Category: Annuity

The high-3 average salary is one of the most important numbers in a federal annuity calculation. It is also one of the most frequently misunderstood.

What the High-3 Means

The high-3 is the average of your highest basic pay over three consecutive years of service. The three years do not need to be the final three years of employment, but they must be consecutive and within your federal service. Basic pay generally excludes overtime, bonuses, and most premium pay.

A Simple Example

Suppose your three highest consecutive years of basic pay total $270,000. The high-3 average is $90,000 ($270,000 divided by 3). Under the FERS basic annuity formula, that average is then multiplied by a percentage and by years of creditable service.

What Can Affect It

  • Leave without pay: Periods of unpaid leave may reduce creditable service, and they can also affect how the three-year window is measured.
  • Promotions and step increases: Pay increases in your final years usually raise the average.
  • Pay reductions or part-time work: Lower pay during the window can lower the average.
Plan ahead: If you expect a period of unpaid leave near retirement, ask how it will be treated in your records before it happens.

How to Use This Information

Your official estimate uses your actual pay records. You can use the concept here to test scenarios, such as how a promotion in your final year might change your projected annuity, and then verify the final figure with official sources.

For a broader explanation of annuity terms, read the Annuity Education guide. The official formulas and rules for your category are published by the OPM Retirement Services website.

A Fuller Example

Suppose an employee’s basic pay over three consecutive years is $86,000, $90,000 and $94,000. The total is $270,000 and the high-3 average is $90,000. If the employee retires with 25 years of service under the standard FERS multiplier of 1 percent, the basic annuity is $90,000 × 25 × 1% = $22,500 per year.

Now suppose a promotion raises pay in the last year so that the three-year window is $86,000, $94,000 and $108,000. The total is $288,000 and the high-3 average is $96,000. The annuity becomes $96,000 × 25 × 1% = $24,000 per year, which is $1,500 more each year for the rest of retirement. These examples are simplified, but they show why pay changes late in a career deserve attention.

What Counts as Basic Pay?

Basic pay generally includes your salary and certain pay differentials for which retirement deductions are withheld, such as some shift differentials and locality pay. It generally does not include overtime, bonuses, and most one-time payments. If you are not sure whether a particular payment counts, ask your human resources office or check OPM guidance.

Part-Time Work and Leave Without Pay

Part-time service is generally prorated for the purpose of creditable service, which can lower your total years. Periods of leave without pay can also affect your service, and in some cases they affect the three-year window itself. If you plan a period of part-time work or unpaid leave near retirement, ask how it will be recorded before you commit.

How to Check Your Own High-3

  1. Gather pay statements or a salary history covering your last several years.
  2. Look for the three consecutive years of highest basic pay. These are often your final three, but not always.
  3. Add the basic pay for those three years and divide by three.
  4. Compare your result with the figure OPM shows on your official estimate. If they differ, find out why.

Why It Pays to Check Early

Because the high-3 feeds directly into the annuity formula, errors in pay records have a lasting effect. A missing pay change, an incorrect step, or a miscoded pay period can change the average without anyone noticing. Review your pay history a year or more before retirement so that any corrections can be made while you still have time.

Frequently Asked Questions

Do the three years have to be my last three?

No. They have to be consecutive and highest in basic pay, but they are often the final three.

Does locality pay count?

Locality pay is generally part of basic pay for retirement purposes, but confirm your own case with HR or OPM.

Does unused sick leave raise the high-3?

No. Unused sick leave can add to your creditable service when the annuity is computed, but it is not counted in the high-3 average.

Is the high-3 the same under FERS and CSRS?

The concept is the same: the highest average basic pay over three consecutive years. The multipliers used afterwards differ.

Sources

Published by FedRetire Guide

FedRetire Guide is the publisher of this educational material. No individual author credentials are claimed on this page. The content is general information, not individualized financial, tax, legal, insurance, or benefits advice. Verify current requirements with the relevant official agency.

Educational note: This page is general information, not an official benefit determination or individualized financial, tax, legal, insurance, or retirement advice. Check current requirements with the relevant government agency before making decisions.

Related guides