Retirement is a gratifying achievement that not only benefits the retiring individual but their family and friends as well. That said, there are several factors to appraise when planning for retirement.

Timing is a critical factor that can determine how financially rewarding retirement is for a federal employee. This article will share some facts on how timing can affect the options a retiree has and how to navigate them effectively.

Best Time to Retire as a Federal Employee

A primary consideration for employees regarding retirement is they don’t have to return to the workforce unless they desire to. No matter what age they select to retire at, a retirement fund has to be substantial enough to last them the rest of their life.

These are three vital considerations to maximize the benefits of retirement.

1. Pension Timing and Bonuses

The pension a federal employee receives is based on the High-3 Average Salary. This calculation comprises the three highest-earning years, or total time if you have less than three years of federal service.

An opportunity to improve their pension by 10% exists if they have worked for 20 years in the government and are 62 or older when they initiated their retirement.

2. Early and Late Retirement Thrift

In general, early retirement is anything before the age of 59½ because this is the earliest most employees are able to access their IRA funds without penalty.

Federal employees have access to the Thrift Savings Plan (TSP), which is similar to 401(k) for non-government employees. There is a traditional and a Roth option for TSP funds with the former deferring taxes and the latter paying taxes up front. A unique factor regarding the TSP is that federal employees can withdraw from this as early as 55 years old without penalty if they leave their government position.

A late retirement can constitute anything after the age of 72 because an employee will be eligible for all retirement benefits, and they have to begin withdrawing from their retirement account. After the age of 72, or 70½ for those born after July 1, 1949, a required minimum distribution will be required from retirement accounts. However, federal employees who continue to work at the age of 72 and beyond can delay this RMD until they separate from their position.

3. Annual Leave Options

Federal employees have access to a certain amount of leave time each year, and the time they do not use is saved up.

After one day of retiring from their position, they are eligible to receive a lump-sum payment on their unused leave time. The leave time lump-sum payment is taxed, and the year it is taxed in is determined by the disbursement date of the funds – not the day the employee retires.

However, it may be prudent to retire earlier in a year rather than later since the tax liability will be increased if the lump-sum payment is provided later in the year.

Timing still plays a role in this decision as federal employees can receive a bonus on their lump-sum leave payment. Since unused hours are projected forward, all of those hours will be valued at the next year’s new pay rate.

Picking the Perfect Retirement Timing

Retirement should be a tremendous period for federal employees as they can enjoy the fruits of their labor and have more time for their family and loved ones. Patience is vital to this planning process and understanding what ages and how many years of service correspond to specific benefits will prove invaluable while planning on when to retire.