Saving up sick leave, and an annuity dilemma

A Reader Writes:

How much does saved sick leave increase the percentage of retirement income when an individual reaches the maximum amount of service years (43 years) for 80 percent of pay? In other words, how much is each 1,000 hours of saved sick leave worth in percentages when retiring with full benefits at 43 years of service? Is it worth holding out so long under the Civil Service Retirement System?

Milt Replies:

A retirement fact sheet from the Office of Personnel Management — Credit for Unused Sick Leave Under the Civil Service Retirement System — summarizes the laws and regulations applicable to your question.

Even more helpful is that the fact sheet includes a conversion table to help you find the service time credit provided by unused sick leave.

The fact sheet and conversion table indicate that, in general, if your leave system charges eight hours of sick leave for one day's absence, eight hours of unused sick leave constitutes one day of credit. Days are converted to months and years on the basis of a 2,087-hour work year. To compute the additional credit for sick leave at retirement, add the months and days of sick leave to the months and days of actual service.

The days of unused sick leave that are added are used only in counting your number of years and months of service for annuity computation purposes. The sick leave cannot be used in computing your "high-three" average salary or for meeting the minimum length of service for retirement eligibility.

A Reader Writes:

You have provided useful information in the past about CSRS voluntary contributions (VC). I have a VC account but am wondering how good a deal it really is.

When I retire, I understand that the basic annuity is $7 per $100 contributed (7 percent). However, because the money stops growing interest upon retirement, if I retire at age 55, it seems like in the long run I might be better off pulling my money out.

Unless you live a long time after retirement you may only get back what you contributed and will have lost interest on a sizeable sum of money (not getting any interest to grow your principle from the time you retire).

Milt Replies:

It's a trade-off. Some people like the certainty of a monthly check, which an annuity offers. You could pull the money out, but then you have to put it to use. You don't want to put it under your mattress.

If you have a good use for your savings, like buying a second home or starting a business, taking the money out might be a smart move. Or you could contact an insurance company that sells annuities and see how much they'll pay you each month.

Then there's the question of whether you have children or family to whom you want to leave money. If you annuitize your VC, there won't be anything for your heirs.

And if you take the money out, how will you invest it? You could lose it if your investments don't pan out.

This is a highly personal decision. You might want to consult a fee-only financial planner.

Zall is a retired federal employee who since 1987 has written the Bureaucratus column for Federal Computer Week. He can be reached at milt.zall@verizon.net.