Should I Use My Annual Leave or Sick Leave Right Before Retirement?

hello dallin haas here from plan yourfederalbenefits.com thank you for being here listening up for to my podcast or on youtube wherever you are at it is great to have you this week is a great question and one that i again got through my website so if you have any questions about your federal benefits go over to my website at plan yourfederalbenefits.com scroll down to the bottom of any of the pages there's a spot that says hey have any questions about your benefits ask me it sends an email to me me personally not to my team to me personally and i see it and i try to respond to as many as those of those as i possibly can so if you have any questions go there type it in and i'll address it so this is that is where i got this question and so let's dig into it so this week's video this week's podcast is about the question that i and the question was basically in the year of retirement this gentleman has a surgery that he is going to need to take some leave for he's got plenty of sick leave plenty of annually his question though was should i use my sickly or my annual leave i'm planning to retire by the end of the year before the next year so there's not going to be any issues for him of not being able to transfer over a certain amount of his annual leave right that's not an issue for him so which one should he use right and so before we go to what makes sense for him you have to understand what happens to both these types of leave in retirement so if you're unfamiliar with this any extra sick leave that you have when you retire you get something for it and you get a bonus basically to your credible years of service for your pension calculation right so if you're unfamiliar your pension calculation is your high three salary times your years of credible service times your multiplier so this one your years of credible service gets a little bump by how much excuse me by how much sick leave that you have for example there well there's a chart on opm website if you look at the article that's related to this topic that i wrote on my website or usually in this in the description of all the podcasts that youtube all that stuff it has a link to a chart where you could say okay i have 300 hours of sick leave and it shows you how many months or days or whatever that that comes out to that will add back to your pension calculation so check that out if you want a really really good number so now that we know what happens to sickly we have to know what happens to annually even so annual leave when you retire and you have annual leave left over they pay you a lump sum for whatever you had and basically let's say you had a month a month's worth of annually when you retire they would then pay you a lump sum almost as if you would have worked out or even use that annually for that next month right that's kind of how it works and there's a long list of the things that includes like your base pay and all that good stuff and you can find that anywhere just google it but basically you'll get paid a lump sum for everything that you would have been paid if you would have worked or used that um the next month or what whatever amount of annual leave you have that's how much it would um stretch out for and even if let's say there would have been a you know a big across-the-board wage increase for federal employees it would have take it'll take into account that wage increase and put that into your lump sum so it's a great option so that being said let's go through an example of a federal employee where i don't know the specifics of this federal employee that answer to ask the question but let's just make up some numbers about their pension their credible service all those things and see what the numbers say right now that we know how they're both handled what do the numbers say in a random situation so i got my notebook here with an example so let's say this person that's retiring at the end of the year they have 160 hours of annual leave saved up and 160 hours of sick leave i'm gonna make this extremely simple just to keep the numbers super simple simple so let's say they need four weeks right four weeks of time to take off for a surgery or something else and they're trying to decide should i use all of my sick leave or all of my annual leave and what difference will it make so let's say that they decide to use their sick leave so that they have annual leave saved up at the end of retirement right so what difference would that make so if they use their sick leave they're not going to get a bump to their pension but they are going to get a lump sum payment at retirement so let's assume that you know they had four weeks of annual leave saved up at retirement and let's say they made a hundred thousand dollars a year really rough numbers so you divide you know 52 by four times that by um four for i'll say that again divide four by 52 times their salary right so four weeks divided by 50 to two weeks in a year times their salary and in their case they'd probably get a lump lump sum payment of about 70 70 700 so 7 700 at retirement like okay pretty cool but what if they take what if they use their annual leave and they keep their sick leave what difference would it make so as i said before their sick leave is going to give a bump to their pension so let's assume this federal retiree employee is going to have 20 years of credible service he makes a hundred thousand dollars a year let's say that's his high three and let's say his multiple is one percent really simple meaning his gross pension in retirement's gonna be about twenty thousand dollars a year but let's say he has an extra 160 hours of sick leave at retirement now if you go look at the chart for opm that actually only comes out to 28 days right and one quick thing that's important to know is that when you retire any extra days that you have are gonna actually drop off of your pension calculation for example let's say your exact credible service amount is 20 years one month and five days you'll get credit for the 20 20 years and one month but the extra days are just gonna fall off so if you have 29 days they're just gonna fall off but if you have a full month then it'll get added to your pension right and so in this specific example let's say he didn't you you know he didn't use a sick leave he has 28 days added on to his pension calculation well that's just going to fall off it's not going to make any difference right but to give this a fair you know a fair chance in this example let's say it added added a month's worth of credible service to his pension calculation what would that look like right so let's say it added like i said a full month to his calculation right that would make his pension about 83 dollars and 33 cents higher every year rough numbers right these are simple numbers rough numbers so i ask you would you rather take a lump sum payment at retirement of 7 700 or get an increase to your pension every single year for the rest of your life of 83.33 right and most people are going to take the lump sum right because how how many years would it take you to earn that money back if you took the 83 and 30 cents it would take a lot of years right it really would but obviously there's lots of things to consider like tax rates let's say you retire in december of a year and you get this big lump lump sum payment but that gets added into your income for that year so let's say you're in a high tax bracket maybe you like make a lot of money between you and your spouse maybe you have to pay 30 percent depending on you know federal and state taxes maybe 30 on that lump sum so maybe it would make sense to stretch it out over you know your entire life and your pension right so you have to really look at your situation in general if i had to say a general statement most the time it makes sense to take that lump sum meaning to use your sick leave and to have annual leave at the end because it is really nice to get that lump sum and you could go invest it or you could do whatever you'd like with it but you get it up front and of course you want to use it responsibly because having a pension increase over time kind of makes you use it a little more responsibly and because you don't get it all at once right so of course you want to use it responsibly and use in a way that's going to help your retirement but just numbers and cents often it makes sense to take that lump sum but again you'll have to look at your tax brackets when you're going to retire how much annual leave you have if you're going to retire at the beginning of the year how much is actually going to cross over to the next year with you these are all kind of considerations to to you know take in mind so you have to look at what you're trying to do how much leave you have these other numbers and then you might find the solution that makes sense for you but like i said in general it often makes sense to have as much annual leave as you possibly can at the end of retirement to get that large lump sum that is really nice to have and really makes sense numbers-wise down the road okay i hope that makes sense hopefully that gives you a structure and a way to look at your situation say hey for me what makes sense the examples i give i'm sure are not exactly what your situation looks like my goal is not to tell you what's perfect for you my goal is to give you a framework to say okay how do i think about the situation how do i structure it so i could figure out given my specific situation what makes sense for me that's what i hope when i do these videos and share examples that's what i hope it does for you okay i hope you guys have a great week and i'll talk to you soon and again thank you for making to the end of my video the end of my podcast i hope this brought value to you and your life my goal with this content is to bring as much value to as many people as i possibly can so please if you can if this brought value to you please show 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Channel: Haws Federal Advisors

Views: 48,566

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Id: hmnU2kif7hs

Length: 11min 6sec (666 seconds)

Published: Thu Aug 27 2020