Understanding Annuity

If you’re planning to retire — however near or far ahead that day may be — you’ll want to be able to answer three questions that will help you to determine what your annuity will be.

First question: What is your high-3? It’s the average of your highest rates of basic pay over any three consecutive years of creditable civilian service, with each pay rate weighted by the length of time it was received. That three-year period starts and ends on the dates that produce the highest average pay.

For most federal employees, those highest three years of basic pay will be based on the 78 bi-weekly pay periods immediately before the day you retire. If that’s the case for you, just subtract three years from the date you plan to retire. If it isn’t, you’ll have to backtrack to find the numbers you need.

Second question: What is basic pay? It’s the amount of money from which retirement deductions are taken. For most employees, it’s your salary, which includes locality pay if applicable. For some employees, it will also include such things as night and/or environmental differentials and premium pay.

However, basic pay doesn’t include such things as bonuses, cash awards, holiday pay, travel pay outside the regular tour of duty, or lump-sum payments covering unused hours of annual leave.

Third question: Why is your high-3 important? It’s important because it’s one of the factors used to determine the amount of your annuity when you retire. The other two factors are a multiplier (which is different for CSRS and FERS) and your years and full months of service.

Author:  Uknown

Source: FEDweek LLC

Retrieved from: fedweek

FINRA Compliance Reviewed by Red Oak: 794957

Fixed Annuities are long term insurance contacts and there is a surrender charge imposed generally during the first 5 to 7 years that you own the annuity contract. Withdrawals prior to age 59-1/2 may result in a 10% IRS tax penalty, in addition to any ordinary income tax. Any guarantees of the annuity are backed by the financial strength of the underlying insurance company.

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