The Best Day to Retire
What is the best date to retire as a federal employee? There isn’t 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 (CSRS) (including CSRS-Offset employees) and those employees covered by the Federal Employees Retirement System (FERS) should be aware of concerning the “effective date” of their retirement and what that date means.
CSRS vs. FERS Retirement Rules
Employees covered by either CSRS or 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. If the employee retires on any day of the month other than the first, second or third of the month, then the 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 month after that.
Another consideration for CSRS and CSRS-Offset employees is the first cost-of-living adjustment (COLA) taking effect the January 1 following the year in which the employee retires. The first COLA will be prorated according to the number of months a retired employee was retired prior to the effective date of the COLA.
For employees who are covered by FERS or who are “Trans” FERS, no matter which day of the month an employee retires, retirement takes effect on the first day of the following month, with the first annuity check dated on the first day of the month after that. (“Trans”FERS are those employees who transferred to FERS from CSRS and who are eligible for both a CSRS and a FERS annuity.) Therefore, retiring on the last day of a month rather than the first day of the next month results in issuance of the first annuity one month earlier.
Unused Annual Leave
Another issue facing retiring federal employees is the 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 bank account the retiring employee uses for direct deposit of his or her payroll check. The lump sum payment for unused annual leave is subject to federal and state income taxes and Social Security (FICA) and Medicare Part A payroll taxes.
The 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 they were in employee status. In choosing the best days to retire, therefore, the issue of accruing the full amount of annual hours for the last pay period in which the employee worked should be considered. Since most federal employees are on a Monday to Friday, 80-hour bi-weekly payroll schedule, it is therefore 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 employee status.
Since the CSRS and FERS retirement rules are complicated, if you’re approaching retirement, you should attend a pre-retirement seminar. Many agencies hold such sessions for their employees. If yours does not, ask them to do so.