Federal Employee Retirement Optimizer

Understanding Federal Retirement Benefits

FERS Pension Formula

The FERS pension is calculated using this simple formula:

Example: A federal employee with 25 years of service and High-3 average salary of $100,000:

• Annual Pension = 0.01 × $100,000 × 25 = $25,000/year
• Monthly Pension = $25,000 / 12 = $2,083.33

Key Components

1. FERS Pension (Defined Benefit)

• Formula: 1% × High-3 × Years of Service
• Eligibility: 5 years of service for vesting; can retire at 62 with 5 years, or at 57 with 30 years
• Cost of Living Adjustment (COLA): Annual increases tied to inflation (typically 2-3%)
• Survivor Benefits: Automatic survivor protection; reduced if spousal benefit elected

2. TSP (Thrift Savings Plan)

• Employee Contribution: Up to $23,500/year (2024 limit)
• Federal Match: Automatic 1% + up to 4% matching (similar to 401k match)
• Investment Options: Low-cost index funds (L, S, C, I, F funds)
• Total Limit: Combined employee + employer can reach $69,000/year

3. Social Security

Federal employees hired before 1984 may have Government Pension Offset (GPO); those hired after 1984 contribute to Social Security normally.

Sample Worked Example

Scenario: James, age 45, has 15 years of federal service as an IT specialist earning $90,000/year. He plans to retire at 62.

High-3 Average Salary (assuming 2.5% annual growth):

• Year 1 (now): $90,000
• Year 2: $92,250
• Year 3 (High-3 average): ($90,000 + $92,250 + $94,656) / 3 = $92,302

FERS Pension at Age 62:

• Years of Service: 15 + 17 = 32 years
• Annual Pension: 0.01 × $92,302 × 32 = $29,537/year
• Monthly: $2,461/month (with future COLA increases)

TSP Projection:

• Current TSP Balance: $150,000
• Annual Contribution: $18,000 (employee) + $3,150 (employer match ~3.5%) = $21,150
• 17 years until retirement at 6% annual return: ~$625,000
• Safe Withdrawal (4% rule): $625,000 × 4% = $25,000/year

Combined Annual Income at 62: $29,537 (FERS) + $25,000 (TSP) = $54,537

Important Limitations & Considerations

• Not Legal/Financial Advice: This calculator is educational. Consult OPM and a financial advisor for your specific situation.
• COLA Variability: Actual COLA depends on inflation; assumes 2.5% average.
• Investment Returns: TSP returns vary; 6% is historical average but not guaranteed.
• Life Expectancy: Actual longevity varies; calculations are estimates.
• High-3 Definition: This is the highest 3 consecutive years of salary; may differ if leave or other compensation included.
• Federal Hire Date: Employees hired before 1984 face GPO/WEP reductions to Social Security.
• Spousal Survivor Options: If survivor benefit elected, monthly pension is reduced.
• Job Changes: Transferring between federal agencies preserves service credit (mostly).