Your FERS pension is a $2 million asset. Here's the math.

The number you're looking at is wrong

Not wrong as in inaccurate — wrong as in incomplete. OPM tells you your projected annual annuity. Let's say it comes back as $89,937 per year. That sounds solid. Maybe even generous. You file it away and get back to work.

But $89,937 per year isn't just income. It's a stream of guaranteed, inflation-adjusted cash flows from the U.S. government, starting the day you retire and continuing until you die. That stream has a present value — a single number representing what the entire future stream is worth in today's dollars. And when you compute it, the annual pension number becomes almost beside the point.

Finance does this calculation constantly. When a company issues bonds, analysts immediately convert the coupon payments to a present value. When Social Security releases benefit statements, researchers convert the lifetime stream into a wealth figure. When an insurance company sells a lifetime annuity, they price it as an asset.

Federal employees almost never do this for their own pension. They should. The number that comes out changes how you evaluate job offers, when you choose to retire, and whether you understand what you actually have.

The subject

Let's put a real scenario on the table. Our subject is a 55-year-old federal employee — GS-14, Step 9, working in the Washington-Baltimore-Arlington locality. They were hired in 1995, giving them 31 years of service today. Current salary: $182,295, which is the 2026 GS pay rate for that grade and step in that locality.

They plan to work to age 62, adding seven more years and reaching 38 total years of service. That's a meaningful threshold: 38 years at age 62 qualifies for the 1.1% accrual multiplier — a 10% bonus on every dollar of pension that FERS grants to employees who reach 62 with 20 or more years of service.

Assuming 2% annual pay raises over those seven years, the high-3 average salary at retirement will be $210,724. That's the number the pension formula runs on.

The pension formula

FERS pensions follow a straightforward formula: high-3 average salary × years of service × accrual rate. With the 1.1% multiplier in play:

$210,724 × 38 years × 1.1% = $89,937/year

That's $7,495 per month in nominal terms — the dollar amount on the first check in 2033. In today's purchasing power, accounting for seven years of 2% inflation between now and retirement, it's worth $78,296 per year, or $6,525 per month.

That's the number most people stop at. The annual annuity. The monthly check. It's not wrong. It's just not the whole picture.

Running the present value

The present value of any income stream answers a simple question: if you had to buy this cash flow in the market today, what would you pay for it?

For a FERS pension, the inputs are: the annual payment, the growth rate (FERS COLA), the discount rate, and how long the payments last. We use a 2% discount rate — matching the FERS COLA so that the pension maintains its real value over time. We project the payments to age 85, giving 23 years of retirement income.

When the growth rate and discount rate are equal — as they are here — the present value calculation resolves cleanly: the pension is worth roughly 22.5 times the starting annual payment. At $89,937 per year, that produces a present value at retirement of $2.04 million.

To put that in perspective: a private investment portfolio generating $89,937 per year at the standard 4% withdrawal rate would need to be worth $2.25 million. Your FERS pension delivers effectively the same income — guaranteed, without market risk, without sequence-of-returns risk, without the management overhead — for a present value of $2.04 million. And unlike a portfolio, it doesn't run out if you live past 85.

What leaving early actually costs

The present value framing becomes most useful when you compare scenarios. What if our subject left federal service today — at 55, with 31 years of service — instead of staying to 62?

Leaving now means a deferred annuity. The formula resets: the high-3 freezes at today's salary, the accrual rate drops to 1.0% (no 1.1% bonus, since the 62-with-20-years threshold won't be met through active service), and the payments don't start until age 62 anyway. The result: a deferred pension of $57,970 per year.

That's still real money. But run the same present value calculation on $57,970 per year for 23 years at 2%, and the deferred pension is worth approximately $1.31 million at age 62 — nearly $730,000 less than the $2.04 million pension earned by staying.

Those seven years generate $730,000 in pension value alone. On top of salary, TSP contributions, and the agency match, the financial case for staying through 62 is difficult to argue against — unless a private-sector offer clears a very high bar.

The TSP side of the equation

The pension is only part of the federal retirement picture. Our subject currently has $290,000 in their TSP, contributing 5% of salary to capture the full agency match — 5% total between employee and agency contributions. Over seven more years of growth and contributions, the TSP balance at retirement is projected at $663,465.

In today's dollars, that's worth $577,586 — the present value of the TSP balance discounted at 2% over seven years. At a 4% annual withdrawal rate, the TSP generates $23,104 per year in today's purchasing power.

Add the two streams together:

Income source	Annual (today's dollars)
FERS pension	$78,296
TSP at 4% withdrawal	$23,104
Total retirement income	$101,400

That's over $101,000 per year in today's purchasing power before Social Security. For someone currently earning $182,295, that's a replacement rate above 55% from pension and TSP alone — a number most private-sector workers spend careers trying to build toward.

The benefit no one prices

Federal retirees who meet the five-year enrollment requirement carry their FEHB health coverage into retirement. The government continues to pay approximately 72% of the premium — the same share as during active service. For a standard self-plus-one plan, that subsidy is worth roughly $9,500 per year.

Over a 23-year retirement, discounted at 2%, that health subsidy has a present value of approximately $174,000. It doesn't show up on a pay stub. It's not in the OPM letter. But it's real, and it disappears the moment you leave before retirement eligibility.

In the private sector, you're buying that coverage on the open market — typically at two to three times the retiree premium cost, without an employer covering 72 cents of every dollar.

The private-sector break-even

With all of this on the table, what would a private-sector offer actually need to pay to make leaving federal service the financially rational choice?

Running our subject's numbers through the HighThree break-even calculator: to replace the pension value and FEHB subsidy they'd leave behind, and to invest the difference at a 7% return and arrive at equivalent retirement wealth, a private job would need to pay $80,000 per year more than their current $182,295 federal salary.

That's a break-even salary of $262,295 — not a win, a floor. A private offer at $200,000 looks like a raise. Against this math, it isn't one.

Most private-sector job offers don't frame themselves this way. They compare gross salary to gross salary. That comparison is flattering to the private offer and systematically misleading. The honest comparison runs the full present value on both sides of the ledger.

Why this framing matters

The present value of a pension isn't an abstraction. It's the number that tells you what you're actually negotiating with when a recruiter calls. It's the number that explains why a $185,000 private offer can be worse than staying federal at $182,295. It's the number that quantifies what "seven more years" is worth before you decide to walk away.

Federal employees are, in a very real sense, sitting on multi-million-dollar retirement assets that most of them have never priced. A GS-14 who started in 1995 and works to 62 is not just a government worker with a decent pension. They are someone who has accumulated the economic equivalent of a $2 million bond portfolio, managed by the U.S. Treasury, paying out for the rest of their life.

That asset doesn't disappear if you leave federal service before retirement eligibility — but it shrinks dramatically. Leaving at 55 with 31 years takes a $2.04 million asset and reduces it to $1.31 million. The gap is $730,000, and no severance package, signing bonus, or short-term salary premium is going to close it.

Understanding what you have is the first step to making a rational decision about whether to keep it.