How to Calculate Your Annual Leave Payout When Retiring

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Good morning, my name is Alberto. I am a Mail Handler for the Postal Service with 40 years of service. Currently, I can carry over 520 hours of annual leave into 2024. I am planning to retire in December 2025. If I don’t use any annual leave in 2025, I will accumulate an additional 208 hours. My big question is: will the Postal Service cut me a check for 520 hours or 728 hours? I’m hearing conflicting answers to this question. – Alberto 

 

ABOUT THE AUTHOR 

Micah Shilanski, CFP®, is a distinguished financial planner known for his deep commitment to providing exceptional advisory services to his clients. As the founder of Plan Your Federal Retirement, Micah has dedicated his career to helping federal employees understand and optimize their benefits to ensure a secure and prosperous retirement. His expertise is widely recognized in the industry, making him a sought-after speaker and educator on financial planning and retirement strategies.

Micah’s approach is client-centered, focusing on creating personalized strategies that address each individual’s unique needs. His work emphasizes the importance of comprehensive planning, incorporating aspects of tax strategy, investment management, and risk assessment to guide clients toward achieving their financial goals.

Micah Shilanski  00:00

Have you ever wondered what happens to your annual leave after you separate from service? Well, then stay tuned for this FERS Federal Fact Check. Today, we have a great question coming in from Alberto, and he says, I’m a mail handler in the Postal Service with over 40 years of service, I currently have carry forward a 520 annual leave into 24 and I’m planning where it’s higher in 2025, if I do not use my annual even 25 and accumulate an additional two eight hours, my biggest question is, will the Postal Service cut me a check for the 520, or the 728, I’m hearing conflicting questions. That is a fantastic question, and several things kind of come into play with this, but there’s annual leave right in there, sick leave. Let’s go and take annual leave that you’re accumulating. Great news is that’s your earned benefit, that means when you separate from service, the agency has to pay you for that time, so what’s going to look let’s say you just pick December 31st is your retirement date, that’s when a lot of people like to leave, December 31st the next pay cycle, or sometimes the following pay cycle, depending on how it’s going to land, is you’re going to get a lump sum check for that 728 hours for all of your annual leave, assuming that was all correct time that you could carry forward and you can build etc. Now a couple things to think about. Number one, when you get that check, they’re going to take a massive amount of taxes out of your leave check, why? Because the way the circular E works, which is an IRS Form, dictates how agencies and how all employers have to withhold taxes, they see you’re getting a check in January for, you know, 728, hours, and they’re like, that’s a huge dollar amount, they assume you’re going to get paid that same amount all year, therefore, they withhold more in taxes. Just something to be aware of. If they over withheld when you file your taxes, you can get it back, they’re going to be super fancy, you could try to update your W4 before you retire, to have them with less taxes, but it’s just something to think about. Knowing your benefits to make sure you get every penny that you’ve earned out of the retirement system is very, very important, whether it’s as simple as sick leave, and how does it get added to my retirement, whether you’re talking about annual leave, or do they really calculate your 30 years or four years of service correctly, understanding your benefits is key. So make sure you share this video with other federal employees. If you have more information, jump on our website, PlanYourFederalRetirement.com. Till then, Happy Planning!

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