Four Rules for Picking a Retirement Date

Next week, I’ll present the annual Best Dates to Retire calendar, showing the optimal dates to move on in 2022. But before you see that, there are some rules for picking a date that are handy to know.

Rule No. 1: Look at the end of the month. Whether you retire under the Civil Service Retirement System, CSRS Offset or the Federal Employees Retirement System, if you work until the end of the month, your retirement will start the next day. For example, if you decide to retire on Aug. 31, 2022, which is a Wednesday, you will receive your first monthly retirement benefit for the entire month of September since your retirement will commence the day after you retire. On the other hand, if you work to the end of that week and retire on Friday, Sept. 2, your retirement would begin on Oct. 1, and your first monthly benefit would be for the month of October.

That would leave you with no compensation to show for the 3rd to the 30th of September. That is, unless you retire under CSRS, which allows you to retire on the first, second or third day of the month with your retirement commencing on the next day—prorated based on which day you pick.

Rule No. 2: Consider the end of the biweekly pay period. Did you know that if you work less than a full pay period, you will not accrue leave for that period? The annual leave that you have accumulated by the time you separate from federal service is considered unpaid compensation. Once your human resources office has taken you off your agency’s payroll, they will calculate the value of the hours of annual leave that remain in your account and issue a lump sum payment. Earning an extra eight hours will provide more cash in that final payment.

Here’s an example: Jan. 29, 2022 is the end of leave period two for most federal employees next year. Not a bad date to retire. But Monday, Jan. 31 is even better. By leaving then, you would earn another day of salary and your retirement would still begin on Feb. 1. 

One other reason Jan. 31 might be better is that by retiring then instead of Jan. 29, you’ll earn an additional two days of service credit, which could add another month to your retirement calculation. To figure out whether that’s true for you, you’ll probably need help from a retirement specialist in your human resources office.

Rule No. 3: A large lump sum leave payment can provide some cash while your retirement is being processed. For those employees who have an abundance of annual leave at retirement, the lump sum payment can be like a design-your-own buyout. Although taxes are withheld, you won’t have to make contributions to retirement, the Thrift Savings Plan or insurance premiums from this payment. 

Most federal workers can carry over 240 hours of annual leave into the new leave year and some, such as members of the Senior Executive Service, can carry over as much as 720 hours.

Rule No. 4: To every rule there are exceptions. The rules above may not apply in the same way to postal employees and others who follow a different leave calendar. Also, disability, survivor benefits, deferred and discontinued service retirements will commence on a different date than described in the rules. For elected and appointed individuals, if a separation occurs because of the expiration of a term or other period for which the person was appointed or elected, the retirement annuity commences the day after separation for retirement. Federal employees such as law enforcement officers, air traffic controllers and firefighters are subject to mandatory retirement and their retirement benefits commence the day after separation.

FERS allows retirement with benefits beginning immediately if you have 10 years of service and have reached your minimum retirement age (between 55 and 57). If you retire under this provision and choose to postpone receiving your benefit, then your date of separation and the commencing date of your retirement won’t be as closely related. You may want to retire at the end of a pay period to earn your final leave accrual before you separate.

Remember, this is only a set of guidelines. In any month of the year, you can find a great date to retire, especially if it’s a day that has meaning to you.