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Best Dates to Retire - CSRS / FERS:
2013 and 2014
Previous columns on My Federal Retirement discussed the best dates for CSRS and FERS employees to retire in 2009, 2010, 2011, 2012 and 2013. This column discusses the best dates to retire for CSRS and FERS employees during 2013 and 2014.
NOTE: The year 2013 is being discussed again as a result of a law change in October 2009. With that law change, effective October 28, 2009 FERS employees can add unused sick leave to their service time in the computation of their FERS annuity at the time of their retirement. When the original column "Best Dates to Retire - CSRS/FERS: 2011, 2012 and 2013" was written in fall 2009, this law change had not been passed by Congress.
For FERS employees, the new law is being "phased in". In particular, the law allows retiring FERS employees to add 50 percent of their sick leave balance to their service time if they retire before Jan. 1, 2014. FERS employees who retire on or after Jan. 1, 2014 can add 100 percent of their unused sick leave to their service time in the computation of their FERS annuity.
Before listing the best retirement dates in 2013 and 2014, it is important to review the some rules and issues that employees covered by the Civil Service Retirement System (CSRS) (including CSRS Offset employees) and employees covered by the Federal Employee Retirement System (FERS) should be aware of.
Effective date of retirement and issuance of first annuity check
Employees covered by CSRS (including CSRS-Offset) who retire on the first, second, or third day of the month will have their retirement take effect on the next day and their first retirement check will be dated the first day of the next month. For example, if a CSRS or a CSRS-Offset employee retires on Jan. 1, 2013, then the employee's retirement will become effective on Jan. 2, 2013 and the retiring employee's first annuity check will be dated Feb. 1, 2013. If a CSRS or CSRS Offset employee retires on any day of the month other than the first, second or third day of the month, then the retiring employee's retirement takes effect on the first day of the following month, with the first annuity check dated on the first day of the following month. For example, if a CSRS or CSRS-Offset employee retires on Dec. 31, 2012, the retiring employee's retirement takes effect on Jan 1, 2013 and the first annuity check will be dated Feb. 1, 2013. In the first example in which the employee retires on Jan. 1, 2013, the first annuity check will be 29/30 of the full check because the employee would have been retired for 29 days in January (OPM uses a 30 day a month calendar). In the second example, the retired employee will receive a full first annuity check because the retired employee would be retired for all 30 days in January.
For FERS-covered employees, no matter which day in the month a FERS employee retires, the retiring employee's retirement becomes effective the first day of the following month. The first annuity check will then be dated the first day of the month, thereafter. For example, if a FERS-covered employee retires Dec. 29, 2012, then the retirement will become effective Jan. 1, 2013 and the first retirement check will be dated Feb. 1, 2013.
CSRS/CSRS-Offset employees and COLAs
Although federal annuitants did not receive a cost-of-living adjustment (COLA) in 2010 and 2011, COLAs will eventually be paid, perhaps in 2012. CSRS and CSRS-Offset employee who retire in 2013 and 2014 should be aware that the first COLA will take effect in January following the year in which the employee retired. The first year COLA will be prorated according to the number of months a retired employee was retired prior to the effective date of the COLA. For example, if a CSRS employee retires Jan. 26, 2013, the effective date of retirement will be Feb. 1, 2013 and the retired employee will have been retired for 10 of the 12 months for the 12 month period starting Dec.1, 2012 and ending Nov. 30, 2013. The retired employee will then receive 10/12 of the COLA that will become effective in January 2014.
Treatment of unused annual leave at the time of retirement
All retiring employees are paid in a lump-sum payment for unused annual leave at the time of retirement. This payment will be directly deposited into the same account that the retiring employee uses for direct deposit for his or her payroll check. Most agencies will directly deposit the lump sum annual payment within four weeks of the employee's retirement date. Many retiring employees use their lump-sum payments to pay their bills until they receive their first full annuity check. The first full annuity check may not be sent until as long as three to six months after the employee's retirement date. Until the first full annuity check, the annuitant receives "interim" checks that are approximately 50 to 80 percent of the true annuity amount.
A retiring employee must be in "employee status" for the entire pay period if he or she wants to accrue the full amount of annual leave hours for the last pay period that the employee is considered employed. Retiring before the end of a pay period will result in the employee not accruing any annual hours for the last pay period. In choosing the best days to retire in 2013 and 2014, the issue of accruing the full amount of annual leave for the last pay period should be considered. Since most federal employees work on a Monday to Friday 80 hour bi-weekly payroll schedule, it is assumed that the best day of the week to retire will be a Saturday - the last day of a pay period, or a Sunday - the first day of a new pay period in which the employee will no longer be in employed status.
Treatment of unused sick leave at the time of retirement
Prior to a change of the law effective Oct. 28, 2009, only retiring CSRS and CSRS-Offset employees were eligible to add any unused sick leave hours to their service time for the purpose of calculating their CSRS annuity. For example, a year's worth of unused sick leave would add a year to a retiring employee's service time. This means two percent of high-average salary will be added to a retiring CSRS or CSRS-Offset employee's CSRS annuity. Effective Oct. 28, 2009, retiring FERS-covered employees now receive that same benefit.
As previously noted, FERS-covered employees who retire on or before Dec. 31, 2013 are eligible to add 50 percent of their unused sick leave to their service time in the computation of their FERS annuity. FERS-covered employees who retire on or after Jan. 1, 2014 are eligible to add 100 percent of their unused sick leave to their service time in the computation of their FERS annuities.
With these issues and rules in mind, the following table lists the best retirement dates for federal employees working on a Monday through Friday bi-weekly 80 hour schedule and who are eligible to retire during 2013 and 2014.
About the Author
Edward A. Zurndorfer is a Certified Financial Planner, Registered Health Underwriter, Registered Employee Benefits Consultant and Enrolled Agent in Silver Spring, MD and the owner of EZ Accounting and Financial Services, an accounting, tax preparation and financial planning firm also located in Silver Spring, MD. He is an instructor at federal employee retirement seminars throughout the country and writes numerous columns and books on federal employee benefits.