
When it comes to your FERS pension, understanding the key factors that impact your retirement benefit is crucial for making the most of your federal career. If you’ve spent years building your career in public service, you want to make sure your retirement years are financially secure. In this guide, we’ll break down the major elements that determine your FERS pension so you can plan accordingly and avoid any unpleasant surprises when it’s time to retire.
1. High-3 Average Salary
Your pension calculation starts with your high-3 average salary, which is the highest average annual salary you’ve earned over any three consecutive years of federal service. This doesn’t necessarily have to be your last three years, but the highest three consecutive years overall. For many, this period often occurs near the end of their career, when salaries tend to peak.
For example, if you earned $100,000 in your 33rd, 34th, and 35th years of service, then $100,000 would be your high-3 average salary. This figure is a foundational piece of the formula that ultimately determines your pension amount. The higher your high-3, the larger your pension check will be.
2. Years of Creditable Service
The length of your federal service is another critical component. Your pension is essentially a reward for your years of dedication, so the longer you work, the higher your payout. Creditable service includes both the years you’ve worked as a federal employee and potentially other periods you’ve bought back, like military service, if applicable.
Every year you add to your service record boosts the value of your pension. It’s also worth noting that even a few extra months can make a significant difference, as your years of service are factored down to the month when your pension is calculated.
3. Pension Multiplier
The pension multiplier is a fixed percentage that represents how much of your high-3 average salary you’ll receive for each year of creditable service. This multiplier varies depending on your career path.
● Regular FERS employees: 1%
● FERS employees who retire at 62 or later with at least 20 years of service: 1.1%
● Special category employees (law enforcement, air traffic controllers, firefighters): 1.7% for the first 20 years of their service
This difference might seem small, but over a 20 to 30-year retirement, it can add up to tens of thousands of dollars.
4. Retirement Age
The age at which you retire also affects your pension amount. If you retire before your minimum retirement age (MRA) or without the required years of service, you might face reductions to your benefit. For regular FERS employees, the MRA is typically between 55 and 57, depending on your year of birth. However, retiring at 62 with 20 or more years of service gives you that 1.1% multiplier boost, which can be a significant incentive to work a few years longer if you’re able.
5. Survivor Benefits and Other Elections
Decisions like opting for a survivor benefit, choosing to provide a spousal benefit, or participating in the FERS Annuity Supplement if you retire before 62, all impact your pension. These options generally reduce your monthly pension check but can provide essential financial security for your spouse or dependents.
6. Taxes and Cost of Living Adjustments (COLA)
Finally, remember that your pension is subject to federal taxes (and possibly state taxes, depending on where you live). However, your pension will generally receive Cost of Living Adjustments (COLAs) to help keep up with inflation, though these increases are often less generous for FERS retirees compared to their CSRS counterparts.
Final Thoughts
Your FERS pension is one of the most valuable benefits you’ll receive as a federal employee. Understanding how it’s calculated and the factors that influence it can make a substantial difference in your financial security during retirement. Plan ahead, stay informed, and consider speaking with a financial advisor who specializes in federal benefits to make the most of your pension.
Dallen Haws is a Financial Advisor who is dedicated to helping federal employees live their best life and plan an incredible retirement. He hosts a podcast and YouTube channel all about federal benefits and retirement. You can learn more about him at Haws Federal Advisors.
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