Marcus sat in the back row of a retirement seminar, pen tapping, with a question he'd clearly been rehearsing. His next step increase was eleven weeks after his planned retirement date. Was it worth staying?

The instructor gave the honest answer: maybe. It depends on the math, and the math is more interesting than most people expect.

What the High-3 Actually Measures

Your FERS or CSRS pension rests on two inputs: years of service and your "High-3." The High-3 is the average of your basic pay over the three consecutive years in which that average is highest. For most people, that's the final three years, because pay generally climbs over a career. It doesn't have to be, though.

Two details trip people up.

First, it's an average, not your final salary. If you earn $140,000 on your last day, your High-3 will be lower than that, since the earlier months in the window were at lower pay.

Second, "basic pay" is a defined term. It includes your base salary and locality pay for GS employees. It also includes some things people forget, like law enforcement availability pay. It leaves out overtime, bonuses, cash awards, and lump-sum payments for unused annual leave. Check OPM's guidance for how your specific pay components are treated.

From High-3 to a Monthly Check

Under FERS, the basic formula is 1% of your High-3 for each year of service. Retire at 62 or later with at least 20 years, and the multiplier rises to 1.1%.

Take a retiree with a High-3 of $130,000 and 30 years of service. At 1%, the annual pension is $39,000. At 1.1%, it's $42,900. That's a difference of nearly $4,000 a year from the age-62 rule alone.

CSRS works differently: 1.5% for the first five years, 1.75% for the next five, and 2% for every year beyond ten, capped at 80% of the High-3. The multipliers are more generous, but the High-3 still drives the result.

Every dollar added to your High-3 gets multiplied by your service years and your percentage. That multiplication is why small pay differences become meaningful pension differences.

How Step Increases Feed In

Within-grade increases, the step increases on the General Schedule, come on a fixed waiting schedule:

  • Steps 1 to 4: one year each
  • Steps 4 to 7: two years each
  • Steps 7 to 10: three years each

A full climb from step 1 to step 10 takes 18 years. Each step is worth roughly 3% of base pay, though the exact figure varies by grade and year. Current pay tables are on opm.gov.

The long waits at the upper steps matter. If you're at step 9 and your step 10 is a few months away, you can't speed it up. It arrives on its date, and the question becomes whether your retirement date should flex around it.

Running Marcus's Numbers

Let's work an illustration. Say Marcus earns $136,000 at step 9 and would earn $140,000 at step 10. We'll ignore earlier raises to keep the arithmetic clean, and the figures are made up for the example.

Suppose he retires eight months after his step increase. His final 36 months include 28 months at $136,000 and 8 months at $140,000.

The weighted average is about $136,900.

If he stays the full 36 months at step 10, his High-3 would be $140,000. That's a gap of roughly $3,100.

With 30 years of service at 1%, the pension difference is about $930 a year. At 1.1%, it's closer to $1,030. Over a 25-year retirement, that's more than $23,000 before any cost-of-living adjustments.

Now compare that to what staying costs. Working an extra year or so means another year of salary, TSP contributions with agency match, and another year of service credit. The step increase is rarely the whole story. It's one piece of a larger decision.

Timing: The Part Worth Planning

A step increase that lands six weeks before retirement barely nudges your High-3. One that lands two years before retirement counts for most of the window. So the practical question isn't just "when is my next step?" but "how much of my 36-month window will it influence?"

A few ways to think it through:

  • If the step falls in the last few months, its pension value is small. Weigh it against other factors, like age, health, or reaching the age-62 threshold for the 1.1% multiplier.
  • If the step falls well inside your final three years, it's already baked in. You don't need to wait for anything further.
  • If you're near the 62 threshold, that jump from 1% to 1.1% is usually worth far more than a single step increase. A 10% bigger multiplier beats a 3% bigger High-3.

Promotions, Details, and Other Wrinkles

A promotion can raise your High-3 faster than any step. A promotion generally gives you at least a two-step increase in the new grade's rate, so a late-career jump can move the average noticeably. That's one reason some employees compete for a higher grade in their final years.

Be careful with anything that temporarily boosts pay and then drops it. A temporary promotion counts if it falls within your High-3 window, but it's worth confirming how your agency records it.

Part-time schedules also matter. Your High-3 uses the full-time rate of pay, but your service credit is prorated for part-time time. That distinction can surprise people who cut back in their final years.

Don't forget sick leave. Unused sick leave converts to additional service time at retirement, which increases the years in your pension formula. It doesn't raise your High-3, but it does raise the number you multiply it by.

Where the TSP Fits

The pension is only one leg of the stool. The High-3 and your step history shape a predictable, inflation-adjusted income stream. Your TSP balance and any IRAs give you flexibility on top of it.

That relationship matters for timing. If your pension will cover most of your essential expenses, you may be comfortable drawing less from the TSP early on. If a step increase would add $1,000 a year to the pension but staying means another year of contributions and growth in the TSP, both effects belong in the same comparison.

Contribution limits, catch-up rules, and withdrawal options change over time, so check tsp.gov and irs.gov for current figures instead of relying on an article, including this one.

A Practical Checklist

Before you set a date, do these things:

  1. Pull your SF-50s and find the effective date of every step and grade change in the last four years.
  2. List your next scheduled step date and how many months of your High-3 window it would cover.
  3. Ask your agency HR or benefits office for a pension estimate at two or three different retirement dates.
  4. Compare the pension change with the cost of working longer, including TSP contributions and match.
  5. Check whether you're close to age 62, a minimum retirement age threshold, or 20 years of service, since those thresholds often matter more than a step.

As for Marcus, the numbers suggested his eleven-week wait would add very little to his pension. He retired on schedule. Your answer might be different, and that's the point. Run your own figures, because the High-3 rewards people who know exactly which months are in their window.