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Federal Retirement 101—Part 1: Best Days to Retire

days

Do you know which days are considered “the best days to retire”? Do you know what steps you need to take to begin the retirement process? This 2-part post will first look at which days are considered to be the “best days to retire” and why and then what you need to do first once you’ve determined when you’re going to retire.

It can be a confusing time so hopefully, this will shed some light on answers to these questions.

The “Best” Days to Retire

Is there a “best day to retire”? Typically, the concept of a “best day” is usually related to finances and maximizing your potential income. A “best day” is generally a personal preference too.

You can retire on any date you choose as long as you meet the age and length of service requirements. Once you meet these requirements, you can retire on any day of the month (1st, last, or any day in between), on a holiday, on a weekend, on an Alternative Work Schedule (AWS) day off, any time in a pay period, etc. You also don’t have to physically be in the office on your last day. Your “retirement date”, or the “effective date” for your retirement is your last day as an employee.

Here are the best days, financially, to retire in 2019 (going from BEST to BETTER, top to bottom):

FERS

CSRS

Dec. 31, 2019

Jan. 3, 2020

Jan. 2, 2020

Jan. 1, 2020

Dec. 31, 2019

Last day of any month

Last day of any month or 1st 3 days of a month

 

CSRS—Retiring on the first 3 days of the month is not advantageous. For instance, if you retire on a Saturday or Sunday and you’re not scheduled o work those days, then you’re not earning additional pay and are delaying the start of your annuity.

That was just the short version of the “best days to retire”. The long version is a bit more complicated.

Retire at the End of the Month or within the First 3 Days of the Month for CSRS

The end of the month is a good time to retire because of a provision in the FERS and CSRS systems—your annuity begins to accrue at the beginning of the month after you retire. If you retire effective May 31, your annuity begins June 1. There is no gap between when you are earning a salary and when you are earning an annuity.

If you retire mid-month, like May 10, you won’t receive any compensation at all (no salary, no annuity) from May 11-31.

Although, CSRS retirees have an exception to the rule. If they retire on the last day of the month or within the first 3 days of a month, their annuity begins the day after retirement; the very next day. Those extra 3 days may allow you to earn a little more full pay, it may add enough days of service to acquire an additional month of service credit (for a higher annuity), or it may complete a pay period (for more annual leave or sick leave) and your annuity will still commence the day after you retire.

Retire at the End of the Year or within the First 3 Days of January for CSRS

There are several reasons why the end of the year is better than just the end of the month:

  • Generally, you can achieve the highest possible High-3 average salary by working as long as possible at your final salary rate.
  • You can accumulate the most hours of annual leave toward your annual leave lump sum payment. If you roll the standard cap of 240 hours into the 2019 leave year and save all your annual leave during 2019, you would retire at the end of the year with 440 hours of annual leave that you will get paid for.
  • The hourly rate of pay used to calculate part of all of your lump sum payment may be higher if you retire at the end of the year with more than just a few hours of annual leave.
  • The taxes on your lump sum annual leave payment will fall into the 2020 tax year when your taxable income will generally be lower. If that large lump sum payment was received during the same year you received a higher salary, the total income for that year could change your tax bracket causing higher taxes. Therefore, receiving a lump sum payment in a year when you’re no longer working would result in fewer tax implications.

A word of caution though—be careful if you have a lot of annual leave. If you have more than the rollover cap (240 hours for most) and you stay past the end of the leave year (most likely January 4 in 2020), you’ll forfeit any leave over your cap.

So, once you’ve determined when you’re going to retire, the 2nd part of this post will look at what steps you should take to retire.