Retirement planning is a pivotal stage in the life of a federal employee. Choosing the best date to retire can have a substantial impact on your financial well-being. The correct timing can maximize your benefits and ensure a smooth transition.
For federal employees under the Civil Service Retirement System (CSRS) and the Federal Employees Retirement System (FERS), choosing the right retirement date is crucial. While the ideal retirement date varies based on personal circumstances, there are strategic dates that federal employees can consider to maximize their benefits.
Here’s a comprehensive guide on the best dates for federal employees to retire through 2030.
Key Considerations for Choosing a Retirement Date
Retirement System Rules
Different rules apply under FERS and CSRS regarding annuity commencement dates and how retirement benefits are calculated.
Pay and Leave Accruals
Retiring at the end of a pay period ensures you receive credit for all the leave accrued during that period. Consider retiring at the end of a month to maximize leave accrual and lump-sum payments. This strategy is especially beneficial for those who have accumulated significant leave balances.
End of the Leave Year
Retiring at the end of the leave year allows you to cash out the maximum amount of accumulated annual leave. Federal employees can accrue and carry over up to 240 hours (30 days) of annual leave. Leaving at the end of the year ensures you get paid for this leave, effectively boosting your final paycheck. For instance, in 2024, the leave year ends on January 11, 2025.
Maximize Service Credit
For FERS employees, retiring at the end of a month can be advantageous. Annuities begin on the first day of the month following your retirement. Thus, retiring on the last day of the month means your annuity starts the very next day. This timing minimizes the gap between your last paycheck and your first annuity payment. CSRS retirees should consider retiring within the first three days of a month for a similar benefit.
Avoid the Social Security Offset
If you’re planning to retire before reaching the full retirement age for Social Security, ensure you understand how the Government Pension Offset (GPO) might impact your benefits. This is particularly crucial for those with a significant portion of their income derived from Social Security.
If you plan to retire at or near age 62, doing so in the month you turn 62 can synchronize your federal annuity with Social Security benefits.
Social Security Earnings Test
The Social Security Administration (SSA) earnings test for retirement affects individuals who claim Social Security benefits before reaching their normal retirement age (NRA), which is currently set at age 67 for individuals born 1960 or later. This test determines how much of benefits are withheld if the worker earnings exceed specific thresholds. For anyone attaining an NRA after 2024, the annual earnings limit for the entire year is $22,320. For every $2 earned above this limit, $1 is withheld from benefits.
High-3 Salary Calculation
Federal retirement benefits are calculated based on your “high-3” average salary — the highest average annual pay you received over any three consecutive years of service. Timing your retirement to include recent pay raises can optimize your high-3 calculation, thus increasing your annuity.
Avoiding the “Golden Handcuffs”
The term “golden handcuffs” refers to incentives to delay retirement, such as reaching the next service milestone for higher benefits. For many employees, the difference in benefits by delaying retirement by just a few months can be substantial, particularly around key service anniversaries or COLA adjustments.
Optimal Retirement Dates from 2024 to 2030
Based on these considerations, here are some optimal dates to retire from federal service over the next several years:
- 2025: January 10 (End of Leave Year), January 31 (Month-End)
- 2026: January 10 (End of Leave Year), January 31 (Month-End)
- 2027: January 9 (End of Leave Year), January 31 (Month-End)
- 2028: January 8 (End of Leave Year), January 31 (Month-End)
- 2029: January 13 (End of Leave Year), January 31 (Month-End)
- 2030: January 12 (End of Leave Year), January 31 (Month-End)
These dates are strategically chosen to align with the end of the leave year or the end of the month to ensure the immediate commencement of annuity payments and the full benefit of accumulated leave.
Additional Factors to Consider
Cost-of-Living Adjustments (COLAs)
Retiring in December, just before the end of the calendar year, can allow you to be eligible for COLAs sooner and may align with COLA increases. COLAs are typically applied annually and can significantly impact the purchasing power of your annuity over time. Federal retirees under CSRS receive COLAs in January following their retirement. For FERS employees, the first COLA is prorated based on the number of months the employee has been in retirement. Timing retirement to maximize these adjustments can be beneficial.
Health and Life Insurance
Ensure you meet the requirements to continue your health and life insurance into retirement. You generally need to be enrolled in the Federal Employees Health Benefits (FEHB) and Federal Employees Group Life Insurance (FEGLI) programs for the five years immediately before retirement to continue these benefits. Also, make sure you understand how your retirement date affects your eligibility and benefits under Social Security and Medicare.
Thrift Savings Plan (TSP) Withdrawals
Consider how your retirement date impacts your TSP. Withdrawing funds too early may incur penalties unless you meet the age requirements or choose options like monthly payments or annuities.
Financial Readiness
Before choosing your retirement date, ensure you have a clear understanding of your expected retirement income, including annuities, TSP, Social Security, and any other pensions. Attending pre-retirement seminars and consulting with your HR office can provide valuable insights into your financial readiness.
Planning Steps for Federal Employees Approaching Retirement
- 1 Year Before Retirement: Confirm eligibility, get annuity estimates, and attend pre-retirement seminars.
- 6 Months Before Retirement: Notify your supervisor, finalize your retirement application, and ensure all documentation is in order.
- 3 Months Before Retirement: Submit your retirement application, which includes finalizing health and life insurance elections. Most retirees will have a short period income gap while the application is processed. It’s best to be prepared for any potential interim pay periods while your application is processed. Many individuals cover their income gap with savings, so ensure you have adequate savings for monthly expenses.
Conclusion
Every employee’s situation is unique. Consider your personal retirement goals, including:
- Desired retirement lifestyle and its associated costs
- Health and life expectancy
- Family considerations and dependents
- Part-time work or second career post-retirement and earning tests
Choosing the best date to retire from the federal government involves careful planning and consideration of various factors to maximize your benefits and ensure a smooth transition into retirement. By aligning your retirement date with key fiscal and administrative cycles, and by thoroughly preparing with the guidance of HR and a retirement coach, you can optimize your retirement experience.
For more detailed guidance and updates, federal employees should regularly consult resources such as the Office of Personnel Management (OPM) and specialized retirement planning sites like Federal Retirement Experts. To help determine the best date for you, Federal Retirement Experts developed a free PDF guide based on current information from the US Office of Personnel Management (OPM).
By adhering to these strategies and timing recommendations, federal employees can make the most of their retirement benefits and enjoy a secure and fulfilling post-service life.
Harry Jameson, a distinguished U.S. veteran, is the President and CEO of Jameson Financial Solutions and Federal Retirement Experts. With more than 50 years of expertise in the financial services industry, he utilizes his deep knowledge to create tailored retirement plans, enabling federal employees to realize their retirement aspirations.
