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Same Job, Same Grade, Different Retirement: How Locality Pay Changes Everything
Aug 18, 2026
Your federal salary isn't just about your GS grade and step — your locality pay area can mean a difference of nearly $18,000 a year compared to a colleague at the same grade in a different part of the country. But what most federal employees don't realize is how directly that gap carries over into retirement.
In this video, I break down the 2026 locality pay rates, compare the highest and lowest paying areas side by side, and walk through exactly how locality pay feeds into your high-3 average salary and your FERS annuity. Two employees with identical careers can retire with a difference of over $5,000 a year in retirement income — permanently — based solely on where they worked.
I also cover the strategic angle: how late-career moves between locality areas can raise or lower your annuity, why your high-3 doesn't have to be your final three years, and what the 2027 pay outlook means for these gaps going forward.
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0:00
Hello everyone, Ian Smith here with
0:02
fedsmith.com.
0:04
If you're new to the channel or you're
0:06
not familiar with FedSmith, we're an
0:08
online news service for current and
0:10
former federal employees. Our mission is
0:12
to bring you timely information that
0:15
impacts your life and your career as a
0:16
federal employee. And today I want to
0:18
talk to you about the significance of
0:20
locality pay. Here's something that a
0:23
lot of federal employees don't think
0:24
about until it's too late. Take two GS13
0:29
step five federal employees, same grade,
0:31
same step, same number of years on the
0:33
job, retiring at the exact same day or
0:37
on the exact same day, I should say. But
0:39
one of them is going to collect over
0:41
$5,300 more per year in retirement than
0:45
the other. And it's not because they
0:46
worked harder. It's not because they had
0:48
a better performance review. The only
0:50
difference is their zip code. That's the
0:53
power of locality pay. Today, I'm going
0:55
to break down exactly how it works, what
0:56
it means for your retirement, and what
0:58
you can actually do about it.
1:01
Here's a quick refresher for anyone who
1:03
needs it. If you're on the general
1:05
schedule, your total salary is your base
1:07
pay plus a locality adjustment. That
1:10
adjustment is a percentage that varies
1:12
depending on where your official work
1:14
site is located. It's based on how
1:16
federal pay compares to private sector
1:18
pay in your area. It's not based on cost
1:21
cost of living which is a common
1:23
misconception. Right now there are 58
1:25
locality pay areas. The lowest is the
1:28
rest of US category at just over 17%.
1:31
And the highest is San Jose San
1:34
Francisco at over 46%.
1:37
And here's the key detail. Locality pay
1:40
counts as basic pay. That means it feeds
1:42
directly into your retirement
1:44
calculation, your life insurance, your
1:46
leave payouts, all of it. Let's take a
1:48
look at the numbers. These are the 10
1:50
highest paying locality areas for 2026
1:54
using a GS13 step five as our benchmark.
1:58
San Jose, San Francisco is way out in
2:01
front at over 46%. And that translates
2:04
to nearly $151,000
2:06
a year at GS13 step 5. New York, LA,
2:10
Houston, and the DC area round out the
2:12
top five. The average salary across
2:15
these top 10 areas comes to about
2:17
$139,000.
2:19
And keep that number in your head. We're
2:21
going to compare it in a moment. Now,
2:23
here's the other end of the spectrum.
2:25
The rest of the US category, which still
2:27
covers a large share of the federal
2:28
workforce, sits at just over 17%. The
2:32
bottom 10 areas are all clustered
2:34
between 17 and 18% and their salaries
2:37
are all tightly grouped around $121,000.
2:40
The average across these bottom 10 is
2:42
about 121,300.
2:45
Now, compare that to the top 10 average
2:48
of 139,000 and you're looking at a gap
2:51
of nearly $18,000 a year at the same
2:54
grade and step.
2:57
Let's put the gap in real terms. On
2:59
average, a GS13 step five in one of the
3:02
top 10 locality areas earns almost
3:05
$18,000 more per year than the same
3:08
grade and step in the bottom 10 area.
3:10
Over five years, that's roughly $90,000.
3:14
And if you compare the absolute
3:15
extremes, San Jose versus the rest of
3:18
the US, the annual gap is over $30,000.
3:22
And over five years, that's more than
3:24
$150,000 in additional earnings at the
3:27
same grade and step. That alone is
3:30
significant. But where this really hits
3:32
home is what happens when you retire.
3:35
Here's where it gets serious. Your FUR's
3:37
retirement annuity is calculated using a
3:39
simple formula. 1% times your years of
3:42
service times your high three average
3:45
salary. If you retire at age 62 or older
3:48
with at least 20 years, that multiplier
3:51
goes up to 1.1%.
3:53
Your high three is the average of those
3:56
highest three consecutive years of basic
3:58
pay. And because locality pay is
4:00
included in basic pay, it flows directly
4:03
into that high three number. A higher
4:05
locality percentage means a higher high
4:08
three, which means a higher annuity. And
4:11
that annuity is what you collect for the
4:13
rest of your life. Let's run the
4:15
retirement math. Using the top 10 and
4:18
bottom 10 averages at 1% times 30 years
4:21
of service, the employee in a top 10
4:23
locality area retires with an annuity of
4:26
about 41,800 a year. The bottom 10
4:30
employee gets about 36,400.
4:33
That's a difference of nearly $5,400
4:36
a year in retirement income. And
4:38
remember, this is permanent. Once your
4:40
annuity is calculated, it doesn't change
4:42
based on where you move afterwards. So,
4:45
if you collect that annuity for 20
4:46
years, the employee in the higher
4:48
locality area receives over $107,000
4:52
more in total retirement payments.
4:55
Same grade, same step, same years of
4:57
service. So, what can you actually do
4:59
with this information? There are a few
5:02
important things to know. First, your
5:04
high three does not have to be your
5:06
final three years. It's your highest
5:08
three consecutive years of basic pay
5:10
whenever those occurred in your federal
5:12
career. So if you spent time in a higher
5:15
locality area early in your career,
5:18
those years might still be your high
5:19
three. Second, and this is the strategic
5:22
play, a late career move to a higher
5:24
locality area can raise your high three
5:27
and permanently increase your retirement
5:29
annuity. On the flip side, transferring
5:32
to a lower locality area in the years
5:34
leading up to retirement can actually
5:36
drag your high three down if those
5:38
become your highest three years. And
5:41
here's the part that surprises a lot of
5:42
people. Once your annuities computed,
5:44
it's locked in. Where you live in after
5:47
retirement has no effect on it. So, some
5:50
federal employees intentionally work
5:52
their final years in a high locality
5:55
area to maximize their high three, then
5:57
retire and move to a lower cost of
5:59
living area where that money stretches
6:00
further. It's a legitimate strategy
6:02
worth thinking about if you're planning
6:05
your endgame. And there's one other
6:07
thing that's worth keeping in mind as we
6:09
go forward. I did a video on this
6:12
recently, which I'll leave a link to in
6:14
the description, so I'll keep this
6:16
brief, but President Trump is expected
6:18
to issue an alternative pay plan before
6:21
the end of August. And the White House's
6:24
budget proposal for 2027 was silent on
6:27
the issue of a pay raise for civilian
6:29
federal employees. So presumably that
6:32
means there will be a pay freeze next
6:34
year for the federal workforce.
6:37
However, last year we were in the exact
6:39
same situation because there was no
6:41
raise put forth in the budget. But then
6:43
when the alternative pay plan letter
6:45
came out, President Trump at ended up
6:48
proposing a 1% across the board pay
6:50
raise for most federal employees with no
6:53
locality increase. And so a similar
6:56
outcome is possible this year.
6:58
Additionally, the budget proposal
7:00
includes a pretty significant raise for
7:03
members of the military, a 7% pay raise.
7:06
And so far, Congress hasn't moved to
7:08
override any of this. But stay tuned to
7:11
FedSmith because when that U alternative
7:15
pay plan letter does come out, we'll be
7:17
putting out um a lot of information on
7:19
it, letting you know all the details as
7:20
soon as it's available. So, here are
7:23
your takeaways from this video. Locality
7:25
pay isn't just a line on your payub.
7:28
It's one of the biggest factors in your
7:30
in what your retirement check ultimately
7:32
will look like. The gap between the
7:34
highest and lowest locality areas
7:36
translates to roughly $18,000 a year in
7:38
salary and over $5,000 a year in your
7:42
retirement annuity. If you're years away
7:44
from retirement, this is worth factoring
7:46
into any decisions about transfers or
7:48
relocations. And if you're getting
7:50
close, take a hard look at your high
7:52
three and understand how your locality
7:54
rate is affecting it. I've included some
7:57
links in the description to related
7:59
articles on fedsmith.com that go into
8:01
more details. So, please check those
8:02
out. Thank you for watching and if you
8:05
found this video helpful, please
8:07
subscribe so you don't miss the next
8:08
one. Have a good day.
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