Posted on Monday, 15th February 2010 by

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“Retirement is wonderful if you have two essentials — much to live on and much to live for.” – Author Unknown

To determine how much you will have to live on estimate your gross annuity and complete our retirement costs spreadsheet. After determining that you have the resources to retire comfortably, the following discussion will help you set your most advantageous retirement date.

Any day can be a great day to retire, provided you meet the eligibility requirements and you are personally ready to retire. The retirement day can be a workday, a non-workday or even a holiday.  Retirement dates often coincide with special dates such as, your birthday, attaining 30 years of service, the holiday season, the end of the year or another personal event. However, the selection of a retirement date can have significant financial consequences.  Some points to consider when selecting the perfect date include:

1. Annuity Commencement. Annuities only start on specific days.  Consider selecting a retirement date that minimizes the days in a non-pay status.  To avoid days in a non-pay status, work until the beginning date of your retirement annuity.

  • FERS – The voluntary retirement annuities always begin on the first of the month.  FERS retirees can minimize their days without pay by selecting the last work day of the month as the retirement date.  If a FERS retiree selected a September third retirement date, the first annuity payment would be on November first.  By simply changing the retirement date to August 31st, the first annuity payment would be on October first – one month sooner.
  • CSRSA CSRS annuity may begin on the first, second, third or forth of the month.  Many CSRS employees retire on the third so the annuity begins on the fourth.  If you retire on the first through the third, your annuity is reduced for that first month to compensate for the days worked.  For example, if you worked on the third, your retirement would be reduced by 3/30’s (10%) of a month.  The annuity on the following month would be the full annuity and is always paid on the first of the month.

Unlike most personnel actions, retirements are always effective at the end of the work day. If you select Friday as your retirement date, and Friday is a scheduled workday, then the retirement is effective after your scheduled hours for Friday.  If you are a CSRS employee working Monday through Friday, and you are considering retirement dates of Friday the first, Saturday the second or a Sunday the third, Friday might be the best day to retire.  This is because Saturday and Sunday are your days off, so you do not receive pay for those days from your job. However, the annuity could begin on Saturday.

2. End of pay period. Consider retiring at the end of a pay period for maximum leave accrual.  If you retire at the end of a pay period, you receive additional hours of leave accrual, four hours of sick leave and eight hours of annual leave (if you earn eight hours per pay period). The eight hours of annual leave is paid in a lump sum after retirement and the four hours of sick leave may be used to increase the amount of service used in the annuity computation.  For retirement purposes, the term “end of the pay period” means the end of your bi-weekly scheduled work hours.  Therefore, if you are working a compressed work schedule and you complete your 80-hour tour-of-duty on Thursday, you can retire at the end of the day on Thursday to receive the maximum annual leave accumulation for the pay period.

3. End of the leave year. Maximize the lump sum annual leave payment by retiring at the end of the leave year.  If you accumulated the maximum annual leave carryover from the prior year (usually 240 hours) and you accumulated additional annual leave in your last year (up to 208 hours if you earn eight hours per pay period and did not take annual leave), the result could be 448 hours of annual leave paid to you upon retirement.  There are two additional benefits to receiving the lump sum annual leave payment at the end of the leave year:

  • If there is a pay increase in January, the increased pay is used to compute the lump sum annual leave payment as if you actually worked during the period.  For example, it you retire on December 31st and federal employees are due to receive a 3% pay increase effective on January seventh, the lump sum annual leave is payable for the first week at your current pay rate and the remaining days at the pay rate including the 3% pay increase.
  • Potentially, the taxes due on the lump sum payment will be less if you are retiring at the end of the year.  For example, if you retire at the end of 2010 and the lump sum payment occurs in 2011, then the taxes on the lump sum payment will be due with your 2011 taxes.  Since your taxable income is normally less as a retiree, thus the taxes due on the lump sum annual leave payment would be less.

4. Creditable Service. Maximize the full months of creditable service used in the retirement annuity computation.  The annuity is computed using only whole months of service.  Additional days of service are not used in the computation.  For example, if you are a CSRS employee retiring with 30 years, 8 months and 29 days of federal service, your annuity is computed using 30 years and 8 months of service.  The 29 days of federal service are not used in the computation.  If you worked one additional month and did not use your sick leave for the month, the years of service would be 30 years and 10 months of creditable service.   By working one additional month, you receive two months of service – one month for the extra month worked and an additional month when combining the eight hours of sick leave with the 29 days that would have been lost.  Currently, FERS employees only receive 50% of the accumulated sick leave hours when computing creditable service.  However, by 2014, FERS employees will receive full credit for the sick leave, just like CSRS employees.  For more information on how sick leave is used in the annuity computation see:

5. TSP Contributions. Maximize your TSP contributions for increased deferred compensation.  You can contribute up to 100% of your bi-weekly earnings to TSP before you retire to maximize the amount in TSP, as long as the contribution does not exceed the annual contributions limit, currently $16,500 in 2010.  Contributions to TSP, 401ks and IRAs can only come from earned income. The retirement annuity is not considered earned income, therefore, this may be your last opportunity to build this tax-deferred retirement fund.

6. COLA. Consider the Cost-of-Living Adjustment (COLA) for a maximum annuity increase in the year after retirement.  The COLA increases the annuity amount for the next year based on increases in the Consumer Price Index.  The COLAs are effective on December first of every year and are included in the payment the annuitant receives in January.  If you have been retired less than a full year, the COLA is simply prorated by one-twelfth of the COLA for each full month you received benefits. In deciding which day to retire, the COLA consideration is only important if you are not retiring at the end of a month.  If you select the third as your retirement date, you will not receive a full COLA for this month when the COLA is due the following year – hence losing one-twelfth of the COLA increase for this partial month.  This only occurs in the first year of retirement.  In the second year of retirement you will receive the entire COLA.  For more information on COLAs see:

You likely cannot utilize all of these suggestions in selecting the optimum retirement date.  Occasionally, the stars align and you can use several of these suggestions at once. The key to selecting a retirement date is choosing a date that is most beneficial to you; to retire informed and without regret.  Hakuna Matata!

While the publisher and author have used their best efforts in providing retirement and benefits information, they make no representations or warranties with respect to the accuracy or completeness of the content of this article and they specifically disclaim any implied warranties of merchantability or fitness for a particular purpose. The advice and strategies contained herein may not be suitable for your situation. You should consult with a financial professional where appropriate.

Visit often to learn more about retirement options, benefits, and estate planning issues and I suggest signing up to receive my FREE monthly benefits newsletter.

Linda Duncan

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5 Responses to “The Best Day to Retire”

  1. Linda Duncan Says:

    Hello yyxd,

    Your colleague (if CSRS) is nearing the maximum annuity amount of 80% of her high three. However, the retirement deductions paid after reaching the maximum annuity amount may be refunded to the retiree.
    Here is what OPM says on the topic:
    “The basic annuity of any employee may not exceed 80 percent of the employee’s high-3 average pay (disregarding the amount produced by the unused sick leave credit as illustrated in the example below). Normally, total service of 41 years 11 months (excluding unused sick leave credit) produces the maximum annuity.”
    Thanks for the question, Linda

  2. Linda Duncan Says:

    Hi Graham – The salary for one month will be included your high three calculation, but it should not make a significant difference in the annuity because the salary is prorated for the amount of time you were under the new salary. So rather than the increased salary for one month being credit as 1/3 of your high three, one month will be credited as 1/36 of the high three.

  3. Linda Sherman Says:

    Tim – I cannot tell for certain what is the best day to retire for you individually without a complete look at your leave accrual and retirement estimate. However, because the leave year ends on December 31st, this will be the most popular retirement date for this year. The advantages and disadvantages, other than the leave accrual, are the same every year as discussed in the article on the Best Day to Retire.

  4. Linda Sherman Says:

    Rick – Congrats on the retirement. DFAS is correct. As long as you have your 80 hours in for the pay period, you will earn leave for that pay period. The retirement is effective at the end of the day on the 2nd and your annuity begins on the 3rd. If you retire on the 3rd, your annuity will begin on the 4th – with one less day calculated in the annuity.
    Happy retirement!

  5. Linda Sherman Says:

    Yes, Dennis Damp wrote an article recently on this subject. Go to to read this article. The web site also has this update on it at