Rules and Requirements for Federal Retirement

Next week, I’ll present the Best Dates to Retire 2023 calendar. Before that, let’s look at the rules and requirements for retiring from federal service. They can make a difference in picking a retirement date.

Voluntary retirement annuities under the Civil Service Retirement System, CSRS Offset and the Federal Employees Retirement System who meet age and service requirements.

For CSRS, that means:

• Age 55 with 30 or more years of service
• Age 60 with 20 years or more of service
• Age 62 with five or more years of service

The FERS requirements are a bit more complicated, you must meet one of the following criteria:

• Minimum retirement age (55 to 57, depending on your year of birth) with 10 or more years of creditable service. Under this provision, your retirement benefit will be reduced by 5% for every year you are under age 62 (prorated by the month). 
• Minimum retirement age (55 to 57, based on your year of birth) with 30 or more years of creditable service.
• Age 60 with 20 years or more of creditable service.
• Age 62 with five or more years of creditable service.

Suppose James is under FERS and is planning to retire on June 30, 2023 at age 60, after 24 years of service. This is a Friday at the end of a leave period. He will be paid his full biweekly salary and will gain his final leave accrual for this period (eight hours of annual leave and four hours of sick leave). His first monthly retirement benefit payment will be for the month of July, with the payment due on Aug. 1.

Although James reached his 60th birthday on June 14, he waited to retire until the last day of June so he would receive his salary through June 30. His retirement wouldn’t commence until July 1 either way. This resulted in James receiving an additional 12 days of salary and one additional leave accrual before his retirement begins.

Under both CSRS and FERS, retirement annuities start the first day of the month after the employee separates from service and meets the age and service requirements. But under CSRS, the annuities of employees who are on the job for three days or fewer in the month of retirement commence on the day after separation or the day after pay ceases. 

This three-day grace period allows most CSRS benefits to start the next day. But if the first and second days of the month are weekend days, then retiring on the third of the month will reduce the retirement benefit by 3/30 of the first payment, while only increasing the last paycheck by one day of salary payment. In this case, it might be more advantageous to retire on the last day of the month, rather than the third day of the following month.

Months in which the third day falls on a Wednesday, Thursday or Friday are great days for CSRS employees to retire. If Friday is also the end of a two-week leave period, so much the better. Remember that you accrue leave once you complete 80 hours of work (or your scheduled tour of duty). If the third of the month is a weekend day or Monday or Tuesday, the benefit should be weighed more carefully.

Suppose Judy plans to retire under CSRS on Friday, June 2, 2023. This is the last work day of a leave period, which means she will have completed her 80 hours of work, allowing her to accrue her final eight hours of annual leave. Suppose her final salary is $85,000, or $40.73 per hour. Retiring on June 2 instead of May 31 increases her lump sum annual leave payment by $325 ($40.73 x 8). She also increases her service by an additional two days and if she uses June 3 (Saturday) as her effective date of retirement, she gains an additional three days of service. This could help if her final amount of creditable service plus unused sick leave credit ends in 27, 28 or 29 days, because another two or three days can result in an additional 1/12 of 2% of her high-three average salary in the CSRS retirement computation formula.

The downside to retiring on June 2 is that Judy is trading two days of salary for two days of retired pay. If her high-three average salary is $80,750 and she is retiring with 40 years and six months of service (including credit for her unused sick leave), her retirement would computed at 77% x $80,750. That’s $62,177 a year, or $172.70 a day. Eight hours of continued employment is worth $325 a day.

Remember that you must complete 80 hours of work by the end of a two-week leave period to be paid your full salary for your final two weeks at work and earn your final accrual for annual and sick leave. Retiring prior to completing your work for your final leave period will result in no leave accrual. Leave is not prorated.