As a federal employee nearing retirement, it’s essential to determine your most lucrative retirement option. One of the factors that significantly impact your potential retirement income is your high-3 salary calculation. Understanding how to calculate your high-3 will help you make informed decisions regarding your federal retirement benefits.

What is the High-3?

The high-3 is the average of an employee’s highest salaries for three consecutive years of federal service. This figure is used to determine the annuity payment under the Federal Employees Retirement System (FERS) and the Civil Service Retirement System (CSRS).

Calculating Your High-3:

To calculate your high-3, follow these steps:

1. Gather relevant salary information: Begin by collecting information onyour salary, including base pay, locality adjustments, and other factors that contribute to your total salary for each year of service.

2. Identify highest consecutive salaries: Review your earnings history to identify the three highest consecutive salaries during your career.

3. Calculate annual amounts: For each year identified in step 2, calculate the total amount earned, as well as any adjustments that may apply (e.g., longevity step increases).

4. Determine average salary: Add up the total amounts calculated in step 3 and divide by three to find the average.

5. Adjust for inflation: If necessary, adjust the figure from step 4 for inflation using the Office of Personnel Management’s (OPM) annual cost-of-living adjustment (COLA). This will ensure that your calculated high-3 reflects its current value.

Example:

Suppose an employee had three highest consecutive annual salaries as follows:

– Year 1: $80,000

– Year 2: $82,000

– Year 3: $85,000

To calculate their high-3:

1. Add the annual salaries together:

$80,000 + $82,000 + $85,000 = $247,000

2. Divide the total by 3 to find the high-3 average:

$247,000 ÷ 3 = $82,333.33

In this example, the employee’s high-3 is $82,333.33.

Important Considerations:

– When assessing your high-3, it’s essential to take into account all sources of income subject to retirement deductions, such as bonuses and overtime.

– Be aware that certain types of pay – such as merit increases – may not be counted towards your high-3. Check with your agency’s human resources department for specific details on what is included in the calculation.

Understanding how to calculate your high-3 salary is a crucial aspect of planning for federal retirement. By doing so, you’ll gain a better understanding of your financial outlook during retirement and can make more informed decisions about when and how to retire.