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Best Date to Retire - CSRS and FERS:
2009 and 2010
Choosing when to retire is probably one of the most difficult decisions facing an individual during his or her lifetime. For federal employees, choosing the "best" day to retire -- the best day of the month and the best day of the year -- may present yet another additional financial challenge.
Employees eligible to retire can retire on any day they choose. This includes
any day of the week - including a Saturday or Sunday, or a federal
holiday. In other words, employees are not required "to be at their desk"
on their retirement
This column discusses some of the issues facing employees on deciding which particular day of the month and of the year to retire.
The first issue involves when the first retirement check will be received. For employees covered by the Federal Employees Retirement System (FERS), the employee's retirement "takes effect" on the first day of the month following the employee's retirement date. The first retirement check - a "full" check because the retiree would be retired for an entire month - will then be dated the first day of the following month. For example, if a FERS-covered employee were to retire on Jan. 3, 2009 - the end of the 2008 leave year - the employee's retirement will "take effect" on February 1, 2009. The retiree's first retirement check will then be dated March 1, 2009.
Employees covered by either the Civil Service Retirement System (CSRS) or the CSRS-Offset have additional leeway. CSRS and CSRS-Offset employees who retire on the first, second or third day of the month will have their retirement effective the following day. For example, if a CSRS-covered employee were to retire on Jan. 3, 2009, the first retirement check will then be dated Feb. 1, 2009. This is because the retirement takes effect on Jan. 4, 2009. The individual would have been retired for 27 out of the 30 days in January 2009. The February 2009 CSRS annuity check would therefore include 27/30 of the January 2009 retirement payment.
It therefore makes sense for FERS employees to retire on the last day of the month while CSRS and CSRS-Offset employees should consider retiring on one of the first three days or the last day of the month.
Choosing the best day of the year to retire involves the treatment of any unused annual leave at the time of retirement. Here are the rules concerning annual leave accrual and payment for unused annual leave hours when an employee retires:
- Most employees are allowed to carry over a maximum 240 hours of accumulated annual leave from one leave year to the next.
- A full-time employee who retires before completing the 80-hours of work in a bi-weekly pay period will not accumulate leave for that period.
- For most federal agencies, the 2008 leave year ends Saturday, Jan. 3, 2009 and the 2009 leave year ends Saturday, Jan. 2, 2010.
- Any unused annual leave is paid to a retiring employee in a lump-sum payment. In general, a lump-sum payment will equal the pay the employee would have received had he or she remained employed until the end of the period covered by the annual leave. This means the retiring employee may receive a higher payment for the unused annual leave because of an upcoming pay adjustment that occurs after retirement. If an employee retires on December 31 or January 1, 2 or 3, then the employee with a large amount of unused annual leave hours would get paid for that unused annual leave at a higher hourly rate. This is due to government-wide pay increases and locality-pay adjustments that usually take effect on the first day of the new leave year in early January.
If the intention of a retiring employee were to maximize the amount of unused
annual leave to be paid, then the best time of year to retire would be December
31 for a FERS-covered employee and January 1st, 2nd or 3rd for a CSRS employee.
This is true only if the end of the leave year coincides with January 1st, 2nd,
or 3rd, as it does for the 2008 and 2009 leave years in many federal agencies. A
retiring employee could then receive payment for as many as 448 hours of unused
annual leave - a result of a maximum carryover of 240 hours of unused annual
leave from the previous year, plus the employee's maximum amount of annual leave
in the current year. The latter is calculated by using 26 pay periods with eight
hours of accrual each pay period for a total of 208 hours for the current leave
Those retiring employees who wish to maximize the amount of their TSP contributions during the last year of employment may want to retire at the end of the leave year. This is because one's final paycheck is the last chance to contribute to the TSP for the current calendar year.
For those retiring employees who are eligible for Social Security retirement benefits, there is the issue of when to apply for these benefits. Those federal employees who have achieved full retirement age (FRA) - 65 years and 10 months during 2008 and age 66 during 2009 - may keep their benefits and continue to work. Once an employee reaches FRA, there is no Social Security "earnings test." There is a limit as to how much an employee can earn during 2009 if they are 62 or older but younger than 66 in 2009 and drawing Social Security benefits. During 2009 Social Security must deduct $1 from the employee's benefits for each $2 they earn over $14,160. If the employee becomes 66 during 2009, Social Security must deduct $1 from the employee's benefits for each $3 earned over $37,680, until the month in which the employee becomes 66.
In 2009 there will be a special monthly earnings test applied during one's first year of retirement. A person under 66 for the entire year is considered retired if monthly earnings are $1, 180 or less. For example, if John Smith, a federal employee, retires on Oct. 31, 2009 at age 62, he will earn $75,000 through the end of October 2009. He then takes a part-time job, beginning Nov. 1, 2009, earning $750 per month. Although his earnings for the year substantially exceed the 2009 limit of $14,160, John will receive his full Social Security payment for November and December. This is because his monthly earnings in both November and December are less than $1,180. Employees younger than FRA and who choose to draw Social Security retirement benefits and who work after they retire from federal service are generally better off retiring in the last three months of the year so as not to lose any of their Social Security benefits.
To summarize, it makes sense for both CSRS and FERS employees to retire on the last day of the month, especially if the last day of the month coincides with the end of a pay period. CSRS-covered and CSRS-Offset employees should also determine if retiring on the 1st, 2nd or 3rd day of the following month may provide an additional benefit such as the accrual of another eight hours of annual leave or enough additional service to add another month to the computation of the retirement benefit.
The following chart shows the "best" dates that eligible employees should consider as retirement dates in 2009 and 2010:
Month and Day
Month and Day
1/3 and 1/31
8/1 and 8/30
7/3 or 7/31
About the Author
Edward A. Zurndorfer is a Certified Financial Planner and Enrolled Agent in Silver Spring, Maryland. He is also a registered representative with Multi-Financial Securities Corporation (Branch A9X), member FINRA/SIPC, also located in Silver Spring, Maryland