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Your military retired income is a
valuable retirement asset. It is
a defined benefit retirement
plan that pays a percent of your
active duty base pay for the
rest of your life, depending on the retirement system applicable to you. The amount is
adjusted annually for inflation.
There are now three different
retirement systems in effect,
depending on the date on which
you first became a member
of the military.
| Military Retirement Systems |
| Final Pay System |
- Applies to members who first entered active duty before September 8, 1980.
- To calculate retired income, multiply years of service by 2.5 percent. Multiply the result by your final base pay. Allowances for housing,
subsistence or other special income are not included in any retired income calculation.
- Under this system, members retiring at 20 years receive 50 percent of their base pay.
Those who serve beyond 30 years will receive 2.5 percent for each year and a longevity increase at 32, 34 and 36 years.
This equals, but is not limited to, 100 percent for 40 years.
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| High-3 Retirement
System |
- Applies to members who first entered active duty on or after September 8, 1980,
but before August 1, 1986.
- Multiply years of service by 2.5 percent, which equals 50 percent at 20 years and
75 percent at 30 years, the same as in the Final Pay System.
- Multiply the result by the average base pay for the highest 36 months of the
servicemember's career, which typically but not always will be the final 3 years of service.
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| CSB/REDUX
Option System |
- Three-phased retirement program designed to encourage servicemembers to remain
on active duty past 20 years of service. Results in reduced retirement pay, but
it includes a $30,000 Career Status Bonus at the 15th year of active duty.
- Servicemembers have a choice of High-3 or CSB/REDUX if they entered active duty after
August 1, 1986.
- At the 15th year of service, these servicemembers have two options:
- Take the pre-1986 High-3 Retirement System.
- Receive a one-time lump sum Career Status Bonus and have their retired
income calculated under the new system.
If the servicemember chooses the CSB/REDUX option, two levels of multipliers are used
to calculate retired pay.
- Each of the first 20 years of service is equal to 2.0 percent.
- Each year from 20 to 30 years of service is equal to 3.5 percent.
A servicemember retiring at 20 years, for example, will receive only 40 percent of base pay in
retirement. But the longer the servicemember remains on active duty, the higher the multiple,
until retired pay at 30 years equals 75 percent of base pay, the same as under
High-3. Consult with your financial planning professional when making this decision
to ensure the most appropriate choice.
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Career Status Bonus
Although retired income under
CSB/REDUX is less than under
High-3, the $30,000 bonus
payable at 15 years may be a
financial incentive to choose the
lower retired pay. The $30,000
is subject to federal income tax. To reduce federal
income taxes, you can contribute
to an IRA if you are otherwise
eligible and to the Thrift
Savings Plan which is now available
to servicemembers.
Additional Information
National Guard and Reserve
duty personnel are eligible for
retirement pay after completing
at least 20 years of service and
reaching age 60. The amount
of pay is based on a point system
geared to the type of active and
inactive duty performed.
Under the Fiscal Year (FY) 2009 National Defense Authorization Act,
National Guard and Reserve members with 20 or more years may be eligible
to receive retired pay prior to age 60. Retirement eligible personnel
are able to reduce their retirement age by three months for every 90
consecutive days spent mobilized. Provisions of the law include:
- Involuntary mobilization or voluntary active duty in support of contingency operations,
to include deployment for war or national emergency.
- Active duty outside the continental United States is not required.
- Training, operational support and school tours are generally included in active duty time.
- Law applies to deployed time served after January 28, 2008.
You will receive retirement
income as long as you live. It will
be periodically adjusted to the
cost of living index. Upon your
death, payments to your spouse and children
will be made only if you have
made arrangements through the
Survivor Benefit Plan (SBP) before
you retire.
When reviewing projected
military retired pay, consider
whether you will choose to
participate in any military
financial programs available
to veterans. Allotments for participating in
certain programs, such as the SBP,
are deducted from your military retired pay.
You will need to subtract these
payments from the calculated
retirement benefit amount.
Remember, too, that the provisions
and rules of military
pensions and other public sector
plans may differ from those of
private corporations. You may
want to seek legal and tax advice
regarding your specific situation.
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Basic Money Management
Basic Money Management
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