How to calculate your high-3 for federal retirement?

If you are a retired federal worker, you should expect to receive a monthly pension from the government for the rest of your life. The pension payments you receive in retirement are based on your high-3 average pay. Knowing how to calculate your high-3 pay can help you know how much pension to expect in retirement.

Your high-3 salary is calculated based on three consecutive years of your career when you earned the highest pay. For most people, the high-3 period is usually the last three years of service, but it could also be from an earlier time in your career. The types of pay included when calculating your high-3 average pay include your regular pay and locality pay but excludes incomes such as bonuses and overtime pay.

What is the High-3 Average Salary?

The high-3 average salary is the highest basic pay of a retiring employee averaged over any three consecutive years of their federal service. For most federal employees, the high-3 salary is mostly the last three years of their service with the federal government when they earn the highest salary. However, for other employees, the high-3 salary may be from an earlier three-year consecutive period that they earned the highest salary.

All federal employees, including those covered by the Civil Service Retirement System (CSRS), the Federal Employees Retirement System (FERS), or a combination of CSRS and FERS, will receive a CSRS annuity, a FERS annuity, or a combination of both annuities. The OPM’s retirement processing office calculates these annuities on behalf of retiring federal employees.

The pay that the OPM’s retirement processing office uses to calculate the high-3 average salary is the pay that CSRS or FERS contributions are deducted from. For CSRS employees, these contributions are equivalent to 7% of an employee’s salary that is contributed to the CSRS Retirement and Disability Fund. For FERS employees, the contributions are equivalent to 0.8% of an employee’s pay that is contributed to the FERS Retirement and Disability Fund.

How to determine the starting date for the three-year period

When determining the starting date of the three consecutive years used to calculate the high-3 average salary, consider the following:

Step 1- The Office of Personnel Management (OPM) uses a 30-day pay period for every month of the year.

Step 2: If the retirement day is any date of the month other than the last date of the month, add one to the day of the month. However, if the employee retires on the last day of the month, you won't be required to add one to the day.

Step 3:

Once you have determined the retirement date, deduct 3 years 0 months and 0 days from the retirement date to know the starting date of the three-year period.

For example, if John’s retirement date is March 1, 2022, add one to the retirement day so that the date of retirement becomes March 2. Then, deduct 3 years, 0 months, and 0 days to get the starting date of the three-year period. Hence, the beginning date will be March 2, 2019. The high-3 period will run from March 2, 2019 to March 1, 2022.

If the employee had the highest pay during a prior three-year period, that period should be used. For example, using the above example, if John had the highest three years of salary between 2018 and 2021, the high-3 average period will run from March 2, 2018, to March 1, 2021.

How to calculate your high-3 for federal retirement

When calculating high-3 for the federal government, you should consider whether you worked under FERS, CSRS, or other government programs.

If you spent the entire career under FERS, the FERS annuity is calculated as follows:

• Younger than 62 at retirement or above 62 with less than 20 years of service- Your annuity is computed as 1% of your high-3 average salary for each year of service.
• Age 62 or older at retirement with more than 20 years of service- your annuity is calculated as 1.1% of your high-3 salary for each year of service.

If you spent at least five years in CSRS or social security before moving into the FERS system, your annuity will have a FERS and CSRS component.

FERS Component

• Younger than 62 at retirement or 62 or older with less than 62 years of service- Your annuity is 1% of your high-3 average salary for each year of service.
•  Age 62 or older at retirement with more than 20 years of service: Your annuity is computed as 1.1% of your high-3 average salary for each year of service.

CSRS Component

•  At least 5 years of CSRS service- Your annuity is 1.5% of your high-3 average salary for each year of service.
• Second 5 years of CSRS service-Your annuity is 1.75% of your high-3 average salary for each year of service.
• More than 10 years of CSRS service- Your annuity is 2% of your high-3 average salary for each year of service.

Types of pay included/excluded in high-3 average salary

When calculating your high-3 average salary, there are certain types of pay that are considered for federal employees. The types of pay considered include regular pay from employment, local pay, premium pay for standby pay, and law enforcement availability pay.

However, there are certain types of pay that are excluded when calculating the high-3 average salary. They include lump-sum payment for accrued annual leave, bonuses, overtime pay, travel allowances, and recruiting or retention bonuses.