Understanding What Your “High-3” Means when Calculating Your FERS Retirement

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As a Federal Employee, your  High-3 average salary refers to the average of the highest three consecutive years of base pay earned.  This is calculated based on your “deemed” rate, meaning that even if you work part-time, your High-3 is calculated based on what you would have earned if you were full-time.  For most people, their last three years of working before they retire end up being their High 3, but it doesn’t have to be if they worked a different position and had earned more money during a different period.  Your High-3 is not calculated based on a calendar year, so an example would be from May 2019 to May 2021

 

Example:  Below is Bob’s last 10 years of working history before he retired in 2021.  In 2018, he had gotten a promotion and increased his pay.  In 2020 he started working part-time at 20 hours per week, but his deemed rate is shown, not his actual pay.  Bob’s High would be calculated from 2019 to 2021, despite him being part-time in 2021.  If you add up all three numbers and divide by 3 to find the average, you get $94,741.67.  However, OPM will round down to the nearest dollar, so Bob’s High 3 would be $94,741.

 

2012 $67,500 2017 $76,125
2013 $68,775 2018 $90,000
2014 $70,800 2019 $92,700
2015 $72,450 2020 $94,625
2016 $74,850 2021 $96,900

 

For the purpose of calculating what your pension will be in retirement, your High-3 average salary is used as one of the components of the pension formula.

 

What pay is included in your High-3?

 

Your High-3 calculation is based off of your “Basic Pay.” As a Federal Employee, basic pay includes:

 

  • Base salary,
  • Shift rates, and
  • Locality Pay

 

It is important for Federal Employees who are calculating their High-3 to remember that calculating High-3 will NOT include,

 

  • Cost of Living Adjustments (COLA)
  • Bonuses
  • Allowances
  • Holiday pay
  • Military pay
  • Overtime pay

 

How do I calculate my High-3 for my FERS retirement?

 

Step 1:  Find what your basic pay is. You can find your basic pay on your SF 50s, and sometimes on your Leave and Earnings (LES) statements.  Below is an example using Sue’s Leave and Earnings Statement which does show that her adjusted basic pay is $159,286.  LESs will look different depending on what agency you work for.

 

You should receive at least one SF-50 every year, and they typically come in January.  You should also receive an SF-50 every time you change jobs, have a change in pay, or have a step increase (WGI).  Hang on to all of your SF-50s, because in our experience, OPM can sometimes make mistakes.

 

Since you should receive an SF-50 for every increase in pay, then you will be able to keep track of this information.  Most federal employees’ highest three consecutive years of basic pay are their last three years, but if it’s not, you can look through your SF-50s to determine the highest three-year period.  This is also a reason to hang on to your SF-50s so that you can keep your own record of income history, and not solely rely on OPM getting it right when you go to retire.

 

Step 2:  Calculate the average.  Once you know what your High-3 adjusted basic pay is, you simply find the average by adding up the three years of income and dividing by three.  However, since most people who are looking to calculate their High-3 aren’t retiring right away, it is important to have an accurate assumption of what your High-3 income will be when you retire.  

 

Step 3:  Estimate what your future High 3 will be.  For someone who is planning on retiring in 2 to 5 years, it is safe to assume your High-3 is what your basic pay is currently.  For those who are 5 to 10 years away from retirement, it would still be wise to use your current basic pay and have that be your High-3.  Although it is tempting to want to inflate this number, no one knows the future and what exact raises or promotions someone might get in that timeframe.  For those who are 10 years or more from retirement, calculating their High-3 as a number higher than their current base pay would be acceptable, such as 10-15% higher.  Since retiring in 10 years or more is long enough away, you can still course-correct for any additional savings you need to do today in order to make up any difference in retirement income you might need in the future.

 

How do I estimate my FERS pension?

 

There are a few variables that you need in order to calculate what your gross pension will be.  Those are:

 

Your age at retirement as well as how many years of creditable service you have will change what type of retirement that you qualify for, such as an immediate retirement, a deferred retirement, or a postponed retirement.  Your age and years of service also can influence your percentage to calculate, increasing it from 1% to 1.1% if you retire with 20 or more years of service and are at least age 62.  

 

Unless you are part of a Special Provisions retirement, which include Law Enforcement Officers, Firefighters, Air Traffic Controllers, Members or Employees of Congress, and a few others, then your pension formula will be: 

Keep in mind this is to calculate your GROSS pension.  What’s more important for you to find out is what your NET pension is, because your net pension is what actually makes it to the bank account.  Typical deductions to your gross pension will include: 

  • Survivor Benefits,
  • Federal Employee Health Benefits,
  • Tax Withholdings,
  • Federal Employee Group Life Insurance (FEGLI)
  • Dental Insurance.

 

Once you have your gross pension, you can then subtract out the deductions listed above to arrive at your net pension number.  

 

Sources:

https://www.opm.gov/retirement-services/fers-information/computation/

https://www.opm.gov/retirement-services/calculators/fegli-calculator/basic-pay/

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