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Here’s How You Can Calculate Your FERS Annuity

Missy E
October 13, 2024

Key Takeaways

Calculating your FERS annuity is essential for effective retirement planning.
This guide provides step-by-step instructions to help you determine your FERS annuity.

Here’s How You Can Calculate Your FERS Annuity

The Federal Employees Retirement System (FERS) is a crucial component of retirement planning for federal employees. Understanding how to calculate your FERS annuity can help you make informed decisions about your retirement. This guide provides step-by-step instructions on calculating your FERS annuity, covering the basic formula, identifying your high-3 average salary, determining your years of creditable service, and applying the calculation formula.

Understanding the Basic FERS Annuity Formula

The FERS annuity formula is designed to provide a stable income in retirement based on your years of service and your highest average salary over three consecutive years. The formula is straightforward but requires accurate information to ensure precise calculations.

1. The Basic Formula: The basic FERS annuity formula is as follows:

FERS Annuity=High-3 Average Salary×Years of Creditable Service×Multiplier

2. Multiplier: The multiplier varies depending on your age and years of service:

For regular employees: The standard multiplier is 1.0% if you retire before age 62 or with fewer than 20 years of service. If you retire at age 62 or older with at least 20 years of service, the multiplier increases to 1.1%.
For special provisions employees (such as law enforcement officers, firefighters, and air traffic controllers): The multiplier is generally 1.7% for the first 20 years of service and 1.0% for additional years.

3. Example Calculation: If you retire at age 62 with 25 years of service and a high-3 average salary of $80,000, the calculation would be:

FERS Annuity=$80,000×25×1.1%=$80,000×25×0.011=$22,000 per year

Understanding this formula is the first step toward calculating your FERS annuity. The next steps involve gathering the necessary information to apply this formula accurately.

Identifying Your High-3 Average Salary

Your high-3 average salary is a critical component of the FERS annuity calculation. It represents the highest average annual salary you earned during any three consecutive years of service.

1. What is High-3 Average Salary? The high-3 average salary is not necessarily your last three years of service, although it often is. It includes base pay, locality pay, and shift differential pay but excludes bonuses, overtime, and other extra pay.

2. How to Calculate High-3 Average Salary: To calculate your high-3 average salary, you need to identify the three consecutive years where your earnings were the highest. Sum the total earnings for these three years and divide by three to get the average.

3. Example Calculation: If your highest consecutive three years of earnings were:

Year 1: $75,000
Year 2: $78,000
Year 3: $80,000

The calculation would be:

High-3 Average Salary = ($75,000+$78,000+$80,000) / 3 • =$77,666.67

4. Importance of Accuracy: Accurately identifying your high-3 average salary ensures that your FERS annuity calculation is precise. Small errors can lead to significant differences in your estimated retirement income.

Determining Your Years of Creditable Service

The next step in calculating your FERS annuity is determining your years of creditable service. This includes all the time you’ve worked as a federal employee that counts towards your retirement.

1. Definition of Creditable Service: Creditable service includes:

All federal civilian service for which retirement deductions were taken.
Military service, if it was followed by federal employment and the appropriate deposit was made.
Periods of leave without pay, up to six months per calendar year.
Certain other periods of service under specific conditions (e.g., VISTA or Peace Corps service).

2. Calculating Total Years of Service: To calculate your total years of creditable service, sum all periods of eligible employment. Partial years are converted to a decimal format (e.g., six months is 0.5 years).

3. Example Calculation: If you have the following service periods:

15 years of civilian service
5 years of military service (with deposit made)
1 year of VISTA service (eligible under conditions)

The total years of creditable service would be:

Total Years of Service=15+5+1=21 years

4. Verification: Verify your creditable service with your human resources department to ensure all eligible periods are accurately counted. Keeping personal records and documentation can also help verify your service history.

Applying the FERS Annuity Calculation Formula

With your high-3 average salary and years of creditable service determined, you can now apply the FERS annuity formula to calculate your retirement income.

1. Collecting Information: Ensure you have the following:

High-3 average salary
Total years of creditable service
Applicable multiplier (1.0% or 1.1% for regular employees, 1.7% for special provision employees for the first 20 years, and 1.0% for additional years)

2. Applying the Formula: Use the FERS annuity formula:

FERS Annuity=High-3 Average Salary×Years of Creditable Service×Multiplier

3. Example Calculation: Assume you are a regular employee retiring at age 62 with 21 years of service and a high-3 average salary of $77,666.67. The calculation would be:

FERS Annuity=$77,666.67×21×1.1%=$77,666.67×21×0.011=$17,998.67 per year

4. Special Considerations: For special provisions employees (e.g., law enforcement), the calculation would differ. If you are a law enforcement officer retiring with 25 years of service (20 years at 1.7% and 5 years at 1.0%) and a high-3 average salary of $77,666.67:

FERS Annuity=($77,666.67×20×1.7%)+($77,666.67×5×1.0%) = ($77,666.67 × 20 × 0.017 ) + ($77,666.67 × 5 × 0.01) =($77,666.67×20×0.017)+($77,666.67×5×0.01) = $26,640.67 + $3,883.33 = $30,524 per year =$26,640.67+$3,883.33=$30,524 per year

5. Verification: It’s essential to verify your calculations with your agency’s human resources department or use the FERS annuity calculator available on the Office of Personnel Management (OPM) website. This ensures accuracy and provides a clear picture of your retirement income.

Conclusion

Calculating your FERS annuity involves understanding the basic formula, identifying your high-3 average salary, determining your years of creditable service, and applying the calculation accurately. By following these steps, you can estimate your retirement income and make informed decisions about your retirement planning. Verifying your calculations with HR and utilizing available tools can further ensure accuracy and provide peace of mind as you approach retirement. With a clear understanding of your FERS annuity, you can confidently plan for a financially secure retirement.