How Much FERS Retirement Will I Get?
Understand your FERS retirement annuity. Learn how your federal pension is calculated, when you can receive it, and how it adjusts over time.
The Federal Employees Retirement System (FERS) serves as the retirement plan for most federal civilian employees hired after 1983. This article explains the components of FERS retirement, how an individual’s annuity is calculated, eligibility criteria, and how the annuity may be adjusted over time.
The Three Pillars of FERS Retirement
FERS is a three-tiered retirement system, providing benefits from distinct sources.
The first component is the FERS Basic Benefit Plan, a defined benefit plan. The annuity amount is determined by an employee’s salary, years of service, and age at retirement.
The second component involves Social Security benefits. FERS employees contribute to Social Security, similar to private sector workers, and are eligible to receive benefits in retirement.
The third component is the Thrift Savings Plan (TSP), a defined contribution plan similar to a 401(k). Employees can contribute pre-tax or Roth dollars to their TSP accounts, and the employing agency also makes contributions. Agencies typically provide an automatic contribution equal to 1% of the employee’s basic pay, and they also offer matching contributions on employee contributions up to 4%.
Calculating Your FERS Basic Annuity
The FERS Basic Annuity is calculated using a formula that relies on an individual’s highest average salary over a consecutive three-year period, their total years of creditable service, and a specific annuity factor.
The core formula for the FERS annuity is: High-3 Average Salary x Years of Creditable Service x Annuity Factor. This calculation provides the annual annuity amount, which is typically paid out in monthly installments.
The “High-3 Average Salary” refers to the highest average basic pay earned during any three consecutive years of service. This period is usually, but not always, an employee’s final three years of federal employment. Basic pay for this calculation includes base salary and locality pay, but it excludes overtime, bonuses, or other special payments.
To determine the High-3, an employee identifies their three consecutive years with the highest earnings. The total basic pay from these 36 months is added and divided by 36 to arrive at the monthly average. For instance, if an employee’s highest three consecutive years of basic pay were $90,000, $92,000, and $94,000, their High-3 average salary would be $92,000.
“Years of Creditable Service” includes all periods of civilian service subject to FERS retirement deductions. This can also encompass military service if a deposit is made for that time. Additionally, unused sick leave can be converted into additional creditable service for the annuity calculation. While sick leave cannot be used to meet minimum service requirements for eligibility, it can increase the calculated annuity.
The “Annuity Factor” is typically 1% for most FERS employees. A higher factor of 1.1% applies to employees who retire at age 62 or older with at least 20 years of creditable service.
Consider an example: an employee retires at age 60 with 25 years of service and a High-3 average salary of $70,000. Since they are under age 62, the 1% factor applies. The annual annuity would be $70,000 (High-3) x 25 (Years of Service) x 0.01 (Annuity Factor) = $17,500. This equates to a monthly payment of approximately $1,458.33.
In a different scenario, an employee retires at age 62 with 25 years of service and a High-3 average salary of $70,000. Because they are 62 or older with at least 20 years of service, the 1.1% factor applies. The annual annuity would be $70,000 (High-3) x 25 (Years of Service) x 0.011 (Annuity Factor) = $19,250. This results in a monthly payment of approximately $1,604.17.
Eligibility Requirements for Your Annuity
Federal employees must meet specific age and service requirements to receive a FERS Basic Annuity.
A central concept in FERS eligibility is the Minimum Retirement Age (MRA), which varies based on an employee’s birth year. For those born before 1948, the MRA is 55. For individuals born in 1970 or later, the MRA is 57. For birth years between 1948 and 1969, the MRA gradually increases from 55 years and two months to 56 years and ten months.
For an Optional (Voluntary) Retirement with an immediate, unreduced annuity, an employee generally needs to meet one of these combinations: MRA with 30 years of creditable service; age 60 with 20 years of service; or age 62 with 5 years of service.
An employee may also retire at their MRA with at least 10, but fewer than 30, years of creditable service. However, the annuity will be permanently reduced by 5% for each year (5/12 of 1% for each month) the employee is under age 62. This reduction is applied unless the employee postpones the start date of their annuity to reduce or eliminate the reduction.
Early Voluntary Retirement, often referred to as “early out,” is typically offered during agency reorganizations or reductions in force. To qualify, an employee generally must be at least age 50 with 20 years of service, or any age with 25 years of service.
Deferred Retirement is an option for employees who leave federal service before meeting the age and service requirements for an immediate retirement. To be eligible, an employee must have at least 5 years of creditable civilian service and must leave their retirement contributions in the FERS system. If these conditions are met, the employee can apply for an annuity to begin later, either at age 62 or their MRA (if they have at least 10 years of service).
Disability Retirement is for employees unable to perform job duties due to a medical condition. To qualify, an employee must typically have at least 18 months of federal service and provide medical documentation.
Understanding Annuity Adjustments
After a FERS annuity begins, its value can change over time due to Cost-of-Living Adjustments (COLAs). These adjustments help maintain the purchasing power of retirement benefits in the face of inflation.
FERS COLAs are based on changes in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). The adjustment is calculated by comparing the average CPI-W from the third quarter (July-September) of the previous year to the third quarter of the current year.
The COLA calculation for FERS annuitants follows a specific tiered structure. If the CPI-W increase is 2% or less, the FERS COLA matches that percentage. If the CPI-W increases by more than 2% but less than or equal to 3%, the FERS COLA is capped at 2%. If the CPI-W increases by more than 3%, the FERS COLA is the CPI-W increase minus one percentage point.
For example, if the CPI-W increases by 2.5%, the FERS COLA would be 2%. If the CPI-W increases by 4%, the FERS COLA would be 3%. This “diet COLA” structure means FERS COLAs can be lower than those for Social Security or the Civil Service Retirement System (CSRS) when inflation is higher.
COLAs are typically effective on December 1st of each year and are reflected in the annuity payments received the following January. For most FERS retirees, COLAs are applied once they reach age 62. However, disabled retirees and survivors are eligible for COLAs regardless of their age.