It’s that time of year when employees start asking, “What’s the best date to retire?” Well, there isn’t a single date that’s best for everybody. Still, there are some dates that are better than others. I’ll explain why.
Time of month
The rules governing the time of month to retire are different for CSRS and FERS. FERS employees have to retire no later than the last day of a month to be eligible for an annuity payment in the following month; CSRS employees may retire up to the third day of a month and be eligible for an annuity in the same month. However, their annuity payment for that month will be reduced by 1/30 for every day they aren’t on the annuity roll. (All months are treated as though they are 30 days long.)
Picking the wrong date by as little as one day can affect your annuity. If you are a FERS employee who retires Jan. 1 instead of Dec. 31, you won’t be on the annuity roll until Feb. 1, and you won’t receive your first month’s annuity payment until March 1. The same delay applies if you are a CSRS employee who retires Jan. 4 instead of Jan. 3.
When you retire also affects your annual cost-of-living adjustment, which is based on the month you are first on the annuity roll. For example, to receive a full COLA in 2014, a FERS retiree must retire no later than Nov. 30, 2012, and a CSRS employee no later than Dec. 3, 2012. For every month you are not on the annuity roll, your 2014 COLA would be reduced by 1/12 of 1 percent.
Unused annual leave
Most employees are limited to carrying 240 hours from one leave year to the next. Therefore, if you have a lot of “use-or-lose” leave, there’s a financial incentive for you to retire before those hours are lost because you’ll receive a lump sum payment.
To calculate that payment, your agency treats every hour of leave as though you were still on the job. Assuming that there’s a pay increase in 2014, the closer you retire to Jan. 11, 2014 (the last day of the 2013 leave year), the larger your lump sum will be because more of those hours would be paid at the higher rate.
However, unless you are willing to give up one month’s annuity in exchange for the additional annual leave hours you will gain by completing a pay period and the higher hourly rate at which all your unused annual leave will be paid, you’ll need to leave no later than Dec. 31 (FERS) or Jan. 3 (CSRS).
If you retire at the end of the year, the amount you pay in taxes will be greater than if you had retired earlier and had less income to report. But your income will be lower because you’ll be receiving an annuity, a portion of which will be tax exempt. To find out how much of it will be tax exempt, go to http://www.irs.gov/pub/irs-pdf/p721.pdf.
Questions to consider when deciding when to retire: Are you financially able to retire? Are you mentally and physically ready to retire? Consider the financial consequences and have a clear idea why you are leaving government. Then you’ll be in a much better position to pick the best retirement date for you.