Many federal workers who are planning to retire later this year or early in 2000 might want to circle Dec. 31 on their things-to-do and when-to-do-them calendar.

Timing their retirement for Dec. 31 could mean more income and lower taxes.

In past years, it has been best for many workers to retire in the first few days of January. But 1999 is different in a number of ways because Dec. 31 is a Friday, the end of a pay period, the end of a leave year and an official federal holiday.

This year only, Dec. 31 is the best time for many people to retire, whether they are under the old Civil Service Retirement System, the Federal Employees Retirement System or the CSRS Offset system.

In some cases, employees could add several thousand dollars to the final payment they get from Uncle Sam for unused annual leave.

Tammy Flanagan, a benefits expert with the National Institute of Transition Planning, says there are five basic reasons Dec. 31 is the best date for folks planning to leave sometime this winter. Reasons include:

* Dec. 31 is an official holiday (when New Year's Day will be celebrated for pay and leave purposes), so you will get paid for not going to work.

* Dec. 31 is the end of a pay period for most workers, and leave accrues at the end of each two-week pay period. "If you retire Dec. 20 through the 30th, you would not accrue the last accumulate of annual and sick leave," she says.

* Workers get paid for unusued annual leave, and those under CSRS may pick up an extra four hours of sick leave, which can be used in computing their retirement benefit.

* Retiring Dec. 31 means the first retirement check will be paid for the entire month of January.

* Because Dec. 31 is the last Friday of the leave year, most feds who retire on that day can accumulate all their earned leave for 1999 and be paid for this year's leave and for leave carried over from 1998 (normally limited to 240 hours). Some employees could be paid for up to 448 hours of annual leave (240 from 1998 and 208 from 1999) upon separation. If their hourly pay was $20, that's a lump-sum payment (before taxes) of $8,960.

* Assuming a January 2000 federal pay raise of 4.4 percent or 4.8 percent, the annual leave payment will be computed at the higher salary rate for employees retiring Dec. 31. That would make it 4.4 percent or 4.8 percent higher.

* The check for unused annual leave (at next year's higher pay rate) will be received in 2000 and will be taxable, therefore, at 2000 rates, which would reflect, in most cases, the retiree's lower income.

Flanagan also points out that next year's pay raise will increase the value of Federal Employee Group Life Insurance that individuals take into retirement, because the face value is based on salary in effect on the last day of employment.

Long-Term Care

Backers of long-term care insurance for federal civilian and military personnel are studying a 1998 report, by the American Council of Life Insurance. The study is called "Who Will Pay for the Baby Boomer's LTC Insurance Needs?" Among other things, it estimates that nursing home costs, which now average about $40,000 a year, will rise over the next 30 years to $190,000 a year, or $97,000 in 1999 dollars. For a copy of the report, call 1-800-705-2254.

Congress and the Clinton administration support the idea of a group rate long-term care insurance program for federal civil servants, military personnel, retirees and their spouses, parents and parents-in-law. The White House estimates the program would save individuals 15 percent to 20 percent in long-term care premiums. But politicians can't agree on whether to let the government negotiate premiums and benefits or allow free-market competition to set them.

Currently, only about 6 million people in the United States have long term care insurance coverage. A group program for federal and military personnel could boost the number of eligibles to 20 million.

Tomorrow at 9 a.m. on WUST radio (1120 AM), long-term care insurance expert David Martin will discuss how individual and group plans work in the private sector and what a federal program might look like.

Tax Deduction

Virginia residents will be able to deduct premiums for long-term care insurance when figuring their state income taxes next year. Arthur Stein, a Virginia-based expert, says legislation signed into law in March allows the state deduction, provided taxpayers don't also deduct the premium when figuring their federal income taxes.

Mike Causey's e-mail address is causey@washpost.com

Friday, June 25, 1999