2027 pay freeze: retire now or wait?

1. What the letter actually says

Under the Federal Employees Pay Comparability Act, General Schedule base pay adjusts each January by a statutory formula tied to the Employment Cost Index, and locality pay adjusts to narrow the measured gap with non-federal pay. The President can displace those automatic adjustments only by transmitting an alternative plan to Congress before September 1, citing “national emergency or serious economic conditions affecting the general welfare.” Every president since the 1990s has done so, which is why the alternative plan letter, not the formula, is what actually sets federal pay.

The 2027 letter, transmitted August 26, 2026 and printed as House Document 119-189, does four things:

• Base pay and locality pay for civilian federal employees will not change from the 2026 rates. That is a zero across-the-board adjustment and a zero locality adjustment for the General Schedule and the other statutory pay systems the letter covers.
• Law enforcement personnel get 3.8%, implemented separately through OPM’s special-rate authority. OPM will determine which positions qualify, as it did for the 2026 law enforcement increase.
• Members of the Armed Forces get 5 to 7 percent, commensurate with rank and experience, through the defense authorization process.
• The statutory formula it displaces would have produced a 3.1% across-the-board base increase plus locality increases averaging 20.6%, at a first-year cost the letter puts at roughly $26 billion. That is the “serious economic conditions” rationale.

Two things the letter does not do. It does not touch anything already earned: your current salary, your service credit, your FERS pension formula, or your TSP balance. And it is not yet final. Congress can override an alternative plan through the appropriations process. Democrats have proposed a 4.1% raise through the FAIR Act, but House appropriators omitted a civilian raise from the 2027 bill, and in the years where a president’s plan called for a freeze or a token raise, Congress has generally let it stand. The 2027 pay tables become official when the President signs the annual pay executive order, normally in the last two weeks of December.

2. What a freeze does to the FERS formula

Your FERS annuity is built from three numbers: your high-3 average salary, your multiplier, and your years of creditable service. The formula is simple and the freeze touches exactly one term.

The high-3 is the average of your highest 36 consecutive months of basic pay, which for General Schedule employees includes locality pay. In a normal year, staying does two things at once: it adds a year of service credit, and it lifts the high-3 as the newest, highest year rolls into the three-year window and the oldest year rolls out. The second effect is usually about a third of the raise, because only one of the three years in the window changes.

In 2027, staying does only the first thing. Your high-3 is the same on December 31, 2027 as it was on January 1, 2027, unless you are promoted, receive a within-grade step increase, or move to a higher locality area. So the marginal value of the year is your multiplier times your high-3, once. On a $110,000 high-3 with the 1.0% multiplier, that is $1,100 a year of additional pension, for life. Real money, but noticeably less than the same year would have added with a raise inside it.

Two things the freeze does not touch are worth stating plainly, because both get muddled in the rumors that follow every alternative plan letter. First, retiree COLAs. Those are set by the CPI-W under the FERS and CSRS COLA rules, not by federal pay adjustments, and FERS retirees do not receive a COLA at all until age 62 except for disability and survivor annuitants. A pay freeze has no effect on the 2027 retiree COLA. Second, the FERS Special Retirement Supplement. The supplement is computed from your estimated Social Security benefit at 62 and your years of FERS service. Pay is not in that formula either.

3. Two frozen years inside your high-3 window

If you retire at the end of 2026 or during 2027, your high-3 window spans roughly 2024 through 2027. Here is what each of those years contributed to salary growth for a General Schedule employee who received no promotion or step increase:

The practical consequence: for someone whose window is 2025–2027, two of the three years contribute almost nothing. Your high-3 is barely above your 2025 salary. Put differently, the high-3 you have today is very close to the high-3 you will have at the end of 2027, so “waiting for my high-3 to catch up” is not a reason to stay this particular year.

There is one important exception. If you are still receiving within-grade step increases, your basic pay rises on your step schedule regardless of the annual adjustment. A GS-13 moving from step 7 to step 8 picks up roughly 3% of base pay. If your next step falls inside 2027, the freeze is a smaller factor for you than for a colleague sitting at step 10. Promotions work the same way. Check your step date before you assume your high-3 is frozen.

4. Stay or go: run your numbers

The tool below holds your high-3 flat, adds one year of service, and sets the pension gained against the annuity you give up by staying. It detects the 1.1% multiplier milestone automatically. Enter your own figures; the defaults are a GS-13/14 range case.

One thing the tool deliberately leaves out: your salary. Staying a year means you draw a full paycheck instead of a pension, and for most people the paycheck is larger. That is real, and if you need the income, it settles the question by itself. But it is not a retirement-math argument; it is an employment decision. The tool isolates the pension consequence so you can see it clearly before you weigh it against everything else.

5. Five worked cases

All five use a $110,000 high-3 and the standard FERS computation. The supplement estimate uses OPM’s method: your Social Security benefit at 62, multiplied by your years of FERS service divided by 40. A $2,000 monthly Social Security estimate is assumed where the supplement applies.

Case A: age 57 with 30 years (MRA + 30)

Immediate, unreduced annuity today: 1.0% × 30 × $110,000 = $33,000 a year, plus the supplement: $2,000 × 30/40 = $1,500 a month, or $18,000 a year until 62. Stay one more year and the pension becomes 1.0% × 31 × $110,000 = $34,100, a gain of $1,100 a year. The cost of that gain is one year of pension ($33,000) and one year of supplement ($18,000): $51,000 forgone to buy $1,100 a year. Break-even is 46 years. The freeze makes no difference here; this was never a stay-for-the-pension case. Stay only if you want the job or need the paycheck.

Case B: age 60 with 20 years (60 + 20)

Immediate, unreduced annuity: 1.0% × 20 × $110,000 = $22,000, plus a supplement of $2,000 × 20/40 = $1,000 a month ($12,000 a year) until 62. Stay one year: $23,100, a gain of $1,100, for $34,000 forgone. Break-even 31 years. But look two years out: at 62 with 22 years you cross into the 1.1% multiplier. 1.1% × 22 × $110,000 = $26,620, a gain of $4,620 a year over retiring today. The cost is two years of pension ($44,000) and two years of supplement ($24,000): $68,000 to buy $4,620 a year, a break-even of about 14.7 years, before COLA. This is the case the freeze actually affects. In a raise year the two-year wait would also lift the high-3; under the freeze it doesn’t, so the break-even stretches. Still defensible if you expect a long retirement and like the work. Not compelling.

Case C: age 61 with 24 years

Eligible for an unreduced annuity under 60 + 20: 1.0% × 24 × $110,000 = $26,400, plus a supplement of $1,200 a month for one year. Stay one year: at 62 with 25 years the multiplier flips. 1.1% × 25 × $110,000 = $30,250, a gain of $3,850 a year, for life, on a cost of $26,400 pension plus $14,400 supplement: $40,800. Break-even 10.6 years, and the extra $3,850 grows with every COLA from age 62 on. Wait. This is the milestone case and the freeze does not change it. Nothing in the pay letter can dilute a 10% permanent increase in your multiplier applied to every year you ever worked.

Case D: age 62 with 19 years

Retire today: 1.0% × 19 × $110,000 = $20,900. No supplement (it ends at 62 regardless). Stay one year: 63 with 20 years, and because you now have 20 years at 62 or later, the 1.1% multiplier applies to all of them. 1.1% × 20 × $110,000 = $24,200, a gain of $3,300 a year for $20,900 forgone. Break-even 6.3 years. Wait. The 20-year threshold is the whole decision, and a freeze cannot move it.

Case E: age 63 with 32 years

Retire today: 1.1% × 32 × $110,000 = $38,720. Stay one year: 1.1% × 33 × $110,000 = $39,930, a gain of $1,210 for $38,720 forgone. Break-even 32 years. You are past every milestone; the only thing another year buys is one more year of the 1.1% multiplier on a frozen salary. Go, unless you want to work. This is also the profile most susceptible to one-more-year syndrome, where the deciding factor quietly becomes reassurance rather than arithmetic.

The pattern is unmistakable. In every case, the answer is driven by whether a milestone (20 years, age 62, or both) sits inside the waiting period. The freeze shaves a little off the gain in Cases A, B, and E and changes the recommendation in none of them.

6. The FERS supplement changes the math

The FERS Special Retirement Supplement is the piece most retire-now-or-wait analyses leave out, and under a freeze it becomes the largest single number in the decision for anyone under 62. It is paid to employees who retire on an immediate, unreduced annuity: MRA with 30 years, age 60 with 20, or under VERA or discontinued service retirement once they reach MRA. It is not paid on an MRA+10 reduced annuity, and it stops the month you turn 62 whether or not you claim Social Security then.

Two consequences for the stay-or-go question:

• Every year you stay before 62 is a year of supplement you never receive. In Cases A through C above, the supplement is between a third and a half of the total amount forgone. Leaving it out makes waiting look far better than it is.
• The supplement is subject to the Social Security earnings test after you reach MRA. For 2026 the exempt amount is $24,480; earnings above it reduce the supplement by $1 for every $2. If your plan is to retire and then work part-time, the supplement may be smaller than the OPM estimate, which shrinks the cost of waiting. Model it both ways.

7. FEHB, sick leave, and the lump-sum payout

Three other levers are in play, and a freeze touches each differently.

The FEHB five-year rule

To carry FEHB into retirement you must have been enrolled for the five years immediately before your retirement date, or since your first opportunity to enroll. This has nothing to do with pay, but it is the one factor that can outweigh every pension calculation on this page. If your fifth year of continuous FEHB enrollment falls in 2027, you wait, full stop. Lifetime FEHB is worth more than any single year of pension the freeze could cost you.

Sick leave

Unused sick leave converts to service credit at 100% for FERS retirees: roughly 174 hours per month of credit. Sick leave cannot create eligibility, but it increases the years-of-service term in the formula. A year of additional sick-leave accrual (104 hours for a full-time employee) is about 0.6 months of credit, worth roughly $55 a year on a $110,000 high-3. Small, but it is one more thing the freeze does not touch, and if you already hold a large balance it belongs in your years-of-service figure when you use the tool above.

The annual leave lump sum

Your unused annual leave is paid out as a lump sum at the pay rates in effect for the periods when the leave would have been used. In a raise year, this is a real reason to retire in late December: leave that would have been used in January is paid at the new, higher rate. Under a 2027 freeze, the rate is the same on both sides of New Year’s Day, so for a 2026 retirement that particular edge disappears. The other timing factors in the December-vs-January decision still apply: annuity start date, the tax-year split of the lump sum, and the leave-year carryover cap. See also how the lump-sum payout is calculated.

8. If Congress overrides the freeze

It is worth knowing what would happen if Congress did act, because it tells you how much of your decision should ride on the freeze at all. Three scenarios:

Even the most generous scenario on the table adds a few hundred dollars a year to a pension after one more year of work. That is the honest size of the freeze’s effect on your decision: the difference between a freeze and a normal raise, over one year, is a few hundred dollars of annual pension. The difference between crossing the 1.1% milestone and not crossing it, in the same year, is several thousand. If you are making this decision on the freeze, you are looking at the wrong number.

Watch two dates. The August CPI-W release on September 11 and the September release on October 14 set the 2027 retiree COLA, which affects you only after you retire and, for FERS, only from 62. The pay executive order, normally in the last two weeks of December, is when the 2027 tables become final. If you are retiring on December 31 and the order changes the plan, you will already know before your separation date takes effect.

9. Who should wait, who should go

Wait through the freeze if any of these is true

• You reach 62 with 20 or more years during the wait. The 1.1% multiplier is a permanent 10% increase on your entire pension. No freeze offsets it.
• You reach 20 years of service at or after 62 during the wait. Same milestone, approached from the service side (Case D).
• Your fifth year of continuous FEHB enrollment falls inside the wait. This overrides every other consideration.
• You have a within-grade step increase or promotion due in 2027. Your high-3 is not actually frozen; rerun the numbers with the higher figure.
• You are under MRA or short of 30 years and would otherwise be taking an MRA+10 reduction. The 5%-per-year reduction dwarfs any freeze effect.

Go now if these describe you

• You are at MRA with 30 years, or 60 with 20, and 62 is more than two years away. The supplement you forgo by staying is larger than the pension you gain.
• You are already past 62 with 20 years. You have every multiplier you will ever get; a frozen year adds only its service credit.
• Your high-3 window is 2025–2027 and you are at step 10. Two frozen years mean your high-3 is not going to move.
• The main reason you are staying is that leaving feels premature. Read the case for one more year honestly before you decide it applies to you.

None of this reaches the question of whether you should keep working because you want to, or because your household needs the salary. Those are legitimate reasons and they belong in the decision. What they do not belong in is the pension arithmetic, which is why this guide keeps them separate.

10. Your checklist before you decide

• Get a current high-3 figure from your HR office, not an estimate from a pay table. Include locality and verify the 36-month window it used.
• Confirm creditable service to the day, including military deposit service, pre-1989 temporary service, and sick-leave conversion.
• Check your step date. If a step increase lands in 2027, your high-3 is not frozen.
• Run the tool above for retiring now, at 62, and at 20 years, whichever apply. Note the break-even for each.
• Add the supplement to the cost side for every year before 62, using OPM’s formula: Social Security estimate at 62 × FERS years ÷ 40.
• Verify your FEHB five-year date in writing with HR.
• Watch the December pay executive order. If Congress acts, rerun the numbers; the order of magnitude will not change, but you should know.
• Pick a separation date on purpose using the December-vs-January framework and the worst-days list, then file through the retirement application process with at least 90 days’ lead.

11. Frequently asked questions