Why Your Agency's Pension Estimate Is Too High

Agency HR offices produce pension estimates as a courtesy, and most of them are wrong in the same direction: too high. The reason is a single step they skip — the weight-by-time rule that defines "average pay" under 5 U.S.C. § 8401(3) and § 8331(4). Skipping it inflates the high-3 base, which inflates every dollar of annuity computed from it.

What the statute actually says

The high-3 is not the average of your three highest annual salaries. It is the largest annual rate produced by averaging your basic pay over any three consecutive years of creditable service, with each rate weighted by the number of days it was in effect — on a 360-day year. OPM CSRS/FERS Handbook chapter 50, section 50A2.1, describes this as a 1,080-day window (three years × 360 days).

The distinction matters whenever your pay rate changed inside that window — which it almost always does, because General Schedule step increases and locality adjustments rarely land on January 1. An agency estimate that adds up your three highest W-2 salaries and divides by three is not computing average pay. It is computing something that sounds identical but is not.

Where the numbers diverge: a worked example

Consider a GS-13 employee — call her Dana — who retires at 62 with 28 years of creditable service. Her within-grade and locality increases land about two months before each year closes, which is ordinary: pay adjustments follow the pay calendar, not the anniversary of your hire date.

Across the 1,080 days that form her high-3 window:

• $105,000 for the first 300 days.
• $109,000 for the next 360 days.
• $113,000 for the next 360 days.
• $117,000 for the final 60 days.

The agency estimate reads the rate in effect at the close of each year — $109,000, $113,000, $117,000 — and averages them, arriving at $113,000. Every one of those rates is real. The error is that each is credited with a full year when Dana held it for two months.

The statutory computation weights each rate by the days it was actually in effect:

• $105,000 × 300 days = 31,500,000
• $109,000 × 360 days = 39,240,000
• $113,000 × 360 days = 40,680,000
• $117,000 × 60 days = 7,020,000

Total: 118,440,000. Divided by 1,080 days: $109,666.67.

The agency figure is $3,333.33 too high — about 3%, and always in the same direction, because a raise counted early can only inflate the average.

Carried through to the annuity, at 1.1% per year of service for 28 years (Dana is 62 with more than 20 years, so § 8415(i) applies):

• Agency estimate: $2,900.33 a month
• Actual computation: $2,814.78 a month

That is $85.56 a month, or $1,026.67 a year, that Dana was told she would have and will not. Over a 25-year retirement it is roughly $25,667 — before considering that she may have chosen her retirement date on the strength of the larger number.

The High-3 Average Salary Calculator applies the weight-by-time rule directly: you enter each pay rate and the dates it was in effect, and it finds the 1,080-day window that produces the largest weighted average — the figure OPM will actually use.

Why agencies skip the weighting step

Agency HR offices are not computing your annuity. They are producing an estimate, often from a spreadsheet that was built years ago and updated only for pay tables. The weight-by-time calculation requires knowing the exact effective date of every pay change inside the three-year window, and most HR systems do not surface that data in an easy-to-query form. The simple average is faster, and for employees whose pay changed only at the start of each calendar year it is close enough to pass without complaint.

The problem is that it is not close enough when your pay history includes mid-year changes, and it is never the number OPM will use.

The retirement date connection

The high-3 window does not have to end on your retirement date. OPM searches your entire service history for the three consecutive years — 1,080 days — that produce the highest weighted average. For most employees that window ends at retirement, but if you had a period of higher pay earlier in your career (a temporary promotion, a detail to a higher-graded position, or a different locality) that earlier window could be your actual high-3.

An agency estimate almost never searches for that earlier window. It starts from the retirement date and counts back three years. If your best three years ended two years ago, the agency estimate is built on the wrong period entirely.

This is also why your retirement date can shift your high-3 in ways that are not obvious. Working one more pay period might pull a higher-paid month into the window and push a lower-paid one out — or do nothing at all, depending on where the rates fall. The only way to know is to run the weighted calculation across multiple candidate windows.

What this guide does not cover

This guide explains the high-3 computation rule and where agency estimates go wrong. It does not cover the FERS annuity formula beyond the accrual factors cited above, the MRA+10 age reduction of 5% per year under 62, part-time proration, sick leave credit, or survivor benefit elections. Each of those affects your final monthly benefit and is worth checking separately before you commit to a retirement date.

Frequently asked questions

Does OPM ever use a simple three-year average?

No. OPM applies the weight-by-time rule to every FERS and CSRS annuity computation. The definition of "average pay" in 5 U.S.C. § 8401(3) and § 8331(4) requires weighting each rate by the days it was held inside the highest three consecutive years, and OPM CSRS/FERS Handbook chapter 50 implements that definition. A simple three-year average of annual salaries is not the statutory formula.

Can my high-3 window end before my retirement date?

Yes. OPM searches your full service history for the 1,080-day window — any three consecutive years of creditable service — that produces the largest weighted average. If a period of higher pay occurred earlier in your career, that earlier window is your high-3 even if your pay at retirement is lower.

Does the 1.1% factor change how the high-3 is computed?

No. The enhanced 1.1% accrual factor under 5 U.S.C. § 8415(i) applies when you separate at age 62 or later with at least 20 years of service, but it is a multiplier applied to the high-3 — it does not change how the high-3 itself is calculated. The weight-by-time rule is the same regardless of which factor applies.

What if my pay changed because of a temporary promotion?

The pay rate you held during a temporary promotion counts toward the high-3 calculation for the days you held it, under the same weight-by-time rule. If those days fall inside your highest three-year window, they raise your weighted average. OPM uses the rate of basic pay actually received, so a temporary promotion that lasted several months can meaningfully shift the result.

My agency estimate and OPM's figure were close — does the difference really matter?

It depends on the size of the gap and your years of service. A high-3 that is overstated by a few hundred dollars produces an annuity that looks larger than it will be, which can affect decisions about retirement timing and whether the numbers work. Because the FERS annuity is paid for life, a small base error runs for decades. Running the weighted calculation yourself — rather than relying on the estimate — is the only way to know whether the gap is meaningful in your case.

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This guide is informational only and is not financial, tax, or legal advice. Last reviewed: August 2026.

This guide is informational only. It is not financial, tax, or legal advice, and FedAnnuity is not affiliated with OPM or the U.S. government. Retirement rules turn on the specific facts of a career, and only your agency and OPM can give you a binding figure.

Last reviewed: August 2026 · Against primary sources cited in the body.