How to Calculate Your FERS Retirement: An Example

The Federal Employees Retirement System (FERS) provides a comprehensive retirement plan for U.S. federal civilian employees. FERS offers financial security through three main components: a basic federal annuity, Social Security benefits, and the Thrift Savings Plan (TSP). The FERS basic annuity is a defined-benefit plan, with retirement income determined by specific factors rather than investment performance.

Understanding the FERS Formula Components

Calculating a FERS annuity relies on three foundational elements: the High-3 average salary, creditable service years, and the applicable annuity multiplier.

The “High-3 average salary” represents the highest average basic pay an employee earned during any three consecutive years of service. The calculation includes basic salary and locality pay, but excludes other forms of compensation such as overtime, bonuses, or awards.

“Creditable service years” encompass the total period an employee has worked in a FERS-eligible position.

The “annuity multiplier” is a percentage factor applied in the FERS calculation. For most federal employees, this multiplier is 1.0% for each year of service. If an employee retires at age 62 or older with at least 20 years of creditable service, the multiplier increases to 1.1%. Special provisions apply to certain occupations, such as law enforcement officers, firefighters, and air traffic controllers, who utilize different multipliers.

The Core FERS Annuity Calculation

The core calculation for a FERS annual annuity is: High-3 Average Salary x Creditable Service Years x Annuity Multiplier = Annual FERS Annuity.

For instance, if an employee has a High-3 average salary of $70,000, 25 years of creditable service, and a 1.0% multiplier, the calculation would be $70,000 x 25 x 0.01. This results in an annual annuity of $17,500.

This formula yields an annual figure, which is then typically divided by 12 to determine the monthly annuity payment. This calculation provides the initial gross annuity amount before any adjustments or deductions.

Practical Calculation Examples

Consider a standard retirement example for an employee who is age 62 with 22 years of service and a High-3 average salary of $80,000. Since this employee is age 62 or older with at least 20 years of service, the 1.1% multiplier applies. The calculation is $80,000 (High-3) x 22 (Years of Service) x 0.011 (Multiplier), resulting in an annual annuity of $19,360. Divided by 12, this translates to a monthly annuity of approximately $1,613.33.

For an MRA+10 retirement scenario, imagine an employee retiring at their Minimum Retirement Age (MRA) with 20 years of service, having a High-3 average salary of $75,000. The standard multiplier of 1.0% applies because the employee is not yet age 62. The initial calculation is $75,000 x 20 x 0.01, which yields an annual annuity of $15,000.

However, retiring at MRA with at least 10 but fewer than 30 years of service incurs a permanent reduction of 5% for each year the employee is under age 62. If this employee’s MRA is, for example, age 57, they are 5 years under age 62, leading to a 25% reduction (5 years x 5% per year). The annual annuity would then be reduced by 25% ($15,000 x 0.25 = $3,750), resulting in a reduced annual annuity of $11,250.

A special category employee, such as a law enforcement officer, firefighter, or air traffic controller, follows a different multiplier structure. For these roles, the multiplier is 1.7% for the first 20 years of service and 1.0% for any years beyond 20.

If a law enforcement officer retires with 25 years of service and a High-3 average salary of $90,000, the calculation involves two parts. The first 20 years are calculated as $90,000 x 20 x 0.017, equaling $30,600. The remaining 5 years (25 – 20) are calculated as $90,000 x 5 x 0.01, equaling $4,500. Adding these together, the total annual annuity for this special category employee is $35,100 ($30,600 + $4,500).

Factors Affecting Your FERS Annuity Amount

Several factors can modify the gross annuity amount received by a retiree.

Cost-of-Living Adjustments (COLAs) can increase the annuity over time. The COLA is based on the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) and is applied annually. FERS COLAs are subject to a tiered system: if the CPI-W increase is 2% or less, the COLA matches it; if it’s between 2.1% and 3%, the COLA is 2%; and if it’s over 3%, the COLA is the CPI-W increase minus one percentage point.

Electing a survivor benefit for a spouse or former spouse will reduce the retiree’s annuity. This ensures a portion of the annuity continues to be paid to the designated survivor after the retiree’s death. A common election for 50% of the unreduced annuity results in a 10% reduction from the retiree’s gross payment. Another option for 25% of the unreduced annuity translates to a 5% reduction.

Other reductions and deductions are applied to the gross annuity before the net payment is distributed. These can include premiums for Federal Employees Health Benefits (FEHB) and Federal Employees’ Group Life Insurance (FEGLI). Federal income taxes are also withheld from annuity payments.