[vc_row][vc_column width=”2/3″ el_class=”section section1″][vc_column_text]Many federal workers are worried about and uncertain about how much they will receive in pension benefits during retirement.
To get a good ballpark idea of this amount, the Retirement Benefits Institute has a calculator to factor what your benefits will be. However, to utilize this calculator, you need to know your high-3 estimate.
So what is your high-3?
It is the average of 3 consecutive years when you received your highest pay. Your base pay and any other locality pay is inputted into the calculation for this average.
Normally additional pay such as overtime, bonuses, cash awards, military service pay, and overseas COLAs (cost of living adjustments) are not calculated.
- Also Read: 3 Reasons Certain Federal Employees Can Retire Years Earlier Than Their Peers Without Penalties
- Also Read: CSRS Retirement in 2024: Are You Making the Most of What This Classic Plan Has to Offer?
- Also Read: Roth IRA Basics for Beginners: What’s There to Learn?
So how does one estimate their high-3?
For those that probably have not reached their high-3 pay period as of yet, you may have to estimate the average with what your future earnings may be. If that’s the case, be sure to keep that number a bit lower than what you may think it would be, as you can change it to a higher number once you are confident in the future.
After you have your high-3 average, you will take this number with the number of years you worked for the federal government to calculate what your annuity might be by using those figures with one of the formulas below.
There are three different equations to calculate a majority of annuities under FERS.
There is a standard FERS formula to calculate your annuity.
High-3 x 1% x Years of Service = Annual Annuity
There is also the enhanced FERS annuity equation for federal employees that retire when they are 62 years of age or older, along with a minimum of 20 years of time served.
High-3 x 1.1% x Years of Service = Annual Annuity
The last formula is the FERS Special Provisions formula for those that are air traffic controllers, firefighters, or law enforcement.
High-3 x 1.7% x First 20 Years of Service = (A)
High-3 x 1% x Rest of Years of Service = (B)
A+B = Special Provisions Annual Annuity
You may also want to consider working for one more year as it could boost your high-3 average.
To give you an example, let’s say there is a federal worker named Nancy that is contemplating retirement starting at 60 or maybe 61. If she decides to leave at age 60, her high-3 average would be $95,000.
So what would her average be if she stayed one more year?
Well, Nancy is currently receiving the highest salary she’s ever been paid in her federal career. So the longer she stays, her average will increase each month.
Say that her annual pay for the past three years has been $94,000, $95,000, and $96,000. This would make her average $95,000. Now, if Nancy works one more year and has a higher annual salary of $97,000, this would make her average $96,000 instead of $95,000.
On top of that, working one more year also increases the number of years she will calculate into her annuity, which would increase her FERS benefit.
Staying a bit longer may make sense for some, but for others, not so much. It all depends on your needs and desires, but be sure to consider what your high-3 are so that you can know what you will be receiving during retirement.[/vc_column_text][/vc_column][vc_column width=”1/3″][vc_single_image image=”20021″ img_size=”292×285″ style=”vc_box_shadow”][/vc_column][/vc_row]
