It's not only nice to have the big payout, it also makes the most financial sense. The only way to maximize your leave hours is to stay a whole year. With 240 hours carryover, a FERS retiree can amass 448 leave hours. What to do with that accumulation? Two options:
A) Retiree #1 does what Dave suggests and decides to go on a long vacation into 2024. But since he will use his leave to stay on into the new year, he must spend his 208 hours accumulated in 2023 before the end of the leave year. So he begins his retirement five weeks early to consume "use or lose." So he can only add on six weeks (240 hours) of service in the next year. That might net him only one month more of time on his pension, maybe two. The extra two months adds .001666 to his multiplier for his pension calculation. If he worked ten years in the federal government, the multiplier on his pension would be .101666. So if he made $100,000, his pension would be $10,167.
B) Retiree #2 works till the end of the leave year (five more weeks) and takes the 448 hours in a lump sum. He is 208 hours ahead of Retiree #1 in his annual leave payout and gets an extra $10,000 payout on top of the 240 hours Retiree #1 has. Of course his service time is shorter. So, with an identical 10 years of service, Retiree #2 will have a multiplier of .10 and a long term pension of $10,000.
By getting an extra $167/year, how long will it take Retiree #1 to catch up to Retiree #2's lump sum pay out? About 60 years. He needs to live till about 120 to break even.
If you are willing to work an extra five weeks, you get an extra five week lump sum payout.
Retiree #1 would do better if we were discussing a mid-year retirement, but then you aren't maximizing your annual leave accumulation, which was the point of the article.
On Tue, Feb 28, 2023 at 07:06 PM, Thomas Wellock wrote:
Of course, in taking the leave, you start your retirement five weeks earlier. You'll have less money, but maybe that's worth it.
440 hours is 11 weeks, no? I feel like little misconceptions like this really impact people's opinions. We're talking about 11 weeks where you're still getting paid your normal pay, still earning annual leave, still accumulating service that will count towards your retirement.
And you won't have less money overall, just not in a fat lump sum payment. You'll actually have more in retirement. [In the example above, someone is retiring with a final salary of $80,000 (so, they're, what, GS9 Step 10?). One additional month of service is worth $6 more per month in retirement. An additional 11 weeks of service will definitely get you two more months of service, maybe three. So, $12-18 more every month for our GS9 step 10.] In fact, for some people (I'm thinking of LEOs on LEAP or AUO), you'll have much more.
The hours of leave are worth the same amount of money whether you use them or save them and sell them.
It's just a matter of whether you want that money all at once when you retire (the popular choice, and the obvious one for anyone worried about funds to handle a few months without a steady paycheck), or whether you want additional months of service that will increase your pension forever (the less popular choice, but the one that is objectively worth more money).
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