Maximizing Your FERS Annuity: Strategies for Higher Retirement Income

As a federal employee, your retirement benefits under the Federal Employee Retirement System (FERS) are an important part of your financial future. Whether you're nearing retirement or just beginning your planning, understanding the following five key FERS annuity maximization strategies may help enhance your retirement income.

Understanding the FERS Annuity Calculation

The formula for calculating the value of an FERS annuity is the same for all federal workers:

FERS Annuity = Years of Credible Service x High-3 Average Salary x Pension Multiplier

Here’s how each component works:

• Years of credible service: The total number of years you’ve worked in a position that is eligible for FERS credit.
• High-3 average salary:  The average of your highest basic pay over any three consecutive years. (Basic pay includes your base salary and any locality pay but excludes bonuses, overtime, and other forms of additional compensation.)
• Pension multiplier: Typically 1% for most federal employees. However, if you retire at age 62 or older with at least 20 years of service, the multiplier increases to 1.1%.

For example, if you retire with 30 years of creditable service, a high-3 average salary of $100,000, and a pension multiplier of 1%, your FERS annuity would be calculated as follows:

30 x $100,000 x 0.01 = $30,000 per year

Having a clear understanding of this formula allows you to identify opportunities to enhance your benefits. By strategically adjusting specific variables, you can set yourself up for higher future annuity payments.

Strategy 1: Increase Your Years of Service

The longer you work in a FERS-eligible position, the more years of creditable service you accumulate, which directly increases the value of your annuity. Not only does each additional year add to your total years of service, but it also allows for a potentially higher high-3 average salary. This can create an additional income raise.

Potential options for increasing creditable years of service:

• Postpone retirement: Each additional year you work increases your total years of credible service.
• Buy back military time: If you have prior military service, you can buy back that time to add it to your creditable service years.
• Redeposit refunded contributions: If you previously left federal service and withdrew your FERS contributions, you have the option to redeposit those funds and regain credit for those years of service.

Strategy 2: Boost Your High-3 Average Salary

If possible, aim to retire at the end of a period when your salary has been at its peak for three consecutive years. This might require delaying retirement slightly to include a recent promotion or pay increase in your High-3 calculation. To boost your High-3 Average, consider the following:

• Seek promotions: Actively pursue advancement opportunities to directly increase your pay.
• Take on additional responsibilities: Volunteering for extra duties or special projects can lead to step increases or higher-grade positions.
• Earn awards and step increases: Performance awards and step increases can also contribute to a higher High-3 average. To ensure that your performance reviews reflect your hard work and achievements, and consider discussing potential step increases with your supervisor.

Strategy 3: Take Advantage of the 1.1x Pension Multiplier

The Special Retirement Supplement (SRS) bridges the gap between your FERS retirement and Social Security, providing income for Feds who retire before age 62. However, if you retire at age 62 or older with at least 20 years of service, your pension multiplier increases from 1% to 1.1%, resulting in a higher lifetime annuity.

While the SRS offers early income, in many cases, it just doesn’t stack up against the 1.1x pension multiplier. For this reason, unless you’re facing the possibility of a life-shortening illness, it may be in your best interest to delay retirement until age 62 or later.