When Should a Federal Employee Retire? A Decision Framework

Five factors interact to determine when you should retire: (1) your eligibility date, (2) your high-3 calculation window, (3) the leave year boundary, (4) the FERS Supplement start date, and (5) your TSP and Social Security timing strategy. Getting all five right can add $20,000-$50,000 in cumulative first-decade income.

Most feds focus only on the first factor , when they are technically eligible. The other four are equally important and often require modeling with actual numbers. A retirement date that is two months later than you planned might capture an additional high-3 pay period, an extra sick leave increment, and a more favorable leave payout , easily worth $3,000-$8,000.

Your high-3 is the average of your highest three consecutive years of basic pay. "Consecutive years" means 36 consecutive calendar months , not necessarily three calendar years. If a federal pay raise takes effect in January, retiring in February of that year means the raise is in your high-3 window.

For a fed earning $95,000 who receives a 4.1% pay raise in January, retiring in February means their high-3 includes one month of the higher salary. Retiring in December of the prior year means it does not. The difference in high-3: roughly $300-$400 per year in annuity. Not enormous, but it compounds over a 25-year retirement to $7,500-$10,000.

The more impactful scenario is a within-grade increase (WGI) or a promotion within your high-3 window. Moving from GS-13 Step 7 to Step 8 ($2,000-$3,000 salary increase) during your high-3 period adds the salary difference to your average. A promotion from GS-13 to GS-14 within the window can add $5,000+ to your high-3 , translating to $50-$75/month in annuity, for life.

At retirement, you receive a lump-sum payout for your accrued annual leave, at your final hourly rate. Most full-time feds accrue 8 hours per pay period (26 pay periods per year = 208 hours, or about 26 days) when they have 15+ years of service. The maximum carryover is 240 hours (30 days).

If you retire on the last day of a leave year (typically the first Saturday in January), you have maximized your leave balance , you can carry up to 240 hours and have accrued additional leave throughout the year. If you retire mid-year, you may be paid out on a balance that has not yet reached its maximum.

On a $95,000 salary, each hour is worth $45.67. A full 240-hour payout is $10,961 before tax. Retiring a few weeks early (mid-December vs. early January) might reduce that payout by $2,000-$3,000. It is worth checking the leave year calendar before confirming your date.

The FERS Supplement starts the day your annuity begins , if you retire with an immediate, unreduced annuity at or after MRA. The Supplement averages $800-$1,500/month depending on your Social Security earnings history, and it runs until age 62. That is $9,600-$18,000 per year in additional income that terminates at a fixed date.

The Supplement is subject to an earnings test: if your earned income exceeds $23,400 (2025 threshold), the Supplement is reduced by $1 for every $2 of excess earnings. This means working part-time after retirement can silently eliminate the Supplement. Feds who plan to consult or work after retirement should model whether part-time income makes sense net of the Supplement reduction.

If you are considering delaying retirement by even one month, factor in the Supplement: one extra month of Supplement income (at $1,200/month average) is $1,200 you leave on the table by working an extra month instead of retiring. At some point, the Supplement income exceeds the annuity increment from the additional work month.

Unused sick leave is converted to additional creditable service at retirement. OPM uses 2,087 hours per year as the conversion factor. Every 174 hours of sick leave equals approximately one additional month of creditable service, which adds about 1/12 of 1% of your high-3 to your annuity.

If you have 1,000 hours of sick leave and a $95,000 high-3, those hours add roughly 5.7 months of service, or 0.48% of $95,000 = $456/year to your annuity. Over 25 years, that is $11,400. Some feds with 2,000+ hours of accumulated sick leave (possible after a long career with minimal illness) gain nearly a full year of additional creditable service, adding $950/year to their annuity.

Do not burn sick leave in the months before retirement unless you are genuinely ill. Many feds make this mistake, thinking unused sick leave is "lost" , it is not. It converts to annuity income. The exception: if you have a chronic condition that consumes sick leave, there is no harm in using it for legitimate health needs.

If you are a law enforcement officer, firefighter, or air traffic controller, you face mandatory separation at age 57 (LEO/FF) or 56 (ATC). You do not choose your last possible date , OPM requires you to leave. Your planning should work backward from that mandatory date.

Special provision employees who reach their mandatory separation age but want to stay must apply for a waiver. Waivers are granted only under specific circumstances and agency need. Assuming you will receive a waiver is a planning error. Build your retirement date around the mandatory limit.

This content is educational and general in nature. It is not tax, legal, or investment advice for your specific situation. Rules for FERS, TSP, Social Security, Medicare, and tax treatment change and can depend on factors unique to you. Consult a qualified tax professional, attorney, or CFP professional before acting on any of the strategies discussed here. PlanWell Financial Planning, LLC is not affiliated with or endorsed by OPM, the U.S. Office of Personnel Management, or any federal agency.