Planning a financially-secure retirement begins with calculating what your income will be once you’re no longer working. For FERS participants, this includes your monthly annuity (pension), your Social Security benefit and distributions from your Thrift Savings Plan (TSP).
Though estimating your TSP and Social Security income is reasonably straightforward, calculating your FERS annuity (pension) can be a bit complicated. If you make an error and over-estimate your pension, you may find yourself with less income than you need to cover expenses in retirement.
What Is Your Average High-3 Salary?
Your High-3 salary is the highest average basic pay you earned during any three consecutive years of service. Keep in mind that “consecutive” doesn’t mean calendar years. For example, your High-3 years might run from June of 2018 through June of 2021. For many federal workers, their High-3 may be the last three years of their federal career.
What Is Considered Your Average Basic Pay?
Your basic pay is the portion of your earnings from which FERS deductions were made. For GS workers, this usually includes locality pay; increases within grade; special pay rates established for recruiting and retention purposes; and certain types of premium pay.
However, certain types of pay are excluded when calculating your High-3:
- Lump-sum payment for accrued and accumulated annual leave
- Bonuses and overtime, holiday pay, Sunday premium pay and military pay’
- GS night differential pay and foreign or non-foreign post differential pay
- Travel allowances, recruiting or retention bonuses, and overseas cost-of-living adjustments
“This is known as the FERS bonus which can increase your monthly annuity by 10% for the rest of your life.”
The Average High-3 Calculation Formula
Your average High-3 is determined by a formula based on your age and years of creditable service. If you retire under age 62 (or older) with less than 20 years of service, the formula is 1% of your High-3 salary for each year of service.
If you retire at age 62 (or older) with at least 20 years or more of service, the formula is 1.1% of your High-3 salary for each year of service. This is known as the FERS bonus which can increase your monthly annuity by 10% for the rest of your life.
Once you get an estimate of the gross amount, subtract deductions for the spousal survivor benefit you elected, plus FEHB, FEDVIP and FEGLI premiums for coverage you’ll continue into retirement. The final amount is the net FERS annuity (pension) you can count on every month.
If you need help crunching the numbers, connect with an FRC® trained advisor. You may discover that working longer to increase your retirement income is a better strategy.
