Quick answer: Your two leave balances exit federal service in completely different ways. Annual leave is paid out in cash — every hour, including hours above the 240 use-or-lose ceiling — at your final hourly rate, which for a retiring GS-12 in DC can mean a check north of $24,000. Sick leave is never paid out; it converts to service credit at 2,087 hours per year, permanently raising your annuity — a full year's bank adds about $1,000/year to a $100,000-High-3 pension, for life. The strategies are opposite: annual leave rewards accumulating to the payout maximum, sick leave rewards not burning what you don't need.
Reviewed September 2026 against OPM leave rules (5 CFR 630, 5 U.S.C. § 8415) · Reading time: 11 minutes · Educational — not financial advice. Your payroll provider computes the official payout and OPM the official credit.
Data current as of 2026 · Sources: OPM
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Annual leave accrual, use-or-lose flag, lump-sum payout, and the sick-leave service credit that adds to your FERS pension.
The two conversions, defined: At separation, unused annual leave is paid as a lump sum — balance × hourly rate (annual salary ÷ 2,087). Unused sick leave is added to your creditable service for the FERS annuity computation at the rate of 2,087 hours = 1 year; it is never paid in cash and never counts toward retirement eligibility.
Who This Article Is For
- Feds within a few years of retirement deciding whether to burn or bank each kind of leave
- Employees who've heard "save your sick leave" without ever seeing the dollar math
- Retirement-date shoppers wondering why so many feds leave at the end of the leave year
- Anyone near the 240-hour annual leave ceiling who doesn't realize the ceiling stops mattering at separation
- New-ish employees who want to understand what those 4/6/8 accrual hours are eventually worth
1. How the Balances Build
Both balances accrue per pay period, across 26 pay periods a year:
Reference table. Accrual rates and carryover ceilings are set by OPM leave regulations (5 U.S.C. 6303–6304). Confirm your specific accrual category with your agency HR office.
| Leave type | Accrual | Annual total | Ceiling |
|---|---|---|---|
| Annual — under 3 yrs service | 4 hrs/PP | 104 hrs | 240 carryover (general) |
| Annual — 3 to 15 yrs | 6 hrs/PP (+10 in final PP) | 160 hrs | 240 carryover |
| Annual — over 15 yrs | 8 hrs/PP | 208 hrs | 240 carryover (360 overseas) |
| Sick — everyone | 4 hrs/PP | 104 hrs | None |
The asymmetry in the last column drives everything: annual leave above 240 hours vanishes at the leave-year deadline ("use or lose"), so it can't be stockpiled indefinitely. Sick leave has no ceiling — a 30-year employee who stayed reasonably healthy can retire holding several thousand hours, every one of which is about to become pension.
2. Annual Leave: The Lump-Sum Check
At separation, your entire annual leave balance is cashed out at your hourly rate — annual salary ÷ 2,087. Three rules make the payout bigger than people expect:
- The 240-hour ceiling doesn't apply. Use-or-lose is a carryover rule for continuing employees, enforced at the end of each leave year. At separation, every accumulated hour is paid — which is why the classic move is retiring at the end of the leave year, holding the 240 carryover plus the full year's fresh accrual.
- The payout is "projected forward." The lump sum is computed as if you'd remained on leave from your separation date — so hours projected into January are paid at the new year's raised rate, and holidays in the projection period are paid too. A December 31 retiree's leave gets January's pay raise.
- It's your final hourly rate, including locality — the highest rate of your career, for hours some of which were earned years earlier at lower grades.
Illustrative example. GS-12 Step 5, Washington–Baltimore locality — $116,071, or $55.62/hour ($116,071 ÷ 2,087). Figures from the 2026 pay tables; computed like our Leave Calculator. Not financial advice.
| Retiring with | Lump-sum payout |
|---|---|
| 240 hours (the carryover ceiling) | $13,349 |
| 348 hours (240 + half a year's accrual) | $19,356 |
| 448 hours (240 + full year at 8 hrs/PP) | $24,918 |
Caveats for the budget: the lump sum is fully taxable (income tax and FICA), no TSP can be contributed from it, and it does not count toward your High-3 — it isn't basic pay. Also, if you return to federal service before the projected leave period ends, you refund the unexpired portion.
3. Sick Leave: The Pension Annuity You Already Own
Unused sick leave is added to your years of creditable service for the computation of your FERS annuity — 100% of it (since 2014), at 2,087 hours per year. It cannot be cashed out, and it cannot help you qualify — MRA+30 must be met with real service; sick leave then sweetens the formula.
Illustrative example. High-3 of $100,000, standard 1.0% multiplier (1.1% figures in parentheses for a 62+/20-year retirement). Same math as the sick-leave panel in the Leave Calculator. Not financial advice.
| Sick leave bank | Service credit | Added pension, per year, for life |
|---|---|---|
| 522 hours | ~3 months | $250 ($275) |
| 1,043 hours | ~6 months | $500 ($550) |
| 2,087 hours | 1 year | $1,000 ($1,100) |
| 4,174 hours | 2 years | $2,000 ($2,200) |
Two features make this more valuable than it first looks. It's inflation-adjusted income — COLAs compound on top of it from 62 onward, and a 25-year retirement turns that one banked year into roughly $30,000 of payments. And in the computation, sick leave is combined with your leftover service days, so hours that "round up" a partial month to a full month punch above their weight — OPM drops leftover days, not months.
One hard exception: deferred retirees get no sick-leave credit at all. The credit requires an immediate annuity — one more line on the deferred-vs-postponed ledger. (Postponed MRA+10 retirees keep it.)
4. Opposite Strategies for the Two Banks
The rules above produce a clean strategic split:
Annual leave: manage to the maximum payout. In your final year, the goal is arriving at your retirement date with the ceiling carryover plus as much of the year's accrual as you haven't needed — up to ~448 hours for a 15-plus-year employee retiring at the leave year's end. Every hour burned casually in the final year is an hour un-cashed at $50+ — though leave used well (a real vacation before a life transition) is not waste. Just spend it on purpose. Your final-year off-days can also come cheaper: holiday bridges buy long stretches for few leave days.
Sick leave: don't burn what you don't need — but use what you do. "Save it all" is folklore; the honest rule is sick leave used for actual illness is doing its primary job; sick leave burned to zero because "it's use it or lose it anyway" is a myth operating in reverse. It isn't use-or-lose — it's a pension purchase you've already made. An employee "sick-leave surfing" their final months at 4 hours per pay period of fake appointments is trading $500-per-522-hours of lifetime, COLA-adjusted pension for days off they could have taken as annual leave... which they're also not maximizing. Both banks lose.
And a note of symmetry at the other end of a career: sick leave you transfer back matters too — a break in service doesn't erase a sick balance (it's restored on return), and unused balances transfer between agencies.
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The free Leave Calculator projects your year-end balances, flags use-or-lose risk, computes your lump-sum payout, and converts your sick bank into pension dollars. The full FedHorizon report shows the lifetime value alongside your annuity, supplement, and TSP.
Frequently Asked Questions
Do I get paid for unused annual leave when I retire? Yes — a lump sum equal to your full balance times your final hourly rate (annual salary ÷ 2,087), including hours above the 240-hour ceiling, projected forward through any pay raise taking effect during the leave period.
Do I get paid for unused sick leave? No, never in cash. Unused sick leave converts to creditable service for your annuity computation at 2,087 hours per year of credit.
How much is 2,087 hours of sick leave worth? One full year of service credit. At a $100,000 High-3 and the 1.0% multiplier, that's $1,000 per year of additional pension for life — before COLAs.
Does sick leave help me reach retirement eligibility? No. Sick leave counts only in the annuity computation. Eligibility (MRA+30, 60/20, 62/5) must be met with actual service.
What's the maximum annual leave payout? Practically, the ceiling carryover (240 hours for most; 360 overseas) plus a final year's accrual (up to 208 hours at the 15-year rate) — around 448 hours for someone retiring at the end of the leave year having used none.
Why do so many feds retire at the end of the leave year? It's the date that lets you carry the 240-hour maximum and a full year's fresh accrual into the payout — and the projected lump sum captures January's pay raise.
Is the lump-sum payout taxed? Yes — ordinary income plus FICA. No TSP contributions can be made from it, and it doesn't count toward your High-3.
Do deferred retirees get sick leave credit? No — sick-leave credit requires retiring on an immediate annuity. Postponed MRA+10 retirees do receive it.
Does sick leave carry over if I leave and come back? Yes. Unused sick leave is restored upon reemployment and transfers between federal agencies.
The Bottom Line
Treat the two balances as the different assets they are. Annual leave is deferred cash: it has a ceiling while you work, no ceiling on the way out, and a payout maximized by timing your date to the leave year and spending final-year hours deliberately. Sick leave is a pension annuity you've been buying at 4 hours per pay period for decades: it can't be cashed, can't be lost at year-end, and pays out $1,000-per-banked-year-per-$100,000-of-High-3, every year, for the rest of your life. Cash the one; credit the other; waste neither.
Sources & Methodology
Reviewed against:
- →5 U.S.C. § 6303 — annual leave accrual rates; § 5551 — lump-sum leave payments
- →5 CFR Part 630 — absence and leave (carryover ceilings, use-or-lose)
- →5 U.S.C. § 8415(l) — unused sick leave credit in FERS computations (100% post-2013)
- →OPM — lump-sum payments for annual leave (projection rules)
- →OPM CSRS/FERS Handbook, Chapter 50 — crediting sick leave; 2,087-hour conversion chart
Last reviewed: September 2026 · Reviewed against OPM leave administration and FERS computation rules · Formulas validated against OPM published examples.
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