How Does Sick Leave Affect Your Federal Employee Retirement Benefits?

[Applause] have you wondered how your sick leave is used to calculate your retirement benefit and what happens to your annual leave when you retire well today we're going to answer those questions hi i'm tammy flanagan and today's fers federal fact check is a question from cheryl cheryl wrote in to say she's a federal employee with 30 years in and 5 years out from retirement can you explain how sick and annual leave are handled at retirement i understand that unused sick leave balances can increase your annuity but i don't understand the formula thanks from cheryl okay cheryl we're going to answer that question for you and for everyone else who is listening and i've prepared a little quick slideshow to help walk us through how this actually works so here's your question and let's start working on the answers starting with the question about annual leave because that's the easier of the two to answer so your annual leave is converted into a lump sum payment when you retire that even is true if you just resign from federal service so that lump sum payment would be based on the number of hours of annual leave you have on the books when you retire which would include any leave that you may have carried over from the previous year plus the lead that you've accumulated in the current year that you haven't used and you may know that some people maybe your co-workers will plan their retirement towards the end of the leave year to maximize this lump sum payment so that whole final year that they work they accumulate maybe 208 hours of annual leave but don't take any of it so they have that leave plus what they carried over from the previous year in some cases giving them a total of 448 hours of unused annual leave now if there's a pay adjustment in the coming year that leave payment is going to reflect that higher salary so that's an added bonus to getting paid for such a large lump sum now that's not to say that if you decide to retire the end of june or the end of august you'll still get paid for whatever leave you have on the books whether it's 50 hours or whether it's 250 hours of unused annual leave so whatever your balance is on the date of separation that determines that lump sum payment so let me show you an example here's someone who's going to take that advice of retiring at the end of the leave year to maximize that lump sum payment now if micah were here he would tell you that people in alaska don't much like to retire in december when it's cold and dark out but down here in florida that's our prime season so a lot of folks might want to retire and move down here so this person has a leave balance of 448 hours because like i said they carried over leave from last year they've accrued leave this year and frankly i don't see people not taking leave this year now that things are starting to open up but in many years this is what happens now their annual basic pay for this example is 84 84049 that's a gs 11 step 10 on the rest of the us pay schedule so just for this example i'm going to use that pay rate so if we want to find out your hourly pay rate we take that annual rate divided by 2087 hours which are the number of hours in a leave year and that gives us an hourly rate of 40.27 an hour now let's say that in 2022 there's a pay adjustment of 2.5 percent now right now here we are in 2021 we have no idea what what if any pay adjustment there will be for 2022 so this is purely just an assumption so the new pay rate with that two and a half percent increase bumps it up to 86 150 or an hourly rate of 41.28 an hour so if we take that 41.28 an hour the new rate and multiply it by the 448 hours of unused annual leave we've got a gross lump sum payment of eighteen thousand four hundred ninety three dollars and forty four cents so it's almost like they've designed their own buyout payment however keep in mind that if the pay year or the leave year doesn't start until a week into the new year you might get some of that leave paid at the 2021 rate and some paid at the 2022 rate but this year for most federal employees the leave year ends with the calendar year that doesn't happen every year but this year december 31st is a friday and for most of you if you work a monday through friday work schedule finishing up on friday afternoon which is new year's eve so maybe you'll get off early that will give you actually it's a holiday right so you don't even have to come to work that day that will give you the full accrual of leave for pay period 26. so the withholdings are what's going to bring it down right so we have 18 000 gross amount but after federal income tax maybe state income tax not in alaska or florida but maybe in some of the other 48 states fica tax for social security and medicare tax that's going to net you somewhere around 13 000 out of a gross payment of 18.5 so figure 65 to 70 percent of the gross amount will become your net depending on your federal tax withholding levels and depending on whether or not you have to pay state income tax now let's talk about sick leave so sickly first point i want to make is it's used to increase your service for calculation but it doesn't make you eligible to retire any sooner so keep that in mind for sick leave credit 2087 hours would be equivalent to a full year so if you had a thousand forty hours you've got about six months right so any amount of sick leave that you have left over when you retire that's going to be converted to months and days or in some cases years months and days of additional service credit when calculating your benefit so sick leave added to your actual federal service will be the years and months that are used to compute your benefit there's a fact sheet that you can find at opm's website and i've got a link to it here for you as well and this fact sheet number eight provides a nice handy chart that i'm going to show you what it looks like that will help you calculate and convert your sick leave credit so here's our example so let's say this employee has a balance of sick leave of 1300 hours on the day of retirement right not what they have today but projected out to their their date of retirement so we're going to use the chart that i'm going to show you in just a minute to convert that 300 hours to months and days of service now if your sick leave number of hours falls in between two numbers on the chart you're going to take the higher of the two numbers so for instance here's our chart so we're looking for 300 hours it falls in between 1299 and 1304 on this chart so when you're in between two numbers you take the higher of the two and if we look up to the top and over to the left we see that that falls under thir i'm sorry seven months and 15 days of credit so let me go back to our example so now you see where the seven months and 15 days has come from so now we're going to add that seven months and 15 days of sick leave credit on to the service that this employee had based on their beginning date of federal service and their ending date so at the time of retirement this person ended up with 30 years 6 months and 18 days of service so now we're going to add to that 7 months and 15 days of sick leave credit based on that 1300 hours so just like in second grade when you started with the ones and then the tens and then the hundreds column for this example we're going to start with the days and work our way over to the years so when we add 18 days of service and 15 days of sick leave we have 33 days right that's just simple math but remember that every month for retirement purposes has 30 days so if we end up with 33 days that's really the same as one month and three days so we're gonna carry the month just like we did in second grade and we're going to add that to the six months of service and the seven months of sick leave credit so now we've got 13 months plus the month we're adding which is 14 months and you all know that 14 months is the same as one year which is 12 months and two months left over so that's where the two comes from so now we carry the year that we got and add it to the 30 years and so we have a retirement that's going to be computed on 31 years and two months of service so that's how your sick leave gets added to your federal service for retirement calculation and like i said this chart that i'm showing you this can be found at opm.gov and we've provided a link for you as well so you can find it pretty quickly don't be alarmed because the chart is labeled for civil service retirement system but now that fers employs in fact since 2009 fers employees receive full credit for their unused sick leave the same as csrs employees had before so this chart can be used both for csrs as well as for fers so the key takeaway points i want to leave you with is number one when you're near retirement you might want to consider saving your annual leave for that big lump sum payment that annual leave lump sum as you can see on number three on this chart provides a cushion of cash to carry you through that transition because things fall into place in their own good time so while you're waiting for that first retirement check or deciding when to claim social security or waiting to land that second career you'll have this money from your lump sum annual leave payment to help tide you over while you're waiting save your sick leave if you're listening to this in your mid-career you still have 10 or 15 years left to work save your sick leave it's not because i want you to save it for retirement credit it's because i want you to save it in case you get sick before you plan to retire that's really the sole purpose of your sick leave is your short-term disability protection so as much as you can treat that sick leave as valuable benefits the better but if you're fortunate to not have needed it or not have needed all of it by the time you retire you can convert that balance into service credit and at least it doesn't go to waste sick leave only increases your first benefit somewhere between four and fifteen dollars a month for every month that you add on so it's not a huge benefit to your retirement but it's better than nothing right so if you have a reason to use it and you're near retirement it's probably worth more that way so if you need that elective surgery for elbows or knees you may want to do that while you're still on the payroll and take your sick leave but if your mid-career or early career don't waste your sick leave because like i said it can be very valuable if you get sick or injured and you want to make sure you have some income to carry you over so you can recover so with that having been said that is our fers federal fact check for today i'm glad you joined me until next time tammy flanagan bye-bye you

Channel: Plan Your Federal Retirement

Views: 29,621

Keywords: Plan Your Federal Retirement, Micah Shilanski, Certified Financial Planner, Federal Employee Retirement Planning, Federal Financial Planner, Federal Employee, Federal Employee Retirement System, FERS, Federal Employee Health Benefits, FEHB, Federal Employee Group Life Insurance, FEGLI, Thrift Savings Plan, TSP, Roth TSP, Federal Employee Financial Independence, Federal Employee Early Retirement, MRA, Minimum Retirement Age, Military Service Buy Back, FERS Supplement

Id: dglvp-Xva1w

Length: 12min 16sec (736 seconds)

Published: Wed Jun 09 2021