Guide
Retiring at the End of the Leave Year
Four rules attach money to the calendar at the turn of the year, they come from four different rulebooks, and they disagree. What each one is actually worth.
Federal retirements cluster at the turn of the year for a real reason: four separate rules pay out around then, and three of them can only be collected once a year. The trouble is that the four rules come from four different rulebooks and point at four different days, so the folk advice that circulates in every office — retire on 2 January — is right about one system and expensively wrong about the other.
Here is what each rule does, using one career throughout: a FERS employee on $104,000 with an annuity of $34,000, a 240-hour annual leave balance at the 240-hour ceiling, 900 hours of sick leave, and an assumed 2% January pay raise.
Rule 1: when the annuity starts — and the rule FERS does not have
A FERS annuity commences on the first day of the month after separation. There is no exception for leaving early in a month: 5 U.S.C. § 8464(a)(1)(A)(i) says first day of the following month, and means it.
The “retire on the 1st, 2nd or 3rd” advice comes from a rule that exists only for CSRS. It is at 5 CFR 831.701(b)(3), in the CSRS part of the regulations, and it commences the annuity the day after separation for someone retiring after serving three days or less in the month. Nothing in the FERS regulations mirrors it.
- A CSRS employee separating on 2 January 2027 has an annuity commencing 3 January 2027.
- A FERS employee separating on the same day has an annuity commencing 1 February 2027 — a 29-day gap with no salary and no annuity, worth $2,651 on our example career.
The gap is not a delay that is later made whole. Nothing is backdated. For a FERS employee the equivalent date is the last day of a month: separating on 31 December 2026 commences the annuity on 1 January 2027 with no gap at all.
Rule 2: the leave year does not end on 31 December
The leave year ends the day before the first full biweekly pay period of the next calendar year, which is almost never 31 December. The 2026 leave year ends on 9 January 2027; the 2027 leave year ends on 8 January 2028.
This matters because annual leave above the ceiling — 30 days for most employees, 45 or 90 days in certain posts and for the Senior Executive Service — is forfeited at the start of the first full pay period of the new year. Staying past the rollover with a balance at the ceiling means accruing leave that is deleted rather than paid. In our example, separating on 31 January 2027 forfeits 22 hours, worth $1,096, that a December date would have been paid for.
The January pay raise is the same fact asked from the other side: it takes effect on the first day of that same pay period — 10 January 2027 in this cycle — not on 1 January.
Rule 3: the lump sum is projected, not multiplied
Unused annual leave is paid as a lump sum, and 5 CFR 550.1204 computes it by projecting the balance forward over the workdays and holidays that would have followed your last day. 5 CFR 550.1205 then applies a pay raise that takes effect inside that projected period — but only to the hours that fall on or after its effective date.
That is the whole reason the December question exists, and it is smaller than the advice suggests. On our career, separating 31 December 2026 puts 48 of the 252 projected hours before the raise and 204 after it, so the 2% raise is worth $203 — not 2% of the whole balance. Waiting until the leave year ends on 9 January puts all 262 hours after the raise, worth $261, and adds ten hours of accrual: about $556 more in the lump sum.
Rule 4: the first cost-of-living adjustment is paid in twelfths
The first adjustment after retirement is prorated by the number of months the annuity has been payable, under 5 U.S.C. § 8462(c)(1). Each month earlier the annuity commences is one more twelfth of that first increase, permanently in the base.
Commencing 1 January 2027 earns eleven twelfths of the first adjustment — $612 on our example — against ten twelfths, $578, for an annuity commencing 1 February. The $34 difference is small in the first year and never goes away, because every later adjustment is computed on the larger base.
What the four rules add up to
Ranked on what the choice of day itself costs, holding the length of the career out of it, the same career comes out like this:
- 31 December 2026 — best. No commencing-date gap, no forfeited leave, eleven twelfths of the first adjustment.
- 31 January 2027 — $1,334 worse. No gap, but 22 hours of leave forfeited at the rollover and one twelfth less of the first adjustment.
- 9 January 2027 — $1,987 worse. The larger lump sum does not cover the 22-day gap before the annuity starts.
- 2 January 2027 — $2,677 worse, and the date most often recommended. Under CSRS it would be among the best days of the year.
The ordering is specific to this career. A larger leave balance pulls the answer toward the leave year end; a larger annuity pulls it toward the end of a month, because that is what the commencing-date gap is priced in. What does not change is the shape: for FERS the end of a month beats the start of one, and the rule that makes early January attractive belongs to a system most of the workforce is not in.
Sources
- 5 U.S.C. § 8464(a) — when a FERS annuity commences (§ 8345(b) for CSRS). Text of § 8464
- 5 CFR 831.701(b)(3) — the CSRS three-day rule, which has no FERS counterpart. Text of 5 CFR 831.701
- 5 CFR 550.1204–1205 — the lump-sum projection, and how a pay raise inside the projected period is applied. Text of 5 CFR 550.1205
- OPM — Federal Employee Leave Year Beginning and Ending Dates. OPM fact sheet
Every figure above is produced by lib/retirement-date.js, the engine behind the best-date calculator, on the career described at the top. Your own answer depends on your leave balance, your annuity and your accrual bracket, which is what the calculator takes.
Related tools
Which day to make your last day. Ranks every candidate date on the five rules that attach money to the calendar — the commencing date that can cost you a month of pension for one extra day worked, the CSRS three-day rule FERS does not have, the first COLA in twelfths, the pay period boundary, and the leave year ceiling.
Open tool →Annual Leave Lump Sum CalculatorWhat the annual leave you never used pays when you leave federal service. The balance is projected forward over workdays and holidays rather than multiplied, so January's raise reaches only the hours that fall on and after its effective date — and the flat 22% held back is withholding, not tax.
Open tool →FERS COLA CalculatorWhat inflation does to a pension every other calculator here treats as fixed — the FERS diet COLA, the years before 62 when no increase is paid at all and none of it is made up, and what your annuity is worth in today's dollars at 90.
Open tool →Sick Leave Conversion CalculatorConvert unused sick leave hours into the months of service credit OPM's 2,087-hour chart actually grants — including the odd days that get dropped.
Open tool →This guide is informational only. It is not financial, tax, or legal advice, and FedAnnuity is not affiliated with OPM or the U.S. government. Retirement rules turn on the specific facts of a career, and only your agency and OPM can give you a binding figure.
Last reviewed: August 2026 · Against 5 U.S.C. §§ 8464, 8345, 6304 and 6303, and 5 CFR 831.701 and 550.1204.