Avoiding Common Mistakes While Picking Up Your Retiring Date

to be talking about this topic. We get asked this a lot when we're meeting with our clients is when's the best date to retire. Of course, it's going to depend on lots of different things, but the first thing I would say, make you guys aware, and I'm sure you already know, is that the retirement date actually will begin, your pension will actually begin the first of the following month. So let's say you know you're planning to retire may 1, your pension is not going to start

until June 1. That's not it's not going to start coming until June 1. So maybe in that case, if you're planning to go out in May, maybe it would make sense to wait until the end of May, because then your pension would start June 1, as an example. So what's the first mistake we see? This would actually have to do with eligibility, eligibility and knowing what your retirement thresholds are going to be. So what are those retirement

thresholds? This would be retiring with your MRA with 30 years of credible service, age 60 with 20 years of credible service, or age 62 with five years of credible service, this would be considered an immediate, unreduced pension under FERS. We also have the option to retire with an MRA with 10 retirement. This allows us to retire with an immediate retirement, but there is a 5% permanent penalty attached to

this for every year younger than 62, not a good deal. You could also choose with an MRA with 10 retirement, a postponed retirement, and essentially put your benefits on a shelf up until you can reach these actual thresholds here. We've got lots of other videos covering this topic, but when it comes to picking your retirement date, we have to know what your years and months and days of credible service actually are going to

be. You know, everybody knows their birth date, so you can plan when you're going to hit these, these threshold tier. It's really the years, months and days of credible service that is really important. And we see this happen all too often, where what you think your service comp date is, or retirement service comp date, your RSCD, what you think it is, could be different than what HR thinks it is. Could be different

than what it actually is. This is especially true if you've got, you know, different changes in agency, let's say, maybe breaks in service, leave without pay, temporary time, seasonal time, part time, right? Lots of different factors here could cause room for mistakes, and even OPM admits that they make mistakes. So this is something that we've talked about as well in the past of requesting, you know, let's say with, you know, with, when you're within about five years of retirement,

something called a certified summary of federal service. You request this from HR. This is actually paperwork that's part of your retirement paperwork, and that way, it's going to be the official document that verifies what your RSCD is. Okay, so eligibility? Well, the second mistake we see often is going to be related to sick leave. Sick leave, and really this is going to be any unused sick leave that you have. Unused

sick leave adds to what your pension will be. It adds to your years, months and days of credible service, but it doesn't make you eligible for the retirement thresholds up above here. So what do I mean? Well, a classic example would be, let's say, you know, someone 60 years young, and they've got 19 and a half years of credible service under FERS, and they also have, you know, half a year's worth of sick leave. So all together, the 19 and a half plus the half year, they've got 20 years of

service. They're 60, they've got 20 years of service. So they think they might be eligible to retire there at 60 with 20 but not so fast. The half a year of sick leave does not make them eligible for retirement. So we got to be thinking about that right ? Now, a third mistake that we can be seeing is having to do with military time, and really this would be bought back military time. So a similar case here, we have to have a minimum of five years of civilian paid into FERS, five years of time in

FERS, boots on the ground time. We like to call it. So in this case, you know, so let's say someone 60, and they bought back, you know, 17 years of credible service from from, from military, and then they had three years in FERS. Well, they didn't have five, so they're not eligible for their FERS retirement yet, until they have five as an example. Okay, so a fourth mistake we see actually has to do with annual leave, and

this would be unused annual leave. I'm sure you're aware, the rules, when it comes to annual leave, you get to carry forward 240 hours of annual leave from the previous year to the current year. That's the maximum that you can carry forward for annual leave. And so a lot of times, people will pick their retirement date as December 31 because they're carrying forward that 240 from the previous year, then they're working in that current year, accruing a bunch of annual leave

that they don't spend. So they've got a big pot of money for annual leave that they get to retire with. Annual leave gets paid out as a lump sum after you retire. Well, a common mistake is not knowing that the calendar year is not always the same as a leave year. So for example, for 2024 the leave year began on the 14th of january 2024 and it actually ends on January 11 of 2025, so in this case, you know, one could look at this, well, shoot, I'll just wait until January 11 to retire.

Then I'll pick that as my retirement date, and I'll get even more annual leave as a result. Yes, you would. But as we talked about in the very beginning, your pension doesn't actually start accruing until that, that first of the following month. So if you retired from the 11th of January, 2025 then your pitch is not going to start until, you know, the February 1. Versus if you retired 12/31, of this year, then it's going to start January 1. You're not going to have, you

know, what would that be? 20 days of not having a pension be accruing. So you got to be thinking about that too. Another mistake we see when it comes to picking your retirement is going to be related to taxes and what your tax situation is going to be. So let's say, for example, you were going to retire December 30, and you had this great income year. Probably the highest income that you've ever earned was this year, and then December, you're also going to have this annual leave payout.

You've accrued that 240 from the previous year you got to carry forward, plus all the annual leave from the current year, and you get this big old annual leave check. Well that could potentially increase your taxes. I don't know what your tax situation is, but it potentially could increase your taxes, as opposed to you retiring, you know, let's say 12/31, and the

annual leave gets paid out in that following year. So again, when it comes to taxes, we just have to be mindful of what your tax situation is going to be with different sources of income that you're going to be have coming in between your pension, maybe a FERS supplement, maybe turning on Social Security if you're married, what our house income is going to be when it comes to the annual leave in order to pick that best retirement date, we can't ignore how taxes play a role in what

that actual date should be for you. Now the last mistake, I would say, has to do with cash flow, when it comes to picking your retirement date, cash flow is what we call the heartbeat of your retirement and your retirement plan. And simply put, what you're spending right now is times very similar to what you're going to be spending in retirement. So we have to be thinking about the income that you're making right now, what you're spending. How are we going to replace that income in

retirement? And in particular, one thing to be mindful of is retiring younger than 59 and a half. The TSP has a really neat role that allows you to, if you retire 55 or older to take money out of the TSP without with the early withdrawal penalty. So that 10% early withdrawal penalty, which is really nice,

inside of the TSP. So other retirement accounts, like IRAs, for example, if you take distributions from them earlier than 59 and a half, you're going to be hit late early withdrawal penalty of 10% whereas we we don't have that inside of the TSP, which is nice. So that should affect what Your Cash Flow Planning is. And this should also be something for us to think about, for how much we have just in our checking and savings account or other outside sources. How are we going to

plan when should we turn on which bucket? If we know what our pension is going to be, and let's say we're delaying our social security, we know what our social security is going to be, and there might be any sort of shortage there, we have to know, are we are we even ready to retire? Is there enough income that would be available to us? So we have to make sure that there's going to be enough money there for not only your

life, but your spouse's life as well. And it's really important that we plan your cash flow a little bit better, to pick out what your retirement date is, to see if you're even ready for it, right? So hopefully this information is helpful to you, and if it is, you know, make sure you are subscribed to our channel. Make sure you're leaving a like as always helps.

But if you have further questions, feel free to drop your question below in the comment section, and we can do our best to to answer that, or maybe it'll be featured in another video that we Do. And as always until next time, Happy Planning!