One of the most overlooked and least understood provisions of federal retirement is the annuity limit. The bad news is that does exist. The good news is that it applies only to a minority of potential retirees and even then has certain loopholes.

The annuity limit applies only under CSRS. There is no such limit under FERS.

Under CSRS, the dollar amount of your annuity cannot exceed 80 percent of your high-3 average salary. That’s the amount you would get if you had 41 years and 11 months of creditable service. When you have reached that point, retirement contributions will continue to be taken out of your salary. However, at retirement, those excess contributions will be returned to you with interest, which is currently 3 percent per year. The Office of Personnel Management will also offer you an opportunity to buy additional retirement annuity with that refunded money.

The 80 percent limit does not apply to additional annuity purchased with excess contributions or through the Voluntary Contributions Program, cost-of living-adjustments, or as a result of additional retirement credit given for unused sick leave. The sick leave exception is an important one, since many long-service CSRS employees might hit the 80 percent limit though crediting of sick leave even though they fell short of serving nearly 42 years.