How Does Sick Leave Count For Retirement?

I’ve been getting this question a lot lately from different people thinking about retiring and trying to do their calculations. So I thought I’d explain it to help everyone with their planning.

Prior to 2009, we could not receive any credit for unused sick leave. It was the largest use-or-lose balance we had. Some people were retiring with close to 2,000 hours and not getting anything for it. This, of course, led to guys trying to burn as much as possible before retirement in an effort to avoid losing it all. Congress then changed the law, initially giving credit toward your annuity for anything over 1,000 hours. That was subsequently changed and, since 2014, retirees get credit for sick leave balances, even those under 1,000 hours.

Credit toward what?

Contrary to what some people claim, your sick leave balance does not let you retire early. I’m not sure where this rumor got started, but it is not true. For example, if you have 6 months of sick leave saved up and you have 6 months until you are first eligible to retire, you can’t use your sick leave balance and just retire now. You still have to make your 20 and 50, or 25 at any age. The exception to this is if you actually have a medical issue that allows you to take your 6 months of sick leave such as a surgery, cancer, etc.

Your credit comes in when OPM calculates your time in service for figuring up your annuity. In other words, your sick leave balance is translated into months and days, and added to your FERS service and any military time you’ve bought back to give you an overall TOTAL FERS SERVICE CREDIT. This total time then produces the percentage that is multiplied by your High-3 to give you your retirement annuity (often called your pension, but more correctly, it is your FERS annuity).

(If you’re unsure what percentage I’m referring to here, this is the percentage of your High-3 based on work time. For example, as LEO’s, we get 1.7% for each of the first 20 years, and then 1% for every yearafter. So, a person working 25 years, would get 39% of his/her High-3).

How much is each sick day worth?

Being the government, nothing can ever be straightforward. While you are employed, if you burn 160 hours of sick leave, that’s one month, right? (40 hours a week times 4). So, if I have 160 hours of sick leave on the books when I retire, I get 1 month added to my FERS time, right? WRONG.

For purposes of retirement, OPM requires you to cash in your sick leave for WHOLE months, not just WORK DAYS of the month. For OPM, a month is equal to 30 days. So, you have to use your sick leave to buy back 30 days to get credit for just 1 month. Confusing? Remember, it’s the government. So, if you’re doing the math, you think, well then 8 hours times 30 days=240 hours. I need 240 hours then toget credit for 1 month? Wrong again.

Even more confusing, OPM uses 30 days in a month, but not 8 hours in a day. They use 5.79722222 hours in a day. Why?! Because OPM takes the number of hours in a typical year (2,087 hours) and divides this by the number of days in a year (360).

What this means is that for every 174 hours of sick leave on the books when you retire, you get 1 additional month added to your FERS time for the purposes of increasing your percentage, and thus your annuity.

That’s too confusing-- just tell me how much money I’ll get for my sick leave!

Sure. Use this chart to find out.

It is much easier (and it is common practice) to simply use the sick leave conversion chart available at many government websites. There are instructions at the top of the chart on how to use it, but I’ll give an example using my current leave balance:

EXAMPLE: I currently have 754 hours of unused sick leave. I simply locate that number somewhere on the chart. Once I find that number, I follow that column to the top and read how many whole months I have. In my case, it is 4. Next, I follow the row to the left to seehow many days I have in addition to the whole months. In my case, it’s 10. So I have 4 months and 10 days that would be added to my FERS Service Credit. Since we receive 1% per year, thiswould add .33% to my FERS time (4/12 since it’s not a whole year). Assuming my High-3 is $140,000, my unused sick leave balance equates to an additional $462 per year, or $38.50 per month. Worth saving up sick leave or should I just take it? Up to you to decide.

So what happened to those remaining 10 days?

OPM does not give you any credit whatsoever for partial months.

EXAMPLE: You add your FERS time, your military time and your sick time and they equal (for sake of argument) 25 years, 8 months, and 28 days, your percentage will be based on 25 years and 8 months. The 28 days are just thrown away.

If you are smart, and you don’t want to lose any credit, you may find a way to take those 28 days somewhere before retirement. A warning, be careful not to take too many days, or you could end up with 25 years, and 7 months.

So how do we know how many days to take? In this example, find the number of hours on that chart that represents 28 days. It would be 162 hours. Make sure you do NOT take more than 162 hours of sick leave. Don’t just think you have 28 days of sick leave to take. If you do that, you’ll take too many (28 x 8 hour days = 224 hours). Now you’ve taken too many and your retirement is no longer 25 years and 8 months; it’s now 25 years and 7 months.

Conclusion

After I explain this to potential retirees, 100% of the time, this question follows the explanation: “So, should I take the sick time or save it?”

That’s up for you to decide. But understand this, it’s not like you are making a terrible decision either way. Even if you never took a single sick day for 20 years and you have a full 2,087 hours, that will only translate into an additional 1% for your annuity. If your High-3 is $140,000, your annuity will be increased by $1,400 a year, or $117 a month. Not chump change, but probably not going to alter your lifestyle in any significant way. However, most people take sick leave at some time in their career so this number is not really all that realistic.

Here’s my personal take on it: the bottom line is use the sick leave if you are sick, but there’s no sense in burning it unnecessarily in the last years of your career like employees used to do. If your last year, you’ve been putting off knee surgery or something along those lines, I have known employees who took care of all of their medical needs and used some of their sick leave that way. They did not regret it. They entered retirement with a healthy body with some upgrades and still had some sick leave credit added to their annuity. On the other hand, if you have a huge balance and you’ve got no reason to take any of it, just let it be added to your credit.

I hope this helps you guys. If you have any questions, please feel free to contact me.