Based on the emails I’ve been getting, a lot of you are thinking seriously about retiring this year. The reason is obvious. With frozen pay increases and negative attitudes in the press, on TV and even on the Hill, now may seem like the time to jump ship.
If you are one of those who think the time has come to leave, you’ll want to know which is the best day to retire. The right date for you is the one on which you are 1) eligible to retire, 2) set financially and 3) emotionally ready to go.
In this column, I’ll help you determine if you are eligible to retire and provide you with tools to help you decide if you are financially able to do so.
Whether you are a Civil Service Retirement System (CSRS) or a Federal Employees Retirement System (FERS) employee, you can retire at age 62 with five years of service or at age 60 with 20 years of service. If you are a CSRS employee, you can also retire at age 55 with 30 years of service; but if you are a FERS employee with 30 years of service, you can only retire at your minimum retirement age (MRA). MRAs range between 55 and 57, depending on your year of birth.
Further, as a FERS employee, you can retire at your MRA with at least 10 years of service. The downside is that your annuity will be reduced by 5 percent (5/12 of 1 percent per month) for every year you are younger than 62. Of course, you could reduce or eliminate that penalty by postponing the receipt of your annuity.
If you are offered an opportunity to take early retirement, the age and service rules are different. For both CSRS and FERS, they are age 50 with 20 years of service or any age with 25. However, if you are a CSRS employee, your annuity will be reduced by 2 percent per year (1/6 of 1 percent per month) that you are younger than 55, but if you are a FERS employee, the 5 percent per year age penalty is waived.
How your annuity is calculated
If you are a CSRS employee, use this formula:
- .015 times your highest three consecutive years of average salary (your high-3) times five years of service, plus .0175 times your high-3 times five years of service, plus .02 times your high-3 times all remaining years and full months of service.
When determining total years of service, include any unused sick leave. Note that 174 hours of sick leave equals one month.
If you are a FERS employee, use this formula:
- .01 times your high-3 times your years and full months of service, including half of your unused sick leave. (Change the percentage to .011 if you are 62 and have at least 20 years of service.) When determining your total years of service, include only half of your unused sick leave unless you are retiring on or after Jan. 1, 2014. As mentioned above, 174 hours of sick leave equals one month.
If you are a FERS employee with a CSRS component in your annuity, you’ll have to use both formulas to figure out your combined annuity.
A couple of points on timing
The rules governing retirement dates are different for CSRS and FERS. If you are a FERS employee, you have to retire no later than the last day of a month to be eligible for an annuity payment in the following month. For example, if you retired on Oct. 31, you’d be on the annuity roll in November. If you retired on Nov. 1 or later, you wouldn’t be on the annuity roll until December.
If you are a CSRS employee, you can retire up to the third day of a month and be on the annuity roll in that month. However, your payment for that month will be reduced by 1/30th for every one of those three days that you weren’t on the annuity roll. For example, if you retired on Nov. 3, your November payment would be only 27/30ths of the full amount. If you retired Nov. 4 or later, you wouldn’t be on the roll until December.
Every employee has a limit on how many hours of annual leave he can carry over from one year to the next. So, if you have a lot of “use or lose” leave, there’s an incentive for you to retire at the end of a leave year to avoid losing those hours. For most employees, the 2012 leave year ends Jan. 12.
In the past, there was an incentive to retire as close to the end of the leave year as possible. That’s because your unused leave is projecting forward as if you were still on the job. When new pay rates go into effect on or after Jan. 1, more of those hours will be paid at the higher rate than if you retired before that. However, in this era of no pay increases, there’s little to be gained by pushing your retirement to the last possible moment.
In my next column, I’ll talk about the tax consequences of retirement, and how to assess whether you are ready to retire.