Everybody knows what the high-three is – right? – but who knows how to calculate the high-three?
Definition. The high-three is the highest average salary obtained by averaging an employee’s salary over a consecutive 36-month period, with each salary weighted for the time it was in effect.
In calculating the high-three, use basic salary only, with basic salary defined as compensation from which retirement deductions are taken – this would include locality pay but would omit overtime, incentive awards, etc. Also, each ending date for a salary is treated as starting date for the next salary. Finally, because service time is counted through, not to, be sure to add one day to the time span for the final salary, while subtracting one day from the span of the earliest (i.e., first) salary.
1. Divide each salary by 360 ( year length mandated by statute). Note the results.
2. Multiply the results of 1. by the number of days the salary was in effect. Again, note the results.
3. After doing the above for all salaries, add the results of 2.
4. Divide by 3. This is the high-three average salary.
Example: Final salary = $85,631. Retire date = March 5, 2010.
Salary Divided by 360 From To Days Total
$85,631 $237.86 1/3/10 3/5/10 63 $14,985,42
82,044 227.90 2/18/09 1/3/10 315 71,788.50
79,892 221.92 4/21/08 2/18/09 297 65,910.90
77,550 215.41 1/2/08 4/21/08 109 23,480.42
76,123 211.45 3/6/07 1/2/08 296 62,590.02 $238,755.26
$238,755.26 / 3 = $79,585 (rounded)
The above procedure is, admittedly, tedious and error-prone. A far faster, easier, and just as accurate way to calculate the high-three is to use the software at www.fedretire.us (#7 on the menu).