Intro
Ask a federal employee when they’re going to retire and you’ll usually get an age: “62” or “at MRA.” Very few name a specific date. But the date — specifically the day of the month, and the month within the year — can be worth $10,000 or more depending on how it interacts with your annuity start, your unused annual leave payout, your FERS Supplement, and your Social Security timing.
The date isn’t a technicality. It’s a real financial decision, and one most federal employees make too casually.
Here’s what actually changes based on when you retire.
The annuity start-date rule
FERS annuities begin the first day of the month after you retire — but with an important exception. If you retire on the last day of the month (or on the 1st, 2nd, or 3rd, in a few edge cases), your annuity starts the very next day.
The practical effect: retire on December 31, your annuity starts January 1. Retire on January 5, your annuity doesn’t start until February 1 — you lose almost a month of pension income for a five-day work stretch.
CSRS is more forgiving. CSRS retirees can retire on the 1st, 2nd, or 3rd of a month and have their annuity start on the same day (with the annuity paid retroactive to the retirement date). FERS retirees do not get this grace period — they need to retire at the very end of the month to avoid the delay.
Rule of thumb: Retire on the last working day of the month. If that’s a weekend, retire on the Friday before the last day, or plan the paperwork around it.
The leave payout
Unused annual leave — your accumulated vacation days that you didn’t burn before retirement — gets paid to you in a lump sum after you retire. For an employee who’s been at OPM’s maximum leave carryover of 240 hours (30 days) or higher, that’s often a $15,000 to $25,000 check.
Here’s where the timing matters. Your annual leave lump-sum payout is treated as W-2 wages for the year you receive it — meaning it’s taxed at whatever your marginal rate is that year, and it counts toward the FERS Supplement earnings test.
If you retire on December 31 with 240 hours of unused leave, that leave payout hits in early January — as income for the new year, when you’re already partway retired. Your marginal tax rate for that year is likely lower than your final working year, so the tax bill on the payout is smaller.
If you retire on July 15, your leave payout hits mid-year while you’re still earning your full federal salary — pushing you into a higher bracket for that year and generating more tax on the payout itself.
For most federal retirees, retiring at year-end (December 31) minimizes taxes on the leave payout by spreading income across two calendar years — you get 6 months of federal salary in year one, and the lump-sum payout in year two when your total income is lower.
The FERS Supplement start
The FERS Supplement — the bridge payment that runs from your retirement date until age 62 — starts the month after your annuity starts. It gets prorated for partial months.
The Supplement doesn’t have a “waiting period” or a “vesting” rule beyond your eligibility to retire under FERS with the immediate annuity. Once your annuity starts, your Supplement starts.
Where the date matters for the Supplement: the year you retire, any federal earnings from your final year of work are typically excluded from the FERS Supplement earnings test (though this detail is worth verifying with OPM for your specific situation). But any earnings after you retire — from a second career, consulting, part-time work — count against the Supplement starting in the year after retirement. Retiring December 31 means the earnings-test clock starts January 1 of the next year, giving you a clean full year to plan around.
Social Security claiming
Social Security is separate from your federal annuity, and you claim it independently. But the two decisions interact.
The month you claim Social Security determines the exact benefit amount. If you claim at 62 you get about 70% of your Primary Insurance Amount (PIA). At Full Retirement Age (66-67 depending on birth year) you get 100%. Delaying past FRA earns 8% per year up to age 70.
For a federal retiree collecting the FERS Supplement, there’s a specific optimization: the Supplement ends the month you turn 62 regardless of whether you file for Social Security. Some retirees automatically file for Social Security at 62 because “the Supplement ended, might as well.” That’s often the wrong choice.
If you don’t need the income at 62, delaying Social Security by even a few years can add $200 to $500 per month to your permanent benefit for the rest of your life. Bridge the gap with TSP withdrawals instead. The math almost always favors the retiree who can afford to delay.
The health insurance detail
To carry FEHB into retirement, you must have been enrolled in FEHB for at least the five years immediately before your retirement date. Not “five out of the last ten” — five continuous.
If you dropped FEHB briefly (during a coverage swap, a period of dependent coverage, or unpaid leave), your five-year clock resets from the day you were re-enrolled. Retire before the clock hits five years and you lose the right to carry FEHB in retirement — permanently.
The fix: verify your continuous FEHB enrollment history at least six months before your intended retirement date. If you’re within your five-year window, delay retirement until you’ve cleared it. Losing FEHB in retirement is one of the most expensive mistakes a federal employee can make.
The Thrift Savings Plan match
If you retire on January 15 versus December 31, you may lose a partial year’s TSP employer match. The TSP match is calculated per pay period, so retiring mid-month means you only get the match for pay periods you actually worked.
For most retirees this isn’t a huge factor — the difference is a few hundred to a couple thousand dollars in match. But if you’re close to a milestone (like the 5% match cap) and have several pay periods left in the year, that’s real money.
What actual dates look like
Here are the dates federal retirees most commonly choose, and why.
December 31 (or last working day of December). Most common for FERS retirees. Annuity starts January 1. Leave payout hits in January (next tax year). Full year of federal salary in the working year. Full year of retirement income in the following year. Clean tax separation.
Last working day of the fiscal year (September 30 or a Friday nearby). Common for retirees who want to align with the federal fiscal year, or who have contractual reasons to time it this way. Same annuity-start mechanics as December — you retire on the last day of the month and your annuity starts the next day.
Last working day of any month. For retirees who don’t want to wait until year-end but still want to preserve the “annuity starts the next day” rule. Works fine — just means the leave payout may hit in the same year as most of your federal salary, resulting in higher tax on the payout.
Milestone birthday retirements (e.g., 62, MRA, etc.). Some retirees time their retirement to a specific birthday-related milestone. Nothing wrong with this, but they should still target the last working day of the birth month to get the annuity start mechanics right.
What to actually do
1. Pick your target year first — usually driven by financial readiness and lifestyle timing. 2. Within that year, look at end-of-month calendars for the last three months of your target period. Choose the one that best balances tax planning, leave payout timing, and personal preference. 3. Verify your continuous FEHB enrollment history. 4. Confirm your last working day paperwork with HR at least 90 days out. 5. If you’re near a Social Security or FERS Supplement age boundary, model both scenarios.
What we tell federal retirees at Stonebridge
The retirement date decision looks like a minor administrative choice but frequently has a $10,000 to $25,000 impact. It’s one of the specific items we walk through in a Federal Retirement Report — because the “right” date depends on your unused leave balance, your projected Social Security claim age, whether you plan to work in retirement, and your specific tax situation.
If you’d like a personalized walkthrough of your retirement date decision — including tax modeling for a few candidate dates — you can request a free Federal Retirement Report. There’s no charge and no obligation.
The last day of December isn’t the right date for every federal employee, but for a lot of them, it’s very close.