For Federal Employees, retiring at the end of the year usually makes sense and one of the reasons is annual leave. 240 hours can be carried over at the end of each year, and that amount can be added to a retiree’s last year. The maximum amount of unused annual leave can be as high as 448 hours. This is paid out as a lump sum.
The method used to calculate the lump sum amount is rather simple. For example, assume one has 240 hours of leave at retirement, then it is determined how much the employee would have made had they continued working for those hours. This includes any holidays that would’ve been encountered along with any across-the-board raises, basic pay, locality pay, overtime pay, etc. The only types of pay not considered are retention incentives and physicians’ comparability allowances. The resulting amount is the total lump sum, which is taxed. The taxation of this lump sum is one of the scarce reasons retiring at the end of the year would not be preferable to some.
Thinking of retiring?
Talk to a Chartered Federal Employee Benefits Consultant (ChFEBC) today.
Until Next Time,
**Written by Benjamin Derge, Financial Planner. The information has been obtained from sources considered reliable but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of Benjamin Derge and not necessarily those of RJFS or Raymond James. Links are being provided for information purposes only. Expressions of opinion are as of this date and are subject to change without notice. Raymond James is not affiliated with and does not endorse, authorize, or sponsor any of the listed websites or their respective sponsors.
Annual Leave at the end of the year