Pension Calculation Formula: How a Defined-Benefit Pension Is Computed (FERS, Military, Private)
The one formula behind almost every defined-benefit pension, with worked examples for FERS, military retired pay and a private plan, and the adjustments that change the final check.
Most defined-benefit pensions use one formula: multiplier × years of service × final average salary. FERS pays 1% of the high-3 average salary per year (1.1% at 62 or later with 20 years) (OPM); military retired pay is 2.5% per year of the High-3 (2.0% under the Blended Retirement System) (10 U.S.C. §1409). Thirty FERS years on a $100,000 high-3 at 62 pays $33,000 a year.
Last updated 2026-11-04. Sources are linked next to each figure and listed at the end.
The formula
Annual pension = benefit multiplier × years of service × final average salary, then reduced for early retirement and for any survivor benefit you elect. The plan document defines each part: which salary counts (base pay or including overtime), how many years are averaged (often the highest 3 or 5), and how partial years are counted.
Three worked examples (computed)
| Plan and case | Multiplier | Years | Salary base | Annual pension |
|---|---|---|---|---|
| FERS, retire at 62 with 30 years | 1.1% | 30 | $100,000 high-3 | $33,000 |
| FERS, retire at 57 (MRA) with 30 years | 1.0% | 30 | $100,000 high-3 | $30,000 |
| FERS at 62, full survivor benefit elected | 1.1%, less 10% | 30 | $100,000 high-3 | $29,700 |
| FERS special provisions (law enforcement), 50 with 25 years | 1.7% for 20 yrs + 1% after | 25 | $100,000 high-3 | $39,000 |
| Military High-3, 20 years | 2.5% | 20 | $8,000/mo High-3 | $48,000 |
| Military Blended Retirement System, 20 years | 2.0% | 20 | $8,000/mo High-3 | $38,400 |
| Military High-3, 30 years | 2.5% | 30 | $10,000/mo High-3 | $90,000 |
| Hypothetical private plan | 1.5% | 25 | $80,000 final average | $30,000 |
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FERS (federal civilian employees)
The basic annuity is 1% of the high-3 average salary for each year of service, or 1.1% if you retire at 62 or later with at least 20 years; law-enforcement officers, firefighters and air traffic controllers under special provisions get 1.7% for the first 20 years and 1% after (OPM; 5 U.S.C. §8415). Retiring at the minimum retirement age with 10 to 29 years cuts the annuity by 5/12 of 1% for each month under 62; a full survivor benefit costs 10%, a partial one 5%. Run your own case in the FERS pension calculator.
Military retired pay
The multiplier is 2.5% per year of service applied to the average of the highest 36 months of basic pay (High-3); members under the Blended Retirement System (joined on or after January 1, 2018, or opted in) get 2.0% per year (10 U.S.C. §1409(b)). Members who took the Career Status Bonus (REDUX) lose 1 point per year under 30 until 62. See the military retirement pay calculator.
Private and state plans
Private and state and local plans use the same structure with their own multiplier (often 1% to 2.5%), salary definition and early-retirement reductions; your plan’s summary plan description states them. Cash-balance plans instead credit a percentage of pay plus interest to a notional account.
What else changes the check
- Cost-of-living adjustments. Some plans raise payments with inflation, some by a fixed or capped amount, many private plans not at all.
- Survivor benefits. A joint-and-survivor option lowers your payment so a spouse keeps receiving part of it.
- Lump sum or annuity. Some plans offer a lump sum instead; compare them in pension lump sum vs annuity.
- Tax. Pension income is taxable, except the part that returns your own after-tax contributions (IRS Pub. 575); states differ widely, see pension tax by state.
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Run the free retirement planner →Common questions
What is the pension calculation formula?
Benefit multiplier × years of service × final average salary, then reduced for early retirement and any survivor benefit. Example: 1.5% × 25 years × $80,000 = $30,000 a year.
How is a FERS pension calculated?
1% of your high-3 average salary per year of service, or 1.1% if you retire at 62 or later with 20 or more years (OPM). 30 years on a $100,000 high-3: $30,000 a year at 1%, $33,000 at 1.1%.
How is military retirement pay calculated?
2.5% × years of service × the High-3 average of basic pay; 2.0% under the Blended Retirement System (10 U.S.C. §1409). Twenty years on an $8,000 monthly High-3 pays $4,000 a month ($3,200 under BRS).
Is a pension taxable?
Yes, as ordinary income, except the part of each payment that returns your own after-tax contributions (IRS Pub. 575). Some states exempt some or all pension income.
Sources
- OPM: FERS computation
- 5 U.S.C. §8415 (FERS annuity computation)
- 10 U.S.C. §1409 (military retired pay multiplier)
- IRS Publication 575 (pension and annuity income)
FERS and military figures are computed by frontend/js/calc/fers-pension-2026.js and military-retired-pay-2026.js, the engines of the FERS and military pay calculators; the rules are quoted from OPM and the statutes above, read on 2026-11-04. QuantCalc is calculation software, not tax, legal, insurance or investment advice.
Related
FERS pension calculator → Military retirement pay calculator → Pension lump sum vs annuity → Annuities explained → Pension tax by state →