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Retirement

Retiring? Don’t Forget to Cash In on Your Unused PTO

June 6th, 2024 | 3 min. read

By Advance Capital Team

worker unused pto

As you approach retirement, there’s a lot to think about: from how you’ll spend your days to how you’ll manage your finances. One often overlooked aspect of retiring is your accrued paid time off (PTO), including vacation days and sick days.

At Advance Capital Management, we’re dedicated to helping clients get the most out of their retirement benefits. With over 40 years of experience working with AT&T and other major corporations, we understand that many employees may not be fully aware of the steps needed to receive the full payout they deserve.

Understanding what you’re owed and how to claim these benefits can provide a nice financial cushion as you transition into retirement.

Here are some things to consider as you navigate this important aspect of your retirement planning.

What to expect with accrued vacation and sick days at retirement

When you retire, any accrued vacation days may be owed to you in the form of a payout.

This means that the vacation days you’ve accumulated but not used should be converted into a monetary amount and added to your final paycheck. However, the rules around this can vary depending on your employer’s policies and your state’s laws.

Sick days are a bit more complicated. In many cases, accrued sick leave is not paid out upon retirement. Some employers may offer to convert unused sick days into additional service credit for pension calculations, especially in public sector jobs. Others may offer a payout for a portion of the unused sick days, but this is less common.

It’s essential to review your employer’s policy on this matter well before your retirement date.

Converting PTO to 401(k) contributions

Some employers offer a unique benefit: the ability to convert your unused PTO into contributions to your 401(k) or other retirement savings plans. This can be an excellent way to boost your retirement savings while also taking advantage of potential tax benefits.

Since 401(k) contributions are made on a pre-tax basis, converting your PTO can reduce your taxable income for the year, potentially lowering your tax liability.

Unfortunately, not all companies offer this benefit, so verify whether this option is available to you first.

Also, before making any decisions, discuss this option with your financial adviser. An adviser can help you understand how this move fits into your overall retirement strategy and aligns with your long-term financial goals.

Steps to get the benefits owed to you

  1. Review your company policies on PTO payouts upon retirement: This information is usually found in your employment contract, employee handbook, or company intranet. Pay close attention to the sections on vacation and sick leave.
  2. Consult HR: Don’t hesitate to contact your Human Resources department for clarification. HR can provide specific details about how your accrued PTO will be handled and any necessary steps to ensure you receive what you’re owed.
  3. Document your accrued time: Keep detailed records of your accrued vacation days. Regularly check your pay stubs and any PTO tracking systems your employer uses. This documentation can help if there are any discrepancies when you retire.
  4. Plan your retirement date: Timing your retirement can impact your PTO payout. For example, if your company policy grants additional vacation days at the beginning of the year, you might consider retiring shortly after receiving these days. Similarly, some companies might have “use it or lose it” policies that you need to consider.
  5. Understand state laws: Some states require employers to pay out accrued vacation time, while others do not. Sick leave policies are also subject to state regulations. Familiarize yourself with the laws in your state to ensure you’re fully aware of your rights.
  6. Seek professional advice: Consulting with a financial adviser can help you take full advantage of your retirement benefits. A financial adviser can provide personalized guidance based on your specific situation, ensuring that you’re not leaving any money on the table.

Bottom line

As you plan for retirement, don’t overlook the potential financial benefit of your accrued vacation or unused PTO. By understanding your employer’s policies, keeping accurate records and seeking professional advice, you can ensure that you receive the benefits you’ve earned.

Remember, every little bit helps as you transition into this new and exciting phase of your life. So, make sure you’re not leaving any of your hard-earned benefits behind when you walk out the door for the last time.

If you plan to retire soon and need guidance on your benefits, schedule a free financial consultation with an Advance Capital Management financial adviser. During this call, you can ask specific questions about your situation without worry of any cost or obligation.

Advance Capital Team

Advance Capital Management is a fee-only RIA serving clients across the country. The Advance Capital Team includes financial advisers, investment managers, client service professionals and more -- all dedicated to helping people pursue their financial goals.