What Is the FERS Retirement Formula?

The Federal Employees Retirement System (FERS) is central to federal employees’ retirement planning. FERS encompasses a three-tiered approach that includes a Basic Annuity, Social Security benefits, and the Thrift Savings Plan (TSP). This article focuses on the components and calculation of the FERS Basic Annuity, which provides a defined benefit upon retirement.

Creditable Service

Creditable service is the total duration of a federal employee’s career that counts towards FERS retirement. This includes federal civilian service where retirement deductions were withheld, such as career or career-conditional appointments. Unused sick leave can also be converted into creditable service to increase the annuity computation, though it does not contribute to retirement eligibility. Each full or part-time day of service counts if the employee contributes to FERS retirement.

Military service is also creditable for retirement purposes if it was active service that ended under honorable conditions and was performed before separation from civilian service. To receive credit for military service performed after 1956, a deposit of 3% of military basic pay is required. For civilian service before 1989 where no retirement deductions were withheld, such as temporary appointments, a deposit of 1.3% of salary plus interest is required. Failure to make this deposit eliminates that service from being used for either title or computation purposes.

High-3 Average Salary

The “High-3 Average Salary” is another component in the FERS retirement formula. This figure is the highest average basic pay earned during any 36 consecutive months of service. While this period often corresponds to an employee’s final three years, it can be any consecutive 36-month period within their career where basic pay was highest.

Only specific types of pay are included in the High-3 calculation. Basic pay and locality pay are included, reflecting the standard salary for the position and geographic adjustments. However, certain forms of compensation, such as overtime, bonuses, differential pay, holiday pay, and most allowances, are excluded from this calculation.

The FERS Multiplier

The FERS multiplier is a percentage applied to creditable service and High-3 Average Salary to determine the basic annuity amount. For most federal employees, the standard multiplier is 1%.

An enhanced multiplier of 1.1% is available under specific conditions. This higher multiplier applies to employees who retire at age 62 or older and have completed at least 20 years of creditable service. This increase results in a 10% boost to the pension for those who meet these age and service requirements. The multiplier directly impacts the overall annuity, making the decision to work until age 62 with 20 or more years of service a significant factor in maximizing retirement income.

Calculating Your Basic Annuity

The FERS basic annuity is calculated by combining creditable service, High-3 Average Salary, and the FERS multiplier. The formula is: (Creditable Service Years) x (High-3 Average Salary) x (Multiplier).

For example, a federal employee retiring at age 60 with 25 years of creditable service and a High-3 Average Salary of $70,000 would use the standard 1% multiplier. Their annual basic annuity would be calculated as 25 years x $70,000 x 0.01 = $17,500. If this same employee retired at age 62 with 25 years of service and the same High-3 Average Salary, the enhanced 1.1% multiplier would apply. In this scenario, the annual basic annuity would be 25 years x $70,000 x 0.011 = $19,250.

Special Retirement Provisions

Variations to the standard FERS retirement formula exist for certain circumstances and employee groups. One provision is the Minimum Retirement Age (MRA) + 10 retirement, allowing employees who have reached their MRA with at least 10 years of service, but fewer than 30, to retire. If an employee chooses to receive their annuity immediately, it will be permanently reduced by 5% for each year they are under age 62. This reduction is calculated at 5/12ths of 1% for each month.

FERS disability retirement involves adjustments to the annuity calculation. If an employee is under age 62 and not eligible for voluntary retirement, their annuity is 60% of their High-3 Average Salary for the first 12 months, reduced by 100% of any Social Security disability benefits received. After the first year, the annuity becomes 40% of the High-3 Average Salary, reduced by 60% of any Social Security disability benefits. Upon reaching age 62, the annuity is recomputed using the standard FERS formula, with the time spent on disability annuity added to creditable service.

Special category employees, such as law enforcement officers, firefighters, and air traffic controllers, have different eligibility requirements and modified annuity computation methods. For these employees, the FERS annuity formula is 1.7% of their High-3 Average Salary for the first 20 years of special category service, and 1% for any years beyond 20. These groups may also have different mandatory retirement ages and can be eligible for the Special Retirement Supplement, which approximates Social Security benefits until age 62.