16 Things Seniors Born Between 1941-1969 Could Take Advantage Of
A previous column entitled: “Best Days for CSRS and FERS Employees to Retire During 2021, 2022, 2023 and 2024” listed December 31,2021 as a recommended day to retire for a FERS-covered employee who is eligible to retire as of that date. However, there is a class of FERS-covered employees – while they are eligible to retire as of December 31, 2021 – should consider postponing somewhat their originally planned retirement date of December 31, 2021 into January or February 2022.
This column will discuss why FERS-covered employees born any time before January 1,1950 are advised to not retire as of Dec. 31, 2021. It will be assumed that any employee who is considering retiring December 31, 2021 has a Thrift Savings Plan (TSP) account consisting of only a traditional TSP account or a combination of the traditional TSP and the Roth TSP accounts.
Before explaining why December 31, 2021 is not a good retirement date for current employees born before January 1, 1950, it is important to first review FERS retirement eligibility rules and treatment of unused annual leave hours upon the day an employee retires.
· Eligibility retirement rules. A FERS-covered employee can retire at his or her minimum retirement age (MRA – age 55 to 57, depending on what year the employee was born) with a minimum of 30 years of federal service. A FERS-covered employee can retire at age 60 with a minimum 20 years of federal service or age 62 with a minimum five years of federal service.
· Best time of the month for a FERS-covered employee to retire. No matter which day of a month a FERS-covered employee retires, his or her retirement becomes effective the first day of the next month and the newly retired employee will receive his or her first FERS annuity check dated the first day of the following month. For example, if a FERS-covered employee (aged 62 or older) intends to retire this coming December 31, 2021 with at least five years of federal service, the employee’s effective retirement date will be January 1, 2022 and the newly retired employee can expect his or her first FERS annuity check dated February 1, 2022.
· Best time of the year for a FERS-covered employee to retire. The best time of the year for a FERS-covered employees to retire is close to or ideally at the end of the leave year. In general, this is sometime in very late December to early January anytime between December 31 and January 13, inclusive. The reason for this recommended time of the year to retire is because when an employee retires, he or she gets paid for all unused annual leave hours. The payment is made via a lump sum payment to the retiring employee by the retiring employee’s agency payroll processing office and can amount to thousands of dollars. By retiring as close to or ideally at the end of the leave year, a retiring employee could get paid the maximum amount for unused annual leave hours, as much as 448 hours for most employees, and as much as 928 hours for most Senior Executive Service (SES) employees.
· Required beginning date for first TSP required minimum distribution (RMD). Federal employees who contribute to the TSP (traditional TSP, Roth TSP, or both) are not required to do anything with their TSP accounts once they retire from federal service, including TSP withdrawals. But once they reach their “required beginning date”, they are required to withdraw each year a minimum amount from their TSP accounts. This minimum withdrawal amount is called a “required minimum distribution” (RMD). The “required beginning date” for current employees is April 1 following the later of the year the employee becomes age 72 or retires from federal service.
Why December 31,2021 is Not a Good Retirement Date for FERS-covered Employees Born Before January 1, 1950
December 31,2021 is suggested as a good day to retire for a FERS-covered employee who is eligible to retire for the following reasons: (1) the retired employee will receive his or her first FERS annuity check dated February 1, 2022; and (2) the retired employee could potentially receive nearly the maximum amount of the lump-sum payment for unused annual leave hours.
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However, if the FERS-covered employee born before January 1, 1950 and a TSP participant were to retire December 31, 2021, then the retired-employee’s first TSP RMD would have to be made no later than April 1, 2022. This is within three months of the employee’s retirement date. The TSP would calculate the first-yar RMD based the retired employee’s TSP account balance (traditional TSP plus Roth TSP), as of December 31,2020 and the retired-employee’s life expectancy factor for age 72 or older (based on the employee’s age during 2021). The life expectancy factor is obtained from the IRS’ Uniform Lifetime Expectancy table. For age 72, the life expectancy factor is 25.6 years. For example, if the TSP account balance as of December 31,2020 is $1,200,000, then the first-year TSP RMD due April 1,2022 would be equal to:
$1,200,000/25.6 equals $46,875
If the same employee were to delay his or her retirement one month to January 29, 2022, then the employee’s first FERS annuity check would be dated March 1, 2022. However, the retired employee’s first TSP RMD would then be due April 1, 2023. However, since that employee is retiring after December 31, 2021, the retired employee’s first TSP RMD would be due no later than April 1, 2023, over a year later.
Looking ahead to the year 2022, FERS-covered employees born before January 1,1951 should not retire on December 31, 2022 for the identical reasons stated fur FERS-covered employees born before January 1,1950 who should not retire on December 31, 2021. By delaying their retirement into 2023, these employees will have an extra year (from April 1,2023 to April 1, 2024) to take their first-year TSP RMD.
NOTE: This is information provided for educational purposes only. Federal employees should verify all information regarding retirement planning — including retirement dates — with their agency and, if desired, a financial planning professional before making any decisions.
Edward A. Zurndorfer is a CERTIFIED FINANCIAL PLANNER®, Chartered Life Underwriter, Chartered Financial Consultant, Registered Health Underwriter and Enrolled Agent in Silver Spring, MD. Tax planning, Federal employee benefits, retirement and insurance consulting services offered through EZ Accounting and Financial Services, located at 833 Bromley Street Suite A, Silver Spring, MD 20902-3019