If you’re a FERS employee, your retirement annuity is based on your years of creditable service and your High-3 average salary. Of those, the High-3 is the one that trips people up most often, because it doesn’t mean what a lot of people assume it means.
It’s not your three highest-paying years.
Your High-3 is the average of your highest 36 consecutive months of basic pay. In most cases, that ends up being your final three years of federal service, but not always. If you took a step down in grade at some point, moved to a lower-paying position, or had a gap in service, your High-3 window might fall at a different point in your career.
What counts as basic pay?
Basic pay includes your base salary and any locality pay. It does not include overtime, bonuses, allowances, or other forms of additional compensation. This catches a lot of employees off guard, particularly those who’ve supplemented their income with overtime in their later years and assumed it would factor into their retirement calculation.
Why it matters more than people realize.
Because your annuity is calculated as a percentage of your High-3 average salary, even a modest difference in that average can have a meaningful impact on your monthly retirement income, and that impact compounds over the course of a long retirement. A difference of a few thousand dollars in your High-3 can translate to hundreds of dollars per year, every year, for the rest of your life.
A few things worth knowing.
Periods of leave without pay (LWOP) can affect your High-3 calculation depending on the circumstances. Part-time service is factored in at the part-time rate. And if you’ve had breaks in federal service, the way those periods are counted, or not counted, can shift your window in ways that aren’t always obvious.
The bottom line.
Your High-3 average salary is one of the most important numbers in your retirement picture, and it’s worth understanding well before you start the separation process. If you’d like to know exactly where you stand, reach out to a Federal Retirement Consultant (FRC®) for a complimentary benefits review.
