How to Calculate Your High-3 for Federal Retirement
Master the High-3 salary calculation to accurately determine your federal retirement annuity. Understand the key factors that shape your future benefits.
The “High-3” average salary is a foundational element in determining federal retirement benefits for employees under both the Federal Employees Retirement System (FERS) and the Civil Service Retirement System (CSRS), directly influencing their annuity amount. Understanding this calculation is important for planning a secure financial future.
Understanding the High-3 Average Salary
The “High-3” average salary refers to the highest average basic pay a federal employee earned during any 36 consecutive months of federal service. This period does not necessarily have to be the final three years of employment, though it often is, as salaries typically increase over a career. The Office of Personnel Management (OPM) uses this average as a base figure in the formula for calculating retirement annuities.
This specific three-year average serves as a multiplier in the pension formula, alongside an employee’s years of creditable service and a system-specific accrual rate. For FERS employees, the annuity is typically combined with Social Security benefits and personal savings, like the Thrift Savings Plan (TSP), to create a comprehensive retirement income structure. For CSRS employees, who generally do not participate in Social Security, the pension plays an even more substantial role in their overall retirement income. Therefore, an accurately calculated High-3 is a central component for estimating projected retirement income.
Identifying Creditable Pay Components
When calculating the High-3, only “basic pay” and specific related components are factored into this average. Basic pay is generally the salary established for a position, including amounts from which retirement deductions are withheld.
Creditable pay components include base salary, locality pay adjustments that account for regional cost-of-living differences, and certain premium pay types. This can encompass shift rates, availability pay for law enforcement officers, environmental differential pay (previously known as hazardous pay), and regularly scheduled premium pay for firefighters. Special pay rates established for recruitment and retention purposes may also be included.
Conversely, many types of compensation are not included in the High-3 calculation. These include overtime pay, bonuses, awards, and cost-of-living allowances (COLAs) for overseas employees. Lump-sum annual leave payments, travel allowances, uniform allowances, holiday/Sunday differentials, non-civilian military pay, and credit hour payments are also excluded. Employees should review official pay records, such as SF-50s or earnings and leave statements, to identify these components.
Step-by-Step High-3 Calculation
Calculating the High-3 average salary involves identifying the highest-earning consecutive 36-month period of creditable pay. This period, while often at the end of a career, can be any 36 consecutive months during federal service where basic pay was highest.
Once identified, gather the total creditable basic pay earned during each of those months. Sum all included pay components for every month within that 36-month span. After totaling the creditable pay for the full 36 months, divide the sum by 36. The result is the High-3 average salary, rounded down to the nearest dollar by OPM. For example, if total creditable pay over 36 months was $300,000, the High-3 average would be $8,333.33 per month, or $100,000 annually.
Common Scenarios Affecting Calculation
Various employment scenarios influence High-3 calculation. Breaks in federal service do not necessarily negate previous creditable service. If an employee did not withdraw retirement contributions during a break, prior federal service generally counts towards eligibility. The 36 consecutive months for High-3 can span non-continuous employment periods, with OPM considering the entire federal career to find the highest consecutive pay.
Part-time employment has specific High-3 considerations. OPM uses a “deemed” full-time salary rate for part-time work, meaning the High-3 is based on what the employee would have earned full-time. However, the final retirement annuity is prorated based on actual hours worked relative to full-time.
Changes in pay grades or scheduled step increases directly impact the “highest” 36 months. Pay raises or promotions can contribute to a higher High-3 average if within the chosen 36-month period. Mid-year pay increases are factored in for the portion of the year they were in effect, contributing to a higher overall average. Strategic retirement timing relative to these pay adjustments can influence the final High-3 figure.