Annuity Calculation for Federal Workers: The Most Common Question of all

In our mission to provide a wealth of information to all federal employees, so they’re better placed to enjoy their years of employment and then their years of retirement, there’s one question that seems to reach us more than any other; can federal employees really work 20 years and then retire on a full salary? If so, how come you don’t really address the fact?

Today, we want to put this notion to bed once and for all because…it’s an urban myth. With civil service annuities, this is calculated by considering an average of an individual’s highest three consecutive salaries; a multiplier then considers the length of service for federal employees.

With the Federal Employees Retirement System, this covers around 95% of all federal employees, and it states that retirement is allowed at 56 years of age after 20 years of service. After this, those at 60 can retire after 20 years of service, and those at 62 can retire with five years of service. For most employees, the ‘high-3’ average is calculated, and 1% will be received for each year of service. For anybody over the age of 62 who has more than 20 years of service, this increases slightly to 1.1%.

If we use somebody with 20 years of service as an example, let’s say their high-3 average stands at $80,000. Per year, they would receive an annual annuity of $16,000 (so long as they’re over the age of 60); this would increase to $17,600 if 62 or over.

If you happen to be under the Civil Service Retirement System, the same benefits don’t apply, but the multiplier is generally higher; normally about 2% per year. This is somewhat balanced out by Social Security benefits and employer contributions for FERS employees. Employer contributions can equal 5% in a Thrift Savings Plan, similar to the traditional 401(k) plan.

As you may know, there are numerous special provisions under both programs and to cover them all here would lead to an article you’d be reading for the rest of the day. However, these are the basics, and they should go some way to explaining why the ‘20-year full salary retirement’ story is indeed a myth.

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