Is December 31 Really The Best Day To Retire
I talk with feds all the time that are looking to retire and the most common answer to when would you like to retire is hands down December 31.
OPM is always swamped in the first months of each year dealing with the surge of retirement applications.
But is December 31 really the best day to retire?
Well, sometimes. But certainly not all the time.
Mistake No : Paying More Income Taxes Unexpectedly
If you have a lot of Annual Leave saved up when you retire, youre likely to get a pretty big checkBUT ITS TAXABLE! This income is going to be added to all your other earnings that year.
Lets just pretend that Sam Sample retired on October 31, and hes earned most of his regular income having worked for most of the year. Now, Sam get this big Annual Leave payment and it puts him into a higher tax bracket. Hes worried because he had to pay more taxes unexpectedly in April.
What happened last year? Why didnt you call me?
Talk with your tax professional. Ask if it might be better to pick a retirement date on the last day of the year or within the first few months of the year when your work earnings will be less so that your Annual Leave payment may be taxed at a lower rate.
Tax planning and retirement go hand-in-hand!
CLICK HERE to get the Free retirement checklist, How To Pick Your Retirement Date Like A Protm
What Time Of Year Is The Best Time To Retire
When is the Best Time to Retire
- You can access your retirement accounts without incurring any penalties once you turn 59 1/2.
- The average age at which one can begin receiving Social Security benefits is 62.
- The age at which Medicare benefits start is 65.
- Your Social Security bonus will stop growing once you turn 70.
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What Is The Best Day To Retire Under Fers
3, 2025, and Dec. 31, 2025, all of the dates presented are the official end of a pay period that is, the second Saturday of the pay period. 2. For CSRS or CSRS Offset employees, the best day of the month to retire is within the last three days of the current month or the first three days of the following month.
Leaving At The End Of The Pay Period
When considering the best day to retire it can also be helpful to look at retiring at the end of a pay period. The reason to retire at the end of a pay period rather than the middle is to accrue as much sick and annual leave as possible.
Sick leave does not count toward retirement eligibility but does count toward years of service in the annuity calculation. As a reminder, the FERS pension calculation is: High 3 x years of service x 1% .
Although sick leave cannot help one retire earlier by adding to the total years of service for retirement eligibility, it can be added to years of service in the above pension calculation.
It is important to note that unused sick leave counts as time served, but it is not a one-for-one conversion. Federal employees will need to reference the Credit for Unused Sick Leave Conversion Chart published by OPM to determine how many service months and days may be added to the calculation. Please be careful as one day does not equal eight hours on this chart.
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Why Dec 31 2021 Is Not A Good Retirement Date For Fers
September 1, 2021Edward A. Zurndorfer, Certified Financial Planner
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 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.
Mistake No : Giving Up Annual Leave
When you retire, any Annual Leave that you have on the books, or havent used as vacation, is paid out to you in a one-time lump sum payment. Pretty cool benefit, right!
But if youre in a use or lose scenario with Annual Leave and want leave paid out at retirement, then youll NEED to retire BY that Leave Ending Date that year. Otherwise, youll miss out on that use or lose leave!
But isnt it the same every year?
Heres the challenge: The Leave Ending Date changes every year, so this can be tricky. Check here to see OPMs Leave Ending Dates so that you can avoid this potentially costly mistake.
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Other Things To Remember
Although your life and health insurance premiums will eventually be deducted from your full retirement check and your coverage will continue as you await OPM processing, not all of your benefits will be covered automatically during the transition period.
If you have additional FEDVIP Dental/Vision coverage or LTCFEDS Long Term Care insurance, youll need to contact those providers directly to make payments while you wait for your full retirement check to be processed.
Likewise, any personal allotments you have set up through payroll will stop once you retire. You can resume these through the OPM once your final retirement check is processed.
Finally, you will no longer be able to contribute to a Flexible Savings Account once you retire. However, you can still access any remaining balance to get reimbursed for qualified expenses you made before your retirement date.
The Best Day To Retire
What is the best date to retire as a federal employee? There isnt one single answer because there are many mitigating personal factors, as well as significant differences between CSRS and FERS rules and regulations. This article will hopefully help you determine what the best day to retire is for you.
Assuming you have fulfilled the minimum age and service requirements, every federal employee no matter which retirement system they are covered by is eligible to retire on any day of the month he or she wants to. That includes Saturdays, Sundays and federal holidays.
It is important to review the rules and some issues that employees covered by the Civil Service Retirement System and those employees covered by the Federal Employees Retirement System should be aware of concerning the effective date of their retirement and what that date means.
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Your Retirement Paperwork Timeline
Submitting your FERS retirement application is only the beginning. First, your departments personnel office will have you sign off on several documents and begin the work of verifying your service something that can take extra time if any documentation is missing. They also transfer your life insurance and health insurance enrollment to the OPM.
Then its the payroll offices turn. When they receive your paperwork from personnel, they authorize your final paycheck and your payout of unused annual leave. They also forward records of your salary, retirement contributions, and service history to the OPM.
Once OPM finally has your full paperwork packages from these other departments, they provide you a civil service claim number to keep track of everything. And then you wait for them to review your eligibility, calculate your annuity, and finally! send you that check.
So how long does all of this take? Heres the general timeline as it stands today:
- Day 1:Your retirement date. Congratulations! Throw away your alarm clock and start those hobbies youve been dreaming about.
- Day 30:TSP funds available for withdrawal. The payroll office will let TSP know youre retiring automatically, and you should be able to access these savings without penalty within 30 days of retirement.
Worth repeating: It can take up to six months before you receive your full retirement benefits. Because of this, it may be helpful to file your paperwork 60-90 days prior to your retirement date.
How To Pick Your Retirement Date Like A Pro
A few weeks back, I taught a FERS retirement class, and I heard myself mutter something I hadnt thought of in years! If I had a dollar for every time someone asked me whats the best day to retire?, Id be rich! I chuckled because my Nana always said that when I was growing up! Funny how phrases stick.
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The Annual Guide To The Optimum Days To Plan To Move On
While many federal employees are planning to retire at the end of this year, its not too early for those who are looking ahead to leaving sometime in 2023 to start thinking about the optimum date.
This will help you plan your best date for a 2023 retirement. The idea is to maximize your retirement benefit and lump sum payment for accrued annual leave, whether youre under the Civil Service Retirement System, CSRS Offset or the Federal Employees Retirement System.
Youll notice that some dates on the calendar are specially highlighted. These are the very best dates for 2023. Some are designated specifically for CSRS and CSRS Offset, and some just for FERS retirees. If there is not a designation of CSRS or FERS, then it is a great day for all immediate, voluntary retirements. These dates are within the first three days of the month for CSRS and CSRS Offset retirements. For FERS, they are generally days at the end of the month.
One FERS date, June 30, is not only at the end of the month, but also the end of a leave period. This is a particularly good date, because it allows for one last accumulation of annual leave to create a larger lump sum payout. And Nov. 30, which falls on a Thursday, could be a great day for FERS employees who work a compressed work scheduleas long as they can complete their 80 hours of work by close of business on the 30th.
Treatment Of Unused Annual Leave At The Time Of Retirement
All retiring employees are paid in a lump sum payment for any unused annual leave hours as of the day of their retirement. The lump sum payment will be directly deposited into the same bank account that a retiring employees regular paychecks were directly deposited during the months preceding the employees retirement date. Most agency payroll offices will make sure that the retiring employees lump sum payment for unused annual leave is directly deposited into the bank account within 10 to 40 days following the employees retirement date.
The fact that retiring employees receive their payment for unused annual leave hours within a few weeks shortly following their retirement date is important. This is because most retiring employees will not be in receipt of their first full CSRS or FERS annuity check until at least two months after they retire. Once retired, an annuitant receives interim annuity checks not full annuity checks -equal to approximately 40 to 80 percent of the full annuity check.
Interim checks are sent while the Office of Personnel Managements retirement office adjudicates the recently retired employees retirement file. In the meantime, the annuitant has bills to pay, and many retired employees use their unused annual leave lump sum payment to help pay these bills while the recently retired employee waits for his or her first full CSRS or FERS annuity check.
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When Is The Best Day For A Federal Employee To Retire
These are some considerations for federal employees when choosing a date to retire from federal service.
For successful federal retirement to become a reality, confusion must be banished and wise discernment should be used.
One of the most obvious decisions in determining when to retire is selecting the best day to do so.
While there are many important considerations between retirement eligibility and retirement date, for this article the assumption is that the federal employee does have the necessary age and years of service to retire.
Although there may be a wide range of reasons to pick a retirement date, like a long-planned vacation, a significant occasion, or because one is simply ready to go there are some guidelines that may help in this decision making process.
The following are three things to consider when choosing the best day to retire.
Know Your Numbers Before You Retire
When it comes to retiring from federal service, you must know your numbers. Ultimately, how much income do you need and how much income do you have available?
Step 1: Draft a retirement budget and know what expenses you are likely to have in retirement. Remember, while some expenses go away in retirement, some appear or get much more expensive.
Step 2: Map out all of your possible income sources. That income might come from the federal pension itself , Social Security, the Thrift Savings Plan , your spouses 401, or other investments or annuity products that you might have out in the private sector.
Everyones situation is unique, and its important to consider your retirement goals before making a final decision on when its time to retire. You need to make the best choice for you but its important to know your options first. Look at the big picture and make a retirement plan with a financial professional. Regardless if you decide to wait until age 62 or later to retire, be sure you understand your options so you can make the best decision for your personal circumstances.
About Chris Kowalik
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Am I Eligible For Voluntary Early Retirement
If your agency gets approval from OPM to allow early optional retirements, eligible employees will be notified of the opportunity to retire voluntarily.
Your agency leadership may ask OPM to allow early optional retirement if:
- The agency undergoes a major reorganization, reduction in force, or transfer of function
- A significant percentage of the employees will be separated, or will be reduced in pay
When Do You Want To Retire
Putting all your benefits aside, one of the most important questions to ask yourself is when would you like to retire? Is there a time of year that would be more enjoyable for your retirement plans? Do you simply want to retire as soon as possible?
Timing your retirement to maximize your benefits is a great thing, but enjoying your retirement is generally the higher priority, because as you know, the sure fire way to increase your benefits is by simply continuing to work but that does mean that is what you want to do.
It is important to find a balance between getting the most out of your benefits while also getting the most out of your go-go years of retirement.
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How Could I Be Indebted To My Employer
Some examples of causes for indebtedness include:
- Outstanding travel advances
- Indebtedness for failure to return government property or for damage to government property
Hours: Monday thru Friday, 7:40 a.m. to 5:00 p.m. ETClosed on federal holidays
Our busiest time is between 10:30 a.m. and 1:30 p.m. ET.
The Opm Backlog Should Not Affect Your Retirement Date
Federal employees have grown increasingly concerned about the backlog of applications by the Office of Personnel Management. This is something that MyFEDBenefits has reported on as well. In December and January, some employees can expect to wait more than 60 days for their retirement application to be processed. Employees need to take the OPM backlog into consideration when they retire, but it shouldnt make or break their decision to leave federal service.
During the 60 or so days for your application to be processed, the OPM will pay interim annuity checks until your file is reviewed and approved. These checks are not full annuity checks and most recipients will receive 50-90% of what they should once their application goes through.
The OPM issues these checks to help retirees pay their bills for the first few months of retirement, even if there is still a significant backlog for applications.
Its important to remember that you are receiving interim annuity checks so you dont worry for the first few months when you receive payments that are significantly less than you expected. Your funds will get paid out as soon as the applications process is complete.
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Effective Date Of Retirement And Issuance Of First Annuity Check
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CSRS employees who are eligible to retire and who retire on the first, second, or third day of the month will have an effective retirement date on the next day of that month, and their first retirement check will be dated the first day of the following month. For example, if a CSRS or a CSRS Offset employee retired on Jan. 1, 2022, then the employees retirement became effective on Jan. 2, 2022.
The retired employees first CSRS annuity check will then be dated Feb. 1, 2022. If a CSRS or a CSRS Offset employee retires on the 4th through the last day of any month, then the employees retirement becomes effective the first day of the following month with the first annuity check dated the first day of the month thereafter. For example, if a CSRS or a CSRS Offset employee retired on Jan. 4, 2022, then the employees retirement becomes effective on Feb. 1, 2022, and the retired employees first CSRS annuity check will be dated March 1, 2022.
FERS employees are treated differently with respect to the effective retirement date and the issuance of their first FERS annuity check . Assuming a FERS/Trans FERS employee is eligible to retire, no matter which day of the month a FERS/Trans FERS employee retires, the employees retirement becomes effective on the first day of the following month, with the issuance of the first FERS annuity check on the first day of the month thereafter.
