The FERS pension formula

In short

A friend of mine spent thirty years at a federal agency and never once looked at how his pension was figured. If you work for the government under FERS, take a few minutes to learn the math, because it rewards attention. Your pension comes from three things: your high 3 average salary, your years of service, and a percent that depends on your age. Look up your own high 3 and your service years on your annual statement. Multiply them by the percent, and you have a yearly pension figure. Retire at the current figure, which the official source publishes each year or later with the right service, and you may earn a higher percent. Check every number against your own records before you plan anything.

The whole of it

What it is

I once watched a retiring clerk carry a shoebox of pay stubs into the benefits office, sure she would need every scrap. She needed almost none of it. The government keeps the records, and the formula is simpler than the shoebox suggested.

FERS stands for the Federal Employees Retirement System. It covers most civilian federal workers hired since 1987. It gives you three streams of retirement money. One is the basic benefit, which is the pension we talk about here. The second is Social Security. The third is the Thrift Savings Plan, the government version of a 401(k). This guide covers only the first stream, the pension, which pays you a set amount each year for life once you retire.

A pension like this is called a defined benefit. That means the rule fixes what you get, and the rule does not depend on how the stock market did that year. You earn it by working, and you keep it by staying alive. That is a comfortable thing to know.

How it works

You have probably heard someone at work say "one percent times high 3 times years." That is the heart of it, and it holds up well. Here is the plain version.

Your high 3 is the average of your highest paid three years in a row. It is not your final salary. It is the average across the best three straight years, which for most people are the last three. Your service is the time you worked under FERS, counted in years and months.

The basic pension is your high 3, times your years of service, times a percent. The percent is the current figure, which the official source publishes each year for most retirees. It rises to the current figure, which the official source publishes each year if you retire at the age the law sets, with the years of service the law requires. That age and those years are set by law, so the site fills them in with the source. The Office of Personnel Management, called OPM, publishes these rules, and you should read them there.

Now a word about timing. Your minimum retirement age, or MRA, is the earliest age you can retire and start drawing a pension. It depends on your birth year. OPM lays out which combinations of age and service let you retire, and which of them carry a cut to the pension. Some retirements at your MRA come with a reduction for each year you are under 62. Read the OPM table for your own birth year and service before you count on any date.

Sometimes people ask about unused sick leave. Under OPM rules, that leave can be added to your service time when you retire, which raises your pension a little. It costs you nothing to ask about it.

The numbers, and where to find yours

You have probably wondered where all these figures live. The good news is that you do not have to hunt for them in a filing cabinet.

Your high 3 comes from your pay records. Your agency human resources office can compute it for you, and your Standard Form 50 personnel actions list your salary history. Your service years appear on your annual benefits statement and in your retirement estimate. Ask HR for a retirement estimate a year or two before you plan to leave. It is free.

The percent depends on your age and service at retirement, as we just saw. The exact age for the higher percent is set by law, and it is the current figure, which the official source publishes each year. The multiplier itself is the current figure, which the official source publishes each year for most people, and the current figure, which the official source publishes each year when you qualify for the higher rate. Your MRA is set by your birth year, and the site will show the current table.

Keep one thing in mind. Do not trust a memory or a coworker over the official sources. The OPM retirement pages and your own agency estimate are the ones that count.

A worked example

Let me tell you about Marcus Bell. He is 62, and he has spent 28 years at a federal agency. His three highest years in a row were paid 90,000 dollars, 92,000 dollars, and 94,000 dollars.

First, Marcus finds his high 3. He adds the three salaries: 90,000 plus 92,000 plus 94,000 equals 276,000 dollars. He divides by 3: 276,000 divided by 3 equals 92,000 dollars. That is his high 3.

Next, Marcus checks the percent. He is 62, and he has more than 20 years of service. For this example, we will say he meets the law's test for the higher rate and uses 1.1 percent, written as 0.011. He would confirm that against the OPM page before relying on it.

Now he multiplies. His high 3 is 92,000 dollars. His service is 28 years. His percent is 0.011. So 92,000 times 28 equals 2,576,000. Then 2,576,000 times 0.011 equals 28,336 dollars. That is his yearly pension.

To see the monthly check, Marcus divides by 12: 28,336 divided by 12 equals 2,361.33 dollars, rounded to the cent. He can plan around that number.

Now suppose a coworker with the same pay and service had used the basic 1 percent, written as 0.010. Then 2,576,000 times 0.010 equals 25,760 dollars. Compare the two: 28,336 minus 25,760 equals 2,576 dollars a year. That gap is what one small step in the percent is worth.

Where it goes wrong

A neighbor of mine once figured his pension on the back of a grocery receipt and was off by a good bit. The math was fine. His inputs were not.

The most common trouble is using the wrong pay figure. People plug in their final salary, or their current salary, when the rule calls for the best three years averaged. Pull the actual numbers from your pay records, not from memory.

Another snag is counting service you may not get credit for. Some time, like certain military service or a break in employment, may or may not count, and it may require a payment called a deposit. Do not guess. Ask HR, and get the answer in writing if you can.

Timing trips people too. Retire a few months before your MRA or before 62, and the percent or the age reduction can change the result more than you expect. A short wait can be worth real money. It is worth checking before you sign.

Last, remember what this formula leaves out. It does not include Social Security, your Thrift Savings Plan, taxes, or health insurance costs. A pension estimate is a starting point, not your whole plan. Look at all three streams together.

Questions to answer before you leave this page

Do you know your high 3, and have you checked it against your pay records? How many years and months of service does your agency show for you, and does that match what you remember? At what age do you plan to retire, and does that age reach your MRA or 62? Have you asked HR for a written retirement estimate yet, and what does it say? Do you have any military time or breaks in service that might need a deposit or a review? What will your pension, your Social Security, and your Thrift Savings Plan add up to each month? And who could look over your numbers with you, so a second pair of eyes can catch what one pair might miss?