Key Takeaways
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Your pension is based on your highest-paid 36 consecutive months—commonly called the “high-3″—but when those months occur dramatically affects your retirement income.
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Timing your retirement incorrectly—even if your high-3 seems solid—can reduce your monthly annuity for life.
What Your High-3 Really Means in 2025
Under the Federal Employees Retirement System (FERS), your annuity is calculated using your “high-3” average salary. This is the average of your highest-paid 36 consecutive months of basic pay, not including bonuses, overtime, or other non-basic pay.
It’s easy to assume that your high-3 is fixed once you’ve hit your peak salary, but there’s a critical nuance: it only counts when
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How the High-3 Is Calculated
The Office of Personnel Management (OPM) uses the following formula to calculate your FERS basic annuity:
Annual Pension = High-3 Average × Years of Creditable Service × Multiplier (1% or 1.1%)
The multiplier is 1% for most employees, and 1.1% if you retire at age 62 or older with at least 20 years of service.
What many don’t realize is that even if you’ve reached a salary peak, leaving before completing 36 months at that rate can shrink your high-3 average.
Timing Missteps That Shrink Your Pension
1. Retiring Before Your Full 36 Months at Peak Pay
If you receive a pay raise, step increase, or promotion that raises your base salary, it might be tempting to retire as soon as that raise takes effect. But unless you work in that position for 36 straight months, your pension won’t reflect your full new salary. Instead, lower-paid months from earlier will be averaged in.
For example, if your raise took effect in January 2023, you’d need to work through at least December 2025 for that new pay level to be fully reflected in your high-3 average.
2. Moving to a Lower-Paying Role Late in Your Career
Some federal employees shift to less demanding or lower-paying roles late in their career—sometimes for health, relocation, or work-life balance reasons. If this happens before your high-3 window closes, those reduced earnings will be part of the average.
In 2025, this is a more common scenario with many workers prioritizing flexibility or phased retirement. But without careful planning, this change can significantly lower your annuity.
3. Assuming Overtime or Bonuses Count
Your high-3 only includes basic pay. Any overtime, bonuses, awards, or differentials are excluded—even if they significantly boost your take-home pay. You need to focus on base salary when projecting your high-3.
When Should You Start Tracking Your High-3?
Start tracking your high-3 at least 5 years before your target retirement date. This allows time to:
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Plan career moves with high-3 implications in mind
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Evaluate upcoming step increases or promotions
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Assess the impact of work changes or part-time transitions
You can request a Personal Statement of Benefits (PSB) or an annuity estimate from your agency’s HR to see how your high-3 is shaping up. Don’t wait until your retirement paperwork is in motion.
Using Leave and Step Increases Strategically
If you’re nearing retirement age and considering your timeline, there are two strategic tools that can help you boost your high-3.
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Annual Step Increases: These occur at regular intervals (typically 52 weeks) and can boost your base salary. Time your retirement to ensure the full 36 months after your final step increase are completed.
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Annual Leave Payouts: While not part of your high-3 calculation, lump-sum leave payments are taxable income and can affect your final year’s tax bracket or Social Security earnings history. Factor this in when planning your last day.
Common Misunderstandings About High-3
Even experienced public sector workers often misunderstand how high-3 works. Let’s clear up some of the most frequent misconceptions:
1. It’s Not the Highest Calendar Year
Your high-3 is not the highest-paid calendar year—it’s the highest consecutive 36 months. These months can start and end mid-year.
2. It’s Not Adjusted for Inflation Post-Retirement
Once you retire, your annuity amount is locked in based on your high-3 at retirement. Cost-of-living adjustments (COLAs) apply later, but they’re typically less than full inflation, especially for FERS retirees under age 62.
3. Your High-3 Isn’t Guaranteed by Pay Grade Alone
Two employees at the same pay grade might have different high-3 values depending on locality pay, timing of raises, and exact months included. Make sure you confirm your high-3 in writing before you retire.
What About the Final Pay Rule?
Some employees mistakenly believe that the federal government uses a “final pay” formula—calculating your annuity based solely on your last year’s salary. That’s never been the case for FERS.
CSRS retirees did receive a slightly different formula, but even then, the high-3 rule applied. In 2025, almost all government employees fall under FERS.
High-3 and Part-Time Service
Part-time service can have a complex effect on your high-3. While your basic pay is prorated based on part-time status, your high-3 is still calculated on the full-time equivalent rate for your grade and step. However, the length of your creditable service is prorated.
So, if you worked part-time at GS-12 Step 6, your high-3 is based on the GS-12 Step 6 full-time salary, but your total years of creditable service accumulate more slowly.
Retirement Scenarios That Make Timing Critical
A. Mid-Year Promotions
Let’s say you were promoted in June 2022. You should plan to work through at least May 2025 to get a full high-3 at the new salary. If you retire before then, your average includes some lower-paid months.
B. Salary Freezes or Locality Pay Adjustments
If Congress freezes salaries—or your locality rate changes—in 2025, that can lock in your base pay for a longer period. In that case, delaying retirement won’t improve your high-3 unless a future increase is expected.
C. Special Category Employees
Law enforcement officers, firefighters, and air traffic controllers often retire earlier and with enhanced benefits. Still, their high-3 rules follow the same 36-month rule. Careful coordination with your mandatory retirement date is essential.
Protecting Your High-3 Before You Retire
You can protect and possibly increase your high-3 by:
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Avoiding demotions or reassignments that reduce base pay
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Timing step increases to fully reflect in your last 36 months
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Working the full 3 years after any major promotion
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Confirming with HR which dates and salaries will be used
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Requesting an official annuity estimate before submitting your retirement application
Retirement is final. Once you’re out, your pension amount is locked in. Planning ahead gives you the leverage to optimize your lifetime income.
Getting the Most Out of Your Pension Timing
Understanding the timing of your high-3 is not just about squeezing every dollar out of the system—it’s about ensuring your retirement is secure for decades to come. An annuity reduction of even a few hundred dollars per month can add up to tens of thousands over your retirement lifetime.
Before making any final decisions, speak with your agency’s HR, request a detailed estimate, and talk to a licensed professional listed on this website to help align your retirement goals with your income strategy.
