1.20.23: Audio automatically transcribed by Sonix

1.20.23: this mp3 audio file was automatically transcribed by Sonix with the best speech-to-text algorithms. This transcript may contain errors.

Val Majewski:
Welcome back to the federal retirement show. I'm your host, Val Majeski, with American Benefits Exchange. And I'm getting a couple of topics from recent conversations that have been having with federal employees in questions that I've been asked. And we're going back to some basic stuff. But when it comes to your retirement and understanding how your retirement works, I want to make sure that you're getting the most pertinent information. And if I'm hearing it from federal employees, then you're probably asking the same questions. Now, your situation may be different than the folks I'm talking to, but I'm sure you're going to be asking some of the same questions or having the same thoughts. So the purpose of this show, if you go back to the beginning, is to give you the information that we feel is lacking, the information that we feel you need in order to navigate your career, prepare for retirement, make the right decisions so you can be set up properly, both now and as you're moving closer towards that blessed day when you do retire and leave and you want to leave on your terms, you don't want to leave in a way that's going to leave you lacking in the future or disappointed with the results. So I got a question recently about high three, and I'm going to get into the information here in just a second. But it's about how to calculate your high three and what's included in your high three and what could affect your high three in the future.

Val Majewski:
So let's dive into the information and get started with calculating your high three. So first of all, what is the high three? Well, the high three is your average of your highest three consecutive years of total base pay. It's the average of those highest three consecutive. And it says three years. It's actually 36 months. So the last or the highest 36 month period in which you worked that is the average of those three years. Now, what's included in that pay? Well, your total base pay, which is base pay plus locality adjustment. So that was the first question that this federal employee asked was is my locality included in my high three? The answer is yes. Now, some folks actually think about that and say, hey, I'm I'm taking a job in a place where my locality pay is going to bump up my overall pay. And if I'm there for a significant period of time, it can drastically increase my high three. And that is correct. Also shift rate pay, if that applies to you, is included in your high three. But generally speaking, base pay, total base pay plus your locality adjustment is included in the high three calculation. Now what is not included in your high three? What cost of living adjustments COLA not included in your high three overtime pay, not included in your high three bonuses. Not included in your high three. Oc leave sick leave annual leave that stuff not included in your high three.

Val Majewski:
So going back to the previous slide, we're talking about total base pay, base pay plus locality shift rate pay if that applies to you also included in your high three. Now, here's here's another question that I got on this topic. When it comes to locality pay or even your total pay. The question was about what if I'm working at a certain position, I'm making a certain amount of money that is going to count towards my high three, and then towards the end of my career I move to a certain place or I take a lesser position and earn less money. Is that going to be detrimental to my overall high three? And the answer is no. So once you establish what that high three is, it could be your first three years, middle three years, typically with pay raises, step increases along the way. Typically the last three years are what are utilized for your high three. But it doesn't have to be if your highest three years or high as 336 month period was in the middle of your career and you took lesser positions or moved to a place where the pay wasn't as high based on the locality adjustment, that is not going to negatively affect your high three, your high three has been set. So once it's set, it's not going to decrease. You can only increase it down the road if you have a new 36 month period or three year period, consecutive three year period, that would increase your high three.

Val Majewski:
You're not just cherry picking the top three years or top 36 months. It has to be a 36 month consecutive period. So if that's you if you're thinking, well, what if I take a lesser position? Do I have to continually increase my salary over time? Do I have to keep that level for a certain period? Will it will it decrease my high three if I move somewhere or took a lesser spot? No. If you've already established your high three and you're satisfied with it and you took a lesser spot, it is not going to decrease your high three. But let's look now at the calculation. So the whole point of this episode is about the calculation, because that was the first question that I got asked. And then these other follow up questions came after that. But the question was, if I took a job and I was only on a certain salary, a higher position, higher locality adjustment for just a couple of months. Do I need to be in that position? Do I need to be there for a certain period of time in order for it to count for my high three? And the answer is no. It's going to be weighted along the way. So if you're only there a couple of months, it's not going to be like, Well, I'm going to count that as one year of my three year period. It's month by month.

Val Majewski:
In fact, if we dive into the details, it's actually months and days. It goes down to months and days that you were at that position, at that salary. And there's a weighting system involved in order to calculate the high three. So every little bit that you earn is going to count. Now, to keep the math easy. I got round numbers and round service time. In my chart here. So I'm not trying to go into the weeds and in deep about months and days, if you do need to service time and you find out you have very specific numbers, we can go over those and we can find out exactly what your current high three is. But if you want to do some ball parking yourself and you have a roundabout idea of the salary that you made and the amount of months you were at that salary before seeing a pay increase. Here's an example of how to calculate that, and I'm keeping it fairly easy to understand. So let's say I had five different salaries, five different total base pays plus locality over the past three years, or this was my highest consecutive three year period. I had 85,000. I was there for eight months at that amount. I had 90,000. I was there for six months. I bumped up to 95,000 for a year and one month increased to 100,000 for two months and got a pay final pay raise in this 636 month period to 105,000. I was there for the final seven months.

Val Majewski:
Now, the way that I did this and there's numerous ways you can calculate this, but the way that I did it was using simple math. So 85,000, if I'm looking at it from a 36 month period, I want to find the average of that high 36 month period. I'll take 85,000, multiply it by eight months, got 680, 90,000, multiply it by six months, got 540,000 and so on and so forth all the way down the line. Now once I have all of those totals and I add all of that up, I am going to divide that sum by the 36 months to get my calculated or weighted high three based upon this 36 month period. The high three in this situation is $94,166.67 after adding it all up and dividing by 36. Now, obviously, this is easier to do because I've got round numbers when it comes to the duration of time that I spent at this income level. But if you had eight months and a few days and six months and 30 days and one year and one month and five days and so on and so forth. It's going to be a little more difficult to calculate. We can certainly do that. But to keep it ballpark, to keep it round when it comes to round numbers. This is an easy way to do it and divide it by months or in two month periods. Like I said, 85,008 months and 90,006 months.

Val Majewski:
And so on sum the total divide by 36. You're going to get your calculated high three. Now, some people just do it with their most recent three years, and round that way you're going to get the more detailed you get, the more accurate of a number you're going to have when it comes to your high three. So if you want to do this at home, if you want to figure out your high three on your own, you can do it this way. If you need assistance, reach out to us. Go to our website Federal retirement show dot com. Complete the form on there and we will be in touch to answer your questions. Go over your personal situation. Whatever it is that you're looking for, we can assist with. But when it comes to calculating your high three, you can use something similar to the chart that I have here. Or again, reach out to us. We'd be happy to help. So I hope you found that information valuable. Hope you had questions similar to the federal employees I've been recently talking to, and they answered this episode, answered those questions. If you have any further ones. Like I said, visit our website. FederalRetirementShow.com, fill out the form. We will be in touch and answer those questions. Get you the help that you're looking for. Again, my name is Val Majeski. I appreciate you joining me and look forward to seeing you on a future episode.

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