity payment, which will include all the money you are owed from being in interim pay status.
To improve your chances of receiving a full annuity sooner, make sure that your retirement application is complete and accurate. And work with your personnel office to resolve any problems that surface.
