Understanding the Calculation of the High-Three Average Salary

"Federal employees who retire from federal service will receive a guaranteed pension in the form of a monthly annuity that is calculated using a "high three" average salary.

Federal employees who meet the requirements to retire from federal service will receive a guaranteed pension in the form of a monthly annuity that is adjusted over the years for inflation. Those employees who are covered by the Civil Service Retirement System (CSRS) (includes CSRS and CSRS Offset employees) receive a CSRS annuity. Those employees who are covered by the Federal Employees Retirement System (FERS) receive a FERS annuity. Both the CSRS and FERS annuities are computed by OPM’s Retirement Processing Office on behalf of retiring employees.

To calculate a CSRS or FERS annuity, OPM needs to know the retiring employee’s: (1) Total length of creditable service; and (2) high-three average salary.

This column explains what the high-three average salary is, what it is composed of, and how it is computed.

Defining the High-Three Average Salary

The high-three average salary is defined as a retiring employee’s highest basic pay averaged over any three consecutive years in federal service. For retiring federal employees who most often earn their highest salaries at the end of their service time with the federal government, this three-year period is the three-year period ending on the year, month and day that the employee retires. However, pay from an earlier three-year consecutive period may have been higher.

The pay/salary that OPM uses in the computation of the high-three average salary is pay/salary for which CSRS or FERS retirement contributions are deducted from an employee’s bi-weekly gross salary and deposited into the CSRS or FERS Retirement and Disability Fund, respectively. For CSRS employees, these contributions are equal to 7 percent of an employee’s bi-weekly gross salary. For FERS employees, these contributions are equal to 0.8, 3.1 or 4.4 percent, depending in which year a FERS employee was initially hired into federal service and are deducted from the employee’s bi-weekly salary.

Ed hosts a Financial Planning Webinar for FERS and CSRS Employees -

For employees who are in the General Schedule (GS) pay system, the following types of pay are subject to retirement deductions every two weeks and therefore included in the calculation of the high-three average salary: (1) Regular pay; (2) locality pay adjustments,; (3) environment differential pay (formerly hazardous pay); (4) premium pay for standby pay; (5) law enforcement availability pay; (6) night differential pay for Federal Wage System (blue collar) employees only; and (7) special pay for recruiting and retention purposes.

Determining the Beginning Date and the Ending Date of the Three-Year Period Used to Calculate the High-Three Average Salary

Assuming that a retiring employee earned his or her highest salaries during the last three years of federal service, the ending date of the three-year period used in the calculation of the high-three average salary is an employee’s retirement date (year, month, day). With respect to determining the beginning date of the three-year period, two facts are mentioned:

Fact 1: OPM uses a 30-day per month for all 12 months of the year, or 360 days; and
Fact 2: If a retiring employee’s retirement day is any day of the month other than the last day of the calendar month, add one to the retirement day. If the employee retires on the last day of any month, use that day.

The following chart is used to calculate the beginning day of the high-three average salary period:

	Year	Month	Day*
Date of retirement
Minus: 3 years, 0 months and 0 days
Equals: Beginning date of three-year period

* Add 1 to the day if date of retirement is not the last day of the calendar month.

The following two examples illustrate:

Example 1. Jeff, a CSRS employee, retired from federal service on December 31,2023 after 41 years and 8 months of service. Jeff’s beginning date of his high-three average period is shown below:

	Year	Month	Day*
Date of retirement	2023	12	31
Minus: 3 years, 0 months and 0 days	-3	0	0
Equals: Beginning date of three-year period	2020	12	31

* Do not add 1 to the day if date of retirement is the last day of the calendar month. This is because December 31 is the last day of the calendar month of December.

Example 2. Dina, a FERS employee, will retire from federal service with 30 years of service on January 13, 2024. Dina’s beginning date of her high-three average salary period is shown below:

	Year	Month	Day*
Date of Retirement	2024	1	13+1
Minus: 3 years, 0 months and 0 days	-3	0	0
Equals: Beginning date of three-year period	2021	1	14

* Add 1 to the day if date of retirement is not the last day of the calendar month. January 13 is not the last day of the calendar month of January.

Note: The three years of service used in the computation of the high-three average salary need not be continuous but must be consecutive.

Calculation of the High-Three Average Salary

The following steps are used to calculate the high-three average salary:

Step 1: Determine the beginning date and the ending date of the high-three average salary period.
Step 2: Use the “Time Factor Chart” (30-day month factor chart) available from OPM’s CSRS and FERS retirement handbook, reproduced below) to determine the fraction of a year (360 days) that the period covers.
Step 3: Enter the annual rate of pay (SF 50 salary) for the total basic pay.
Step 4. Multiply the time factors by the annual salary, as shown on that time period SF 50, in order to determine the Total Basic Pay during the period.
Step 5. Add the entries in the Total Basic Pay column.
Step 6. Divide the sum of the Total Basic Pay for the three-year period by 3 in order to determine the high-three average salary.

In conjunction with these steps, the following chart is used to compute the high-three average salary:

(1) Beginning date	(2) Ending date	(3) Total time* years-months-days [(1) less (2)]	(4) Time factor**	(5) Annual rate (SF-50 salary)	(6) Total basic pay [(4) times (5)]

* Based on OPM’s calendar: 30 days per month and 12 months per year (360 days per year)

** Based on OPM’s 360-day factor table (see below)

30-DAY MONTH FACTOR TABLE

Factors for computing total amount for any period of time at given annual rate. (30-day month. To complete factor place number of full years ahead of decimal point).

Number of days	0 Mnth and up	1 Mnth and up	2 Mnths and up	3 Mnths and up	4 Mnths and up	5 Mnths and up	6 Mnths and up	7 Mnths and up	8 Mnths and up	9 Mnths and up	10 Mnths and up	11 Mnths and up
0	-	.083	.167	.250	.333	.417	.500	.583	.667	.750	.833	.917
1	.003	.086	.169	.253	.336	.419	.503	.586	.669	.753	.836	.919
2	.006	.089	.172	.256	.339	.422	.506	.589	.672	.756	.839	.922
3	.008	.092	.175	.258	.342	.425	.508	.592	.675	.758	.842	.925
4	.011	.094	.178	.261	.344	.428	.511	.594	.678	.761	.844	.928
5	.014	.097	.181	.264	.347	.431	.514	.597	.681	.764	.847	.931
6	.017	.100	.183	.267	.350	.433	.517	.600	.683	.767	.850	.933
7	.019	.103	.186	.269	.353	.436	.519	.603	.686	.769	.853	.936
8	.022	.106	.189	.272	.356	.439	.522	.606	.689	.772	.856	.939
9	.025	.108	.192	.275	.358	.442	.525	.608	.692	.775	.858	.942
10	.028	.111	.194	.278	.361	.444	.528	.611	.694	.778	.861	.944
11	.031	.114	.197	.281	.364	.447	.531	.614	.697	.781	.864	.947
12	.033	.117	.200	.283	.367	.450	.533	.617	.700	.783	.867	.950
13	.036	.119	.203	.286	.369	.453	.536	.619	.703	.786	.869	.953
14	.039	.122	.206	.289	.372	.456	.539	.622	.706	.789	.872	.956
15	.042	.125	.208	.292	.375	.458	.542	.625	.708	.792	.875	.958
16	.044	.128	.211	.294	.378	.461	.544	.628	.711	.794	.878	.961
17	.047	.131	.214	.297	.381	.464	.547	.631	.714	.797	.881	.964
18	.050	.133	.217	.300	.383	.467	.550	.633	.717	.800	.883	.967
19	.053	.136	.219	.303	.386	.469	.553	.636	.719	.803	.886	.969
20	.056	.139	.222	.306	.389	.427	.556	.639	.722	.806	.889	.972
21	.058	.142	225	.308	.392	.475	.558	.642	.725	.808	.892	.975
22	.061	.144	.228	.311	.394	.478	.561	.644	.728	.811	.894	.978
23	.064	.147	.231	.314	.397	.481	.564	.647	.731	.814	.897	.981
24	.067	.150	.233	.317	.400	.483	.567	.650	.733	.817	.900	.983
25	.069	.153	.236	.319	.403	.486	.569	.653	.736	.819	.903	.986
26	.072	.156	.239	.322	.406	.489	.572	.656	.739	.822	.906	.989
27	.075	.158	.242	.325	.408	.492	.575	.658	.742	.825	.908	.992
28	.078	.161	.244	.328	.411	.494	.578	.661	.744	.828	.911	.994
29	.081	.164	.247	.331	.414	.497	.581	.664	.747	.831	.914	.997

The following example, using example 1 above – Jeff who retired on December 31, 2023, illustrates the computation of the high-three average salary:

(1) Beginning date	(2) Ending date	(3) Total time* years-months-days [(1) less (2)]	(4) Time factor**	(5) Annual rate (SF-50 salary)	(6) Total Basic Pay [(4) times (5)]
12-31-2020	01-03-2021	0-0-4	.011	$142,500	$1,568
01-04-2021	06-29-2021	0-5-25	.486	$144,678	$70,314
06-30-2021	01-02-2022	0-6-3	.509	$146,200	$74,416
01-03-2022	01-01-2023	0-11-29	.997	$148,562	$148,116
01-02-2023	12-31-2023	0-11-29	.997	$151,823	$151,368
Sum of total basic pay: $445,782
High-three average salary: Total basic pay/3: $148,594

*Based on OPM’s calendar: 30 days per month and 12 months per year (360 days per year)

**Based on OPM’s 360-day factor table (see above)

It is important for retiring employees to understand that the longer an employee is at a higher pay scale, the more weight that salary has on the employee’s high-three salary. Retiring employees should therefore understand that postponing one’s retirement date for a soon-to-be salary increase (for example, a government-wide pay increase) will have a negligible effect on the retiring employee’s high-three average salary if the employee postpones his or her retirement for a month in order to include the higher salary. For example, if Jerry in Example 1 were to delay his retirement date to January 31,2024 in order to incorporate the 2024 government-wide pay increase of 5.2 percent (that will take effect on the first day of the 2024 leave year, January 14, 2024), his high-three average salary would include two weeks (January 14 -27, 2024) of the higher salary. From the 30-day month factor table, two weeks (14 days) will add only 3.9 percent of the higher salary to the high-three average salary computation.

Edward A. Zurndorfer is a CERTIFIED FINANCIAL PLANNER™ professional, Chartered Life Underwriter, Chartered Financial Consultant, Chartered Federal Employee Benefits Consultant, Certified Employees Benefits Specialist and IRS Enrolled Agent in Silver Spring, MD. Tax planning, Federal employee benefits, retirement and insurance consulting services offered through EZ Accounting and Financial Services, and EZ Federal Benefits Seminars, located at 833 Bromley Street - Suite A, Silver Spring, MD 20902-3019 and telephone number 301-681-1652. Raymond James is not affiliated with and does not endorse the opinions or services of Edward A. Zurndorfer or EZ Accounting and Financial Services. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of RJFS, we are not qualified to render advice on tax or legal matters. You should discuss tax or legal matters with the appropriate professional.