Is it better to retire with the biggest balance of leave, or to spend down your leave?
Read the video transcript:
Welcome back to the channel. I want to ask a very simple question. What’s better to retire with the biggest balance of leave possible, or is it better to spend down your leave as much as possible? Now you have a couple types of leave. You have sick leave, you have annual leave, and that question applies to both of them.
So let’s start with sick leave. What’s better? Is it better to retire with the biggest balance of sick leave possible? Or is it better to spend down your sick leave as much as possible. Now you know that any unused sick leave you could convert and have it applied as credible service towards your pension.
The maximum amount of sick leave? There is no maximum amount of sick leave. I’ve seen people retire with thousands of hours of sick leave. If you have 2087 hours, that equals one year. I’ve met a few people that have over 4,000 hours. That’s about two years of sick leave time that they have added to their pension, which is of course fantastic.
But should a person try to retire with the biggest balance of sick leave possible, or should they spend down their sick leave as much as possible?
So I’ll give you an example. There was a gentleman who was retiring. They had some medical condition that they needed to address and they were scheduling their retirement at the end of June and they were gonna have a medical procedure, a surgery at the beginning of July, and that medical procedure was gonna sideline them for the entire month of July.
That was their strategy. I had an alternate strategy. I said, instead of retiring at the end of June, why don’t you just spend down your sick leave in the month of July and then retire at the end of July? How does this help them? So if you think about it, if they do what their plan was, which to retire at the end of June, they would only get one benefit from their sick leave.
The one benefit of sick leave is their sick leave time would be added to their pension. That’s one benefit. However, if they use my strategy, they’re gonna get five benefits. What are the five benefits? Well, number one, they spent down some of their sick leave. Not all of it, but some of their sick leave in July, so that means July gets added to their pension.
Number two, they got paid for their sick leave. The original case, they would not have gotten paid for their sick leave. They just would’ve retired and gotten nothing for their sick leave except for the time added to their pension. But now they got time and got paid for their sick leave. Number three, you accrue more leave when you’re on sick leave.
Number four, TSP matching. Now that you’re on the payroll for another month or so that’s a couple of more pay periods where you’ll be making TSP contributions and getting TSP matching. And another small benefit. There’s a few small crumbs you could sweep in there: pre-tax FEHB premiums. Now that you’re still a federal employee for that month of July, you get a couple more pay periods of FEHB premiums pre-tax, I don’t know if you guys know this. Your FEHB premiums while you are working are pre-tax. That means it lowers your taxable income. Once you retire your FEHB premiums are no longer pre-tax. So this person, by extending their service by additional month, they got an additional month, however many pay periods of pre-tax FEHB premiums.
Those are the five benefits. Now, obviously, in order for this to work, you have to have a legitimate sick excuse. You can’t just be sick of work, or can you?
Well, you know what? If you don’t have a sick excuse, you could apply this same logic to your annual leave. Let’s ask the question, what’s better to retire with the biggest balance of annual leave possible?
Or is it been better to spend down your annual leave as much as possible? So for example, let’s say you were planning on retiring at the end of June, and then in July you’re gonna take a trip to Tahiti. That’s one strategy. Let me propose an alternate strategy.
Instead of you retiring at the end of June, why don’t you just spend down your annual leave in the month of July in Tahiti, and then retire at the end of July? If you think about it, if you don’t use my strategy, but rather if you just retire at the end of June, then you’re only gonna get one benefit from your annual leave. What’s the one benefit?
You’re just gonna get paid for your annual leave? Great. However, if you use my strategy, you get five benefits from the annual leave. Number one, you get paid for your annual leave just like you would have had you not extended your service. Number two, the month of July gets added to your pension. Number three, you accrue more leave.
Number four, TSP matching. Number five, pre-tax FEHB premiums. Now in that example, Of a person spending down their leave and then heading into retirement. You should know that’s technically a no-no. That’s known as terminal leave. Basically riding off into the sunset, spending down your leave. So technically that’s a no-no.
But I will share with you a couple of things. Number one, check what people do in your office. You’d be surprised, even though it may be technically a no-no. However, there are many bosses and many offices that are lenient in this regard. So just check to see what’s done in your office, and even if your office is strict in regards to this terminal leave, there’s a way around it.
Just come back to work the day before you retire, a day before, two days before whatever it may be. This way you’re not sailing off into the sunset on your leave, but rather you return to work and you spend another day or two and you know how much work you’re doing your last day. Well, not really much because you have to sign off.
You have to hand in your badge, hand in your laptop, sign off on your final papers. Maybe there’s a goodbye party. But my point is as follows, in both of these examples, you’re seeing how you could take your sick leave or annual leave. And instead of getting one benefit from each of them, you could get five benefits from each of them.
Now, you may notice in my examples, the common denominator between those examples was I took somebody who was planning on retiring at a certain date and I said to them, listen, instead of retiring that date, why don’t you just act retired that date? Just pretend you’re retired and this way you extend your service with your sick leave and your annual leave.
So as you can see, there are creative uses for your sick leave, annual leave instead of retiring with just the biggest balance you could possibly spend down that time and get instead of one benefit. Five benefits. I hope you enjoy this video and come back for some more content.