Retirement planning is one of the biggest financial decisions a federal employee will ever make. After years—or even decades—of dedicated public service, the way your pension is calculated can significantly influence your retirement income. That’s why recent discussions around High-3 vs. High-5 have caught the attention of many federal workers across the United States.

If you’ve recently come across headlines about a possible shift from High-3 to High-5 and wondered how it could affect your future, you’re not alone. Many employees, including those planning to retire in Florida, are asking whether these proposed changes could reduce their monthly pension or alter their long-term retirement strategy. Understanding the facts behind these retirement calculations is essential to making informed decisions and avoiding unnecessary surprises later.

According to the U.S. Office of Personnel Management (OPM), the Federal Employees Retirement System (FERS) covers millions of current and former federal employees, making it one of the largest retirement systems in the country. Your FERS annuity is a foundational source of retirement income, which is why understanding how it’s calculated is so important.

The High-3 is the current method used to calculate most FERS and CSRS pensions. It refers to the highest average basic pay you earned during any three consecutive years (36 months) of federal service.

For many employees, these are their final three years before retirement because salaries often increase through annual pay adjustments, promotions, or step increases. However, this isn’t always the case. If you earned a higher average salary during another consecutive three-year period earlier in your career, that period would be used instead.

It’s important to understand that High-3 is based on basic pay, not your total earnings. The following are generally included:

• Base salary
• Locality pay
• Special salary rates (when applicable)

The following are generally not included:

• Overtime pay
• Bonuses
• Cash awards
• Travel reimbursements
• Most allowances

This distinction often surprises employees who assume every dollar they earn counts toward their pension. Reviewing your earnings history well before retirement can help you estimate your future annuity more accurately.

Once your High-3 average salary is determined, the government applies a simple formula to calculate your annual pension.

Standard FERS Formula

Annual Pension = High-3 Average Salary × Years of Creditable Service × 1%

If you retire at age 62 or older with at least 20 years of creditable service, the multiplier increases to 1.1%, giving you a slightly larger annual benefit.

Example

Imagine your High-3 average salary is $120,000, and you’ve completed 30 years of federal service.

Calculation:

$120,000 × 30 × 1% = $36,000 per year

If you qualify for the 1.1% multiplier:

$120,000 × 30 × 1.1% = $39,600 per year

Although the formula appears straightforward, several factors—including your retirement date, years of service, military buyback, and unused sick leave—can influence your final benefit. That’s why reviewing your retirement estimate regularly is an important part of long-term retirement planning.

Unlike High-3, the High-5 method would calculate your pension using your highest average basic pay over five consecutive years (60 months) instead of three.

At first sight, this may not appear to be a significant change. However, because salaries typically rise over time, adding two earlier years often lowers the average salary used in the pension calculation. Even a small decrease in your average salary could result in losing thousands of dollars in retirement income over the course of your lifetime.

The reason High-5 continues to appear in retirement discussions is that it has been proposed in several federal budget plans as a way to reduce long-term government retirement costs. While these proposals have generated concern among federal employees, it’s important to understand one key fact:

High-5 Is Not Current Law

As of today, the federal government still calculates eligible FERS and CSRS pensions using the High-3 formula. No legislation has replaced it with High-5.

This means federal employees should continue planning their retirement based on existing rules while staying informed about future legislative developments.

Although both methods calculate your pension using your highest-paid years, the averaging period makes a meaningful difference.

Feature	High-3	High-5
Salary Period	Highest consecutive 3 years	Highest consecutive 5 years
Average Salary	Usually higher	Usually lower
Pension Amount	Generally higher	Generally lower
Current Status	Current federal law	Proposed in some budget discussions

For employees who receive regular promotions or step increases toward the end of their careers, High-3 generally provides a more favorable retirement benefit because it captures the highest-paying years without including earlier, lower salaries.

Let’s look at a simplified example.

Year	Basic Salary
Year 1	$95,000
Year 2	$99,000
Year 3	$103,000
Year 4	$107,000
Year 5	$111,000

High-3 Average

Average of Years 3–5:

($103,000 + $107,000 + $111,000) ÷ 3 = $107,000

High-5 Average

Average of all five years:

($95,000 + $99,000 + $103,000 + $107,000 + $111,000) ÷ 5 = $103,000

That $4,000 difference in average salary may seem modest, but over a 30-year federal career, it can reduce your annual pension and potentially add up to tens of thousands of dollars over a long retirement.

This is one reason many retirement professionals encourage federal employees to review their retirement strategy well before leaving government service. In addition to understanding your pension formula, it’s equally important to evaluate your Thrift Savings Plan (TSP), investment allocation, healthcare costs, and long-term income goals. A comprehensive retirement strategy often delivers more confidence than relying on your pension alone.

 

While High-5 is only a proposal at this point, understanding who could be impacted can help you make smarter retirement decisions today. The effect wouldn’t be the same for every federal employee because everyone’s career path, salary progression, and retirement timeline are different.

Employees who may experience the greatest impact include:

• Federal employees within five to ten years of retirement, especially those counting on their highest earning years to maximize their pension.
• Employees expecting promotions late in their careers, where the final few years significantly increase their average salary.
• General Schedule (GS) employees who receive consistent step increases throughout their careers.
• Supervisors and managers whose salaries often rise substantially during their last several years of service.
• Law enforcement officers, firefighters, and other special retirement groups, depending on future legislation and how any proposal is written.
  

Read More : Retiring Before 62? Here’s How the FERS Supplement Could Help

Whether High-3 remains unchanged or future legislation introduces new retirement rules, one thing never changes—preparation is your greatest financial advantage.

Your federal pension is only one piece of your retirement income. Most retirees will also rely on several other sources, including:

• Thrift Savings Plan (TSP)
• Social Security benefits
• Personal investments
• IRAs or Roth IRAs
• Other retirement savings

Relying on just one income source can create unnecessary financial stress during retirement.

That’s why many federal employees are looking beyond pension calculations and building a comprehensive retirement strategy that includes tax planning, investment growth, healthcare planning, and income diversification.

If you’re evaluating your long-term retirement goals, exploring financial services for federal employees can help you better understand how all these pieces work together to create a more secure retirement.

One of the biggest misconceptions among federal employees is believing that a pension alone will provide everything needed for retirement.

While a FERS pension provides valuable guaranteed income, inflation, healthcare costs, and longer life expectancy mean additional retirement savings often play an equally important role.

According to the Employee Benefit Research Institute (EBRI), many retirees underestimate healthcare expenses during retirement, making diversified retirement income increasingly important.

A thoughtful Investment Planning strategy can help:

• Generate additional retirement income.
• Reduce reliance on a single income source.
• Potentially offset inflation over time.
• Preserve assets for future generations.
• Create greater financial flexibility throughout retirement.

When combined with your FERS pension and TSP savings, a well-balanced investment strategy can strengthen your overall retirement plan.

 

Even experienced federal employees sometimes overlook important details that can affect their retirement.

Here are some mistakes people commonly make:

Waiting Too Long to Review Retirement Estimates

Many employees don’t review their retirement projections until they’re only months away from retiring.

Reviewing your estimates several years in advance gives you more opportunities to improve your financial position.

Assuming Headlines Equal New Law

News articles often discuss proposed legislation before it becomes law.

While staying informed is important, retirement decisions should be based on current regulations—not speculation.

Ignoring Your TSP Strategy

Your pension is designed to replace only a portion of your working income.

Your Thrift Savings Plan remains one of the most valuable retirement savings tools available to federal employees.

Regularly reviewing contribution levels and investment allocations can significantly improve long-term retirement readiness.

Not Seeking Professional Guidance

Federal retirement rules involve numerous moving parts, including:

• Pension calculations
• Survivor benefits
• Medicare coordination
• Social Security timing
• Tax planning
• Required Minimum Distributions (RMDs)

Working with a federal retirement guidance in florida can help you evaluate your options and create a retirement strategy aligned with your personal goals and financial circumstances.

Is High-5 currently the law?

No. The federal government continues to calculate eligible FERS and CSRS pensions using the High-3 formula. High-5 has appeared in several budget proposals but has not been enacted into law.

Can Congress change the federal retirement calculation?

Congress has the authority to propose and pass legislation affecting federal retirement benefits. However, any changes would require the full legislative process before becoming law.

Does locality pay count toward High-3?

Yes. Locality pay is generally included as part of basic pay when calculating your High-3 average salary.

Does overtime count toward High-3?

No. Overtime earnings, bonuses, cash awards, and most allowances are generally not included in the High-3 calculation.

Will High-5 affect current retirees?

There is currently no law changing pension calculations for current retirees. Any future legislation would specify who is affected and when changes would take effect.

Does High-5 change my TSP?

No. High-3 and High-5 relate to your federal pension calculation and do not directly change your Thrift Savings Plan account.

Federal retirement policies can evolve over time, making it important to stay informed through reliable educational resources rather than relying solely on news headlines or social media discussions.

To receive ongoing updates about retirement planning, pension changes, tax strategies, TSP guidance, and other topics affecting federal employees, Subscribe Our YouTube Channel for educational videos designed to help you make more confident retirement decisions.

Read More : How Retirement Withdrawals Affect Your Federal Tax Bracket

Reading articles is a great first step, but sometimes your retirement questions require personalized explanations.

If you’d like to learn more about topics such as High-3, TSP withdrawal strategies, retirement income planning, or investment planning, consider attending one of our educational sessions.

Join our Upcoming Event to hear from experienced retirement professionals, ask questions, and gain practical insights that can help you prepare for retirement with greater confidence.

The discussion around High-3 vs. High-5 has understandably raised questions among federal employees. While proposals occasionally appear during budget negotiations, today’s retirement planning should still be based on the current High-3 calculation unless federal law changes.

Rather than worrying about what may happen in the future, focus on the factors you can control today. Regularly reviewing your pension estimates, maximizing your Thrift Savings Plan contributions, building a diversified investment portfolio, and creating a personalized retirement income strategy can put you in a much stronger financial position.

Whether you’re just beginning to plan or you’re only a few years away from retirement, taking proactive steps now can help you make more informed decisions and enjoy greater financial confidence throughout retirement.

If you’d like personalized guidance tailored to your career, retirement timeline, and financial goals, Book Free Appointment with our retirement planning team today. Together, we can help you build a retirement strategy designed for the future you envision.

Disclaimer: PWR Retirement is an independent private company and is not affiliated with, endorsed by, or acting on behalf of the United States Government, any federal agency, or any labor union. All information provided is for educational purposes only and should not be considered official government guidance, legal, tax, or financial advice. Eligibility determinations, benefit calculations, and claim approvals are made solely by the appropriate government agency.