If you are a FERS employee, your retirement annuity is built on three key factors: your years of creditable service, your age at retirement, and your High-3 average salary. Of the three, the High-3 is often the most misunderstood.
It is not simply your three highest-paid years.
What the High-3 actually means
Your High-3 is the average of your highest 36 consecutive months of basic pay. For many employees, that ends up being their final three years of service, but that is not always the case.
If you stepped down in grade, moved into a lower-paying role, or had a break in service, your highest-paid 36-month window may fall earlier in your career.
What counts as basic pay
Basic pay includes your base salary plus locality pay. It does not include overtime, bonuses, awards, or other additional compensation.
This is where many employees get caught off guard, especially those who relied on overtime in their later years and expected it to boost their retirement benefit.
Why it matters more than you think
Your annuity is calculated as a percentage of your High-3, so even small differences in that average can have a lasting impact.
A few thousand dollars one way or the other can translate into hundreds of dollars per year in retirement income. Over a long retirement, that gap adds up.
A few details that can affect your High-3
Periods of leave without pay (LWOP) can influence your calculation depending on the situation. Part-time service is prorated. Breaks in federal service can also shift your High-3 window in ways that are not always obvious.
The bottom line
Your High-3 average salary is one of the most important numbers in your retirement plan. Understanding how it is calculated before you separate can help you avoid surprises.
If you want a clear picture of where you stand, a Federal Retirement Consultant (FRC®) can walk through the numbers with you during a complimentary benefits review.
