Sick Leave Strategy
HOW DOES SICK LEAVE IMPACT YOUR RETIREMENT?
- May 5, 2020
- 9:06 PM
Written By: Daniel Vieira
Similar to Annual Leave, all Federal Employees accrue sick leave with each pay period. Full-time employees earn 4 hours of sick leave each pay period while part-time employees earn 1 hour for every 20 hours in a pay status. Sick leave is used when an employee needs time off work due to an illness or recovery. To avoid abuse, any requested length over 3 days typically needs to have a doctor’s note and is subject to supervisor approval. Unlike annual leave, there is no cap on sick leave, and employees can continue to accrue time up until they retire or separate from service.
At Retirement:
At retirement, unused sick leave will benefit you by adding time towards your service. When your pension is calculated, we’ll use the formula “high 3 salary x pension multiplier x years of service”. Your “years of service” is rounded to the nearest month. So, if you have 19 years and 9 months of service that won’t round up to 20 years, your years of service calculation will be 19.75 years. Since it’s rounded to the nearest month we can use your sick leave to add extra months counted toward that calculation.
First, on your paystub, your sick leave is usually shown in hours. We’ll need to convert that number from hours to months. The Office of Personnel Management says that there are 174 hours in a month when we’re calculating sick leave. So let’s do a case study:
Mark has 1329 hours of sick leave. In months that’s 7.64 months of sick leave (1329/174). When we’re calculating Mark’s pension, it looks like he worked 7 months more than he actually did when we take his sick leave into account.
Assuming Mark started working for the federal government on the 1st of the month and is retiring on the last day of the month (see our article on choosing your retirement date here), he has .64 months remaining.
Since your pension calculation only accounts for whole months Mark would want to try to use up that remaining .64 months (or 111 hours) before he retires or they will be wasted.
Sick leave is more valuable to you while you’re working because your working pay is usually larger than your pension. For that reason, if you need time off and you have the ability to use either sick leave or annual leave (we realize you don’t always have a choice), try to use sick leave first and save your annual leave. We’ll be talking more about your annual leave in the coming weeks.
Expert Tip!
We’ve established that sick leave adds time to your service. It’d be better to have that time paid to you at your working rate instead of your retirement rate, which will be significantly less. So, at the end of your career, if you have the option of taking sick leave while you’re employed or having it added to your pension calculation as a retiree, it’d be better to take it while working.
Sick leave is one of the most complicated components of your retirement. If you would like for us to run your sick leave numbers for you, reach out to us for your complimentary review!
Questions? Contact us at info@castlewestfinancial.com
