Sick leave and annual leave might seem alike, but at retirement, they serve very different purposes. One adds to your pension, the other adds to your pocket.
From a financial planning standpoint, both can make a real difference in your retirement outcome. Knowing how each works — and how to time them — can help you leave federal service with more income and a stronger financial foundation.
How Sick Leave Increases Your Pension (but Not Your Eligibility)
Unused sick leave doesn’t count toward your retirement eligibility date, but it can boost the amount of your pension. When you retire, the Office of Personnel Management (OPM) converts your unused sick leave hours into creditable service using its official OPM sick leave conversion chart.
Here’s how it works:
- A “work year” equals 2,087 hours.
- Every 174 hours equals roughly one month of service.
- Thirty days equals a full month on your pension computation.
Only whole months count — extra days are dropped.
If you’re close to another full month on the OPM sick leave conversion chart, it may make sense to delay retirement long enough to capture that extra credit. For example, if you’re sitting at 2,060 hours, adding one more pay period could tip you into a higher pension calculation.
Still, sick leave exists to protect your health — so don’t hesitate to use it when necessary. But if you’ve maintained a healthy balance, those hours can meaningfully increase your total annuity without additional out-of-pocket savings.
Converting Annual Leave Into Cash at Retirement
Unlike sick leave, unused annual leave turns into immediate money when you retire. You’ll receive an annual leave lump sum with federal retirement equal to what you would have earned had you stayed on the payroll until those hours were used. The payment generally includes all forms of pay you’d have received, such as locality adjustments or night differentials.
Timing matters. Federal agencies operate under “use-or-lose” rules for annual leave. Plan your retirement date so you don’t forfeit excess hours before the end of the leave year. Some Feds strategically retire right after a new leave year begins to maximize their annual leave lump sum with federal retirement, carrying the largest possible balance into payout.
From a tax perspective, your lump-sum payment is treated as regular income in the year you receive it. Coordinate withholding with your tax advisor and consider how the payout affects your broader cash-flow strategy, especially if you’re also tapping your Thrift Savings Plan (TSP) or Social Security.
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Coordinating Both for Maximum Value
Think of these two benefits as complementary levers. Sick leave rewards long service with a higher pension, while annual leave provides short-term liquidity. The best retirement dates often balance both — staying long enough to reach another month of sick-leave credit while also capturing the maximum annual-leave payout.
For many Feds, the ideal strategy aligns with personal health, agency operations, and income goals. Working with a CFP™ familiar with federal retirement can help you model how small timing changes translate to long-term financial impact.
Your Pre-Retirement Leave Checklist
A little preparation goes a long way when it comes to turning your unused leave into real retirement value. Use this checklist to stay organized and make sure every hour counts.
- Pull balances:Request updated sick- and annual-leave totals from HR or payroll.
- Run the numbers:Use the OPM sick leave conversion chart to determine whether you’re close to another full month of creditable service.
- Map your date:Coordinate retirement timing with your agency’s leave year and sick-leave rounding opportunities.
- Confirm payout details:Ask payroll how your annual leave lump sum with federal retirement will be calculated and taxed.
- Integrate the plan:Combine your pension boost and lump-sum payout with your broader retirement income strategy, your Federal Employees Retirement System (FERS) or Civil Service Retirement System (CSRS) pension, Social Security, and the TSP.
Taking time to run these checks now can translate to thousands more in your pocket, giving you the peace of mind that you’re walking into retirement with a complete plan.
The Bottom Line: Leave as a Financial Lever
A thoughtful leave strategy can translate to both a larger lifetime pension and a stronger cash cushion at retirement. The key is planning ahead — aligning your health, your agency’s calendar, and your financial goals.
If you’d like personalized guidance to model your optimal retirement date and payout strategy, reach out to the team at Serving Those Who Serve at [email protected].
The information has been obtained from sources considered reliable but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of Serving Those Who Serve writers and not necessarily those of RJFS or Raymond James. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Investing involves risk and you may incur a profit or loss regardless of strategy suggested. Every investor’s situation is unique and you should consider your investment goals, risk tolerance, and time horizon before making any investment or financial decision. Prior to making an investment decision, please consult with your financial advisor about your individual situation. While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of RJFS, we are not qualified to render advice on tax or legal matters. You should discuss tax or legal matters with the appropriate professional. **
