How to Calculate High Three Retirement: A Guide for Federal Employees

If you are a federal employee nearing retirement, understanding your pension is just as important as planning how you will spend your golden years. One term that keeps popping up during retirement planning is “high three retirement.” It plays a key role in determining your federal annuity and can significantly impact your retirement income. 

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To be specific, here is how you can calculate High Three Retirement—

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• Identify the highest 3 consecutive years of basic pay during your federal career.
• Include only basic pay — excluding bonuses, overtime, and other special pay.
• Calculate the average of those 3 years' salaries.
• Use the appropriate retirement formula:

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For FERS: High 3 average salary × years of service × 1% (or 1.1% if age 62+ with 20+ years).

For CSRS: Apply the tiered formula based on years of service (1.5% for the first 5 years, 1.75% for the next 5, 2% thereafter).

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• Account for unused sick leave, which adds to your years of service but not to your high 3 salary.

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In this guide, we will break down everything you need to know about the high 3 calculation, how it works, and how to make the most of it.

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What is High Three Retirement

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The high three retirement system is the method used by the federal government to calculate your annuity under both the Federal Employees Retirement System (FERS) and the older Civil Service Retirement System (CSRS). It refers to your highest average basic pay earned over any three consecutive years of federal service.

These three years don’t have to be your last three years on the job — they just need to be three consecutive years where your pay was the highest. This makes it possible for you to strategically plan your retirement timeline based on when your earnings were at their peak.

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How to Calculate Your High Three Retirement

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Calculating your high 3 average is a methodical process. Follow these steps to determine your high three retirement figure.

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1. Gather Your Basic Pay Records

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Begin by collecting detailed salary records for your federal service. These can typically be found on your Standard Form 50 (SF-50) or through your agency’s Human Resources department. Make sure you’re reviewing basic pay only, which includes:

• Your base salary
  
  
• Locality pay (if applicable)
  
  
• Any other recurring components are officially considered part of your basic pay.
  
  

Excluded items generally include overtime, bonuses, and most one-time payments.

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2. Identify the Highest-Paid 36 Consecutive Months

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Once you have your pay history, identify the 36 consecutive months during which your basic pay was the highest. These months do not need to align with calendar years and can occur at any point in your federal career.

For instance, if you received a promotion or accepted a high locality position three years prior to retirement, that period may offer a higher average than your final three years.

Calculate the total of your basic pay over these 36 months and divide by three to determine the high 3 average.

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Example:

• Year 1: $88,000
  
  
• Year 2: $90,000
  
  
• Year 3: $92,000
  
  

High 3 Average: ($88,000 + $90,000 + $92,000) ÷ 3 = $90,000

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3. Apply the Appropriate Retirement Formula

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Your retirement benefit is then calculated based on your high 3 average and your years of creditable service, using the formula specific to your retirement system.

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For FERS Employees:

• Formula: High 3 × Years of Service × 1%
  
  
• If you are age 62 or older with at least 20 years of service:
  High 3 × Years of Service × 1.1%
  
  

Example: If your high 3 average is $90,000 and you’ve worked 30 years:
$90,000 × 30 × 1% = $27,000 per year
(Or $29,700 per year if eligible for the 1.1% multiplier)

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For CSRS Employees:

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• First 5 years: 1.5% per year
  
  
• Next 5 years: 1.75% per year
  
  
• All years beyond 10: 2% per year
  
  

Example (30 years of service):

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[(5 × 1.5%) + (5 × 1.75%) + (20 × 2%)] = 56.25%
56.25% × $90,000 = $50,625 per year

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Additional Considerations

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• Unused Sick Leave

While sick leave does not increase your high 3 average, it does count toward your years of service. This can marginally increase your annuity by pushing your total service time higher.

For example, if you have 29.5 years of actual service and an additional 6 months of unused sick leave, your pension will be calculated based on 30 years of service.

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• Locality Pay

Locality adjustments do count as part of basic pay for the high three retirement. This means that working in a higher locality pay area can potentially increase your retirement benefits.

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‍What Is and Isn’t Included in the High 3 Calculation?

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Understanding what counts as basic pay is crucial. Only specific types of compensation are used when calculating the high 3 average.

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Included in High 3:

• Base salary
  
  
• Locality pay
  
  
• Shift differentials (only in some cases, depending on agency rules)
  
  

Excluded from High 3:

• Overtime pay
  
  
• Awards and bonuses
  
  
• Travel reimbursements
  
  
• Uniform or equipment allowances
  
  
• Hazard pay (in most cases)
  
  
• COLAs (Cost-of-Living Adjustments)

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Retirement Planning for Federals with High 3

Here are key strategies to help you make the most of your high three retirement calculation:

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• Maximize your highest-earning years: Aim for promotions or step increases before retirement. Your high three retirement is based on your highest-paid 36 consecutive months, so increasing your salary during this period will boost your annuity.
  
  
• Time your retirement strategically: Retire after completing a full year at your highest pay grade to ensure your high 3 period reflects maximum earnings.
  
  
• Consider locality pay differences: If feasible, working in higher locality pay areas can help increase your high three retirement calculation.
  
  
• Accumulate unused sick leave: While it doesn’t affect the high 3 salary, unused sick leave adds to your total creditable service, which increases your final annuity.
  
  
• Understand your retirement system: Whether under FERS or CSRS, ensure you know how your system applies the high three retirement formula. The annuity percentage and calculation differ by system.
  
  
• Monitor for policy changes: Stay informed on any changes in federal pay structures or retirement regulations that may impact your high three retirement outcome.
  
  
• Use retirement forecasting tools: Simulate different scenarios to understand how timing, salary changes, or service years may affect your retirement income.
  
  
• Consult a federal retirement planner early: Professional guidance helps ensure your high three years are accurate, all service credits are counted, and your plan is fully optimized.

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Final Thoughts

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Your high three retirement plays a major role in shaping your federal pension. By understanding how it’s calculated and making smart decisions around timing and salary growth, you can significantly increase your retirement income.

For a more accurate and confident plan, consider consulting a Federal Pension Advisors. We can help you optimize your benefits and retire on your terms, with clarity and peace of mind.

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Sign up for a FREE Consultation

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