After you have strategized an entire career's worth of federal benefits, successfully implemented an action plan, and submitted your retirement paperwork, you would think the hard work and stress would be over. Unfortunately, your retirement plan doesn't stop the day you retire!
As a federal annuitant, you will have to navigate the “Interim Period”. You may find yourself wondering, what exactly is this? Well, the Interim Period is the time between your retirement date and the day you receive your first, full pension check. You will receive your first pension check 30 days after your retirement posts, but it will not be your “full” pension value. This is because OPM uses the first several months of your retirement to process your application and finalize your benefits, so during this time they will only send you a portion of your pension. Not only are you receiving a reduced pension check, but you will also not see any FERS Annuity Supplement payments included (if applicable), nor any healthcare or life insurance deductions either¹. The Interim Period can last anywhere from a few months to a year or more, depending on the complexity of your situation.
Now, once OPM finalizes your retirement, you will be back-paid for your unpaid pension benefits, and every month thereafter, you will receive the correct pension amount, along with any FERS Supplement payments and insurance deductions. However, you will still have to account for that window of time when you collected a smaller check than you should have.
At PARCO, we often recommend our clients retain as much annual leave as possible as they prepare for retirement, so they can then sell that time back to provide a cash buffer for the Interim Period. Craft Postal employees can sell back a max of 440 hours; Postal supervisors can sell back up to 768 hours; and non-Postal feds can sell up to 448 hours. The value of your leave will be included as a lump sum on your last working paycheck, which is why you may hear the saying, “your last check is the best check". The government will automatically withhold 31.45% of your annual leave payment for taxes, but those who fall into a lower tax bracket will receive a refund for all over-withholdings the following tax season. Even with its taxability, this lump sum is an important asset to help bridge some of the gap between your reduced pension checks and monthly income goals during the Interim Period. This strategy is also useful because after you retire, your TSP account will be on hold for 30 days before you can start taking any distributions.
Regardless of your retirement system, employing agency, or job title, all federal retirees will experience the Interim Period. To learn more about the Interim Period and how to plan for it, click the button below.
Works Cited
¹United States, Congress, Office of Personnel Management. "Frequently Asked Questions - Retirement", OPM. https://www.opm.gov/faqs/topic/retire/index.aspx?page=1