In my previous series focusing on retirement eligibility, I pointed out that the decision to retire is not just a matter of hitting an age and service combination that allows you to retire. Instead, I posed a series of questions to ask yourself including whether, when that day comes, you will be financially ready.
What if the answer is no?
Well, one obvious response is to keep working. Remember, unless you are in law enforcement or one of the few other occupations in which retirement is mandatory at a certain point, you can continue working at your option. Most federal employees in fact do continue working past their earliest eligibility date (although you wouldn’t expect that to be true from listening to the “I’m outta here the first day I can” crowd).
By doing so, you will increase both of the factors that go into a retirement calculation, your length of service and your high-3. For FERS employees, as we’ll explain later, there is an additional benefit if extending your career allows you to achieve the combination of age 62 with at least 20 years of service.
(Note: Working longer also will allow you to continue building up your TSP account and other retirement savings, a subject outside the scope of this series. We’re also not going to look at issues of capturing credit for time, such as for military service, for which a deposit is needed because that impact would be the same regardless of when you retire.)
So let’s begin our look at how working longer will boost your annuity with high-3—what is it and how you calculate it.
Your high-3 is the average of your highest rates of basic pay over any three consecutive years of creditable civilian service, with each pay rate weighted by the length of time it was received. That three-year period starts and ends on the dates that produce the highest average pay.
Basic pay is the amount on your pay voucher from which retirement deductions are taken. For most employees, it’s the salary of the position you occupy, including locality pay. For some employees, it will also include such things as night and/or environmental differentials and premium pay.
On the other hand, basic pay doesn’t include such things as bonuses, military pay, cash awards, holiday pay, travel pay outside the regular tour of duty, or lump-sum payments covering unused hours of annual leave.
If you are like most federal employees, your highest three years of basic pay will be the ones that immediately precede the day on which you retire. If that’s the case, you can find the starting date for your high-3 calculation by subtracting three years from the date you plan to retire. If you’ve had some breaks in service, the three years used to calculate your high-3 don’t need to be continuous. Two or more separate periods of service may be joined together.
Note: If you took any leave without pay (LWOP) of less than six months in a calendar year during that time, that period of absence will be treated as if you’d been at work and receiving your regular salary. However, LWOP that exceeds six months in a calendar won’t be counted at all. For example, if you took a full year of LWOP, your high-3 period would be based on four years, not three.
Well, those are the basics. With that information, you can run your high-3 numbers to your heart’s content.
You can, for example, project out into the future a number of years at your choosing, using an assumption about salary growth. Remember to include not just potential future general raises each January but also things like within-grade increases, if you would be eligible for one, and the value of anything else mentioned above.
One last word on this, for what it’s worth: I’ve known too many employees who died while staying on the job past their retirement eligibility point in order to make their high-3 just a little higher.