The date you choose to retire as a federal employee is not just a personal decision — it is a financial one. Choosing the wrong date can cost you weeks of pay, months of leave payout, or even a full year of COLA. Here is how to pick the optimal retirement date.

Why the Retirement Date Matters

Under FERS, your retirement benefits accrue by the day, but several key factors align around specific dates. Getting them right can add thousands of dollars to your retirement income.

Rule 1: Retire at the End of the Month

FERS annuities begin on the first of the month following your retirement date. If you retire on January 31, your pension starts February 1. If you retire on January 15, your pension still starts February 1 — but you lose 16 days of salary with no pension to replace it.

Best practice: Retire on the last day of a month (or the second-to-last business day). This maximizes your final salary payment while ensuring your pension starts on the very next day.

Exception: If you are eligible for a within-grade step increase that processes in the following month, it may be worth waiting.

Rule 2: Retire at the End of a Pay Period

Federal employees are paid bi-weekly. Retiring in the middle of a pay period means you get a partial paycheck for that period — you don’t get “extra” pay for the days you worked. Retiring at the end of a pay period ensures a full final paycheck.

Best practice: Retire on the last day of a pay period that also falls at (or near) the end of the month.

Rule 3: Time Your Annual Leave Payout

When you retire, unused annual leave is paid out as a lump-sum check equal to the salary you would have earned for those hours. This payout is based on your salary at the time of retirement — not averaged.

Strategic implication: If you know a pay raise is coming (step increase, pay scale adjustment, promotion), wait until AFTER the raise takes effect before retiring. The entire lump-sum payout will be calculated at the higher rate.

OPM typically announces annual pay raises effective in January. Retiring in January after the raise is processed (usually the second pay period) rather than December can mean a larger lump-sum check.

Rule 4: Watch the COLA Cutoff

FERS retirees 62 or older receive annual COLA increases. COLAs are based on September CPI figures and applied each December (payable starting January). To receive a full year’s COLA, you generally must have been retired for at least 3 months before December 1.

Best practice: If you plan to retire in fall, doing so by September or October ensures you receive your first COLA in January.

The Ideal Retirement Date Formula

For most FERS employees, the ideal retirement date is:

  1. The last day of the last full pay period of the month, ideally
  2. After any pending pay raise takes effect, and
  3. Allowing enough time for a COLA if you are 62+

Many experienced retirement planners target the second-to-last or last day of January as one of the best retirement dates — pay raises are usually in effect, you maximize your lump-sum annual leave payout, and the pension starts February 1.

One More Factor: High-3 Timing

If your final year was a pay raise year, retiring just a bit later (even a few weeks into a new calendar year) can slightly improve your High-3 by incorporating the new pay rate for more pay periods.

Use our FERS Pension Calculator to model different retirement ages and dates and see the pension difference.