Last Updated on November 14, 2023 by Ben
Military Retirement Pay
Military retirement pay is a benefit paid to Military personnel who have retired from active duty. Military members can receive this monthly payment for a minimum of 20 years, or the length of their service if less than 20 years. The amount received varies depending on the military branch and rank that you served in and how long you were enlisted.
Military Retirement Pay – What Will My Military Pension Look Like?
Make sure that you know what your post-military pay looks like. Many people don’t think about the fact that they will no longer get housing allowances, welfare, or an increase in the cost of living. When you are looking at jobs after the military, be sure to consider that you will need more money before taxes because there is no more tax-free allowance.
Let’s clarify a couple of things:
- Let’s say you are retiring and choose the high-36 retirement program. You will not be choosing the final pay (for those who entered before September 8, 1980) or CSB/REDUX (for those who chose this option at the 15-year mark with a $30,000 payout).
- The online pension calculators do not lay hold of into consideration something important. The highest 36 months of payments will be used in the retirement calculation, but DFAS will use the High-36 method. If you retire after two years of TIG, a year of your lower paygrade goes into this calculation.
- If you retire after 20 years, then you will get two years’ pay. If you have worked for more than 20 years, then you will get more money. The standard of your highest 36 months’ pay will be multiplied by the service percentage multiplier. The service percentage multiplier starts at 50% at 20 years, and it increases by 2.5% for each whole year beyond that.
In my situation, They are retiring as an O-5 with two years TIG. In the online calculator, I got a monthly calculation of $4,231.40, but when they took other factors into account, it was $4,040.78 (both pre-tax figures). They desire that DFAS will give me an extra $200 per month, but I’m not expecting it.
Retired Pay Base
There are two ways to find your retired pay base. One is the final pay method, and one is the high-36 month average method. The final pay method is what it sounds like, your retired pay base will be equal to your final basic salary. The high-36 method is the standard of the highest 36 months of your salary divided by 36. This is when you finish the last three years of your service. You cannot use this time to make up for any other time you were not in the military. This is often called high-3.
The date of when you entered the military or the date of when you started wearing a uniform is used to determine how much money you get. The date that a service member first entered the military in any capacity is their date of entry to military service. It does not change. If you leave and come back, your date of entry does not change.
Some people have special circumstances that make it difficult to figure out how much their DIEMS is. These are some examples:
- The date of entry for Academy graduates who have never served before is the date they reported to the Service Academy. This was not when they graduated.
- You can start the ROTC scholarship or Senior ROTC program before you graduate high school. That means you are on a military track and will be in the military after high school.
- A person who enters the military for a second time after separating from the military will be given a disability rating based on when they enter back into service.
- The date of entry for soldiers who joined the military under the delayed entry program was when they go in for the delayed entry program, not when they originally reported working.
- For people who joined the Reserves part-time and then joined the active military, their entry date is when they first joined the Reserves.
The pay date is not the same as DIEMS. Also, pay date does not determine when you have creditable service for retirement – DIEMS only determines whether the retired pay base method applies.
Retired Pay Multiplier
For the Final Pay plan and the High-36 retired pay plan, each year of service is worth 2.5% towards the retirement multiplier. For example, 20 years of service equals a 50% multiplier. The years of service creditable are computed differently depending on whether you are retiring from full-time active duty or from a reserve career. These differences are explained under the Active Duty Retirement and Reserve Retirement pages.
REDUX is a plan that applies only to people who retire from the military. For those with less than 30 years of service, the multiplier is reduced by one percentage point for each year they have less than 30 years. This means that for every 20 years of work, you will get 40% of what you earned. This is discussed more fully on the Active Duty Retirement page.
For retirement disability programs, the multiplier will be the higher of (a) a disability percentage assigned by the Service at retirement not to exceed 75%, or (b) multiplying your years of service with the corresponding multiplier.
Computing Retired Military Pay
Final Pay Retirement System
You have to be in the military before September 7, 1980, to receive your retirement.
Under this system, your retired pay is computed by multiplying your final monthly base pay when you retire by 2.5% for every year of your service. This means you get 50% of your base pay if you retire with 20 years of service or 100% of your base pay if you retire after 40 years.
High 36 Retirement System
If you first entered the military between 1980 and 1986, you can choose to have a retirement plan. Choose the High 36 Retirement System.
The High 36 retirement system is almost the same as the Final Pay Retirement System, but it uses a different way of calculating your pay. The average of your three highest-paid years will be used instead.
CSB/REDUX Retirement System
If you bond in the military between August 1, 1986, and December 31, 2017, you can get CSB/REDUX Retirement System OR a High 36 system.
Under the CSB/REDUX system, your pension is based on the average of your highest 36-month base pay. It is similar to this above, but there are more differences. The CSB/REDUX system is for people who work at a job for 15 years. They get a “Career Status Bonus” when they reach that time. But then they get less money after they retire.
Under the CSB/REDUX, you will get a cash bonus. You will get $30K (about $21K after taxes). You also have to meet certain requirements. You must be pensioned for at least one year and have less than 30 years of service.
If you retire at a young age, your retirement will be less. If you retire at 20 years old, then the money from your retirement will be 40% of your base pay. But if you have 30 years in service and retire at 20 years old, then your retirement is 50% of your base pay.
If you serve for 30 years or more, this reduction does not happen.
Retirement is complicated. But it gets worse! There are many different retirement systems, and each one has an annual cost of living adjustment. This means that you could get more money on top of the course of your retirement than you expected (sometimes a lot more).
Each year, the COLA for the final payment and high 36 systems is determined by a number called the national Consumer Price Index. The COLA for the CSB/REDUX retirement system is the Consumer Price Index minus 1%. If you retire under the High 36, then your retirement check will increase by 1.7%. If you retire under CSB/REDUX, then your retirement check will only increase by 0.7%.
Note: One more thing happens to the Annual Cost of Living Adjustment for CSB/REDUX retirees. At age 62, the 1% reduction goes away so that CSB and REDUX retirees will get the same amount of money each month.
As you can see, it is complicated. Check with your employee’s office for more information.
Blended Retirement System (BRS)
If you consolidated in the military on January 1, 2018, or later, you are eligible for a new retirement system called BRS. Under this system, your pension will be 40% of your base pay after 20 years. The military will give you a bonus when you work for 12 years. You will also get money automatically put into your Thrift Savings Plan account. The TSP is like a savings account or 401(k) retirement plan. You’ll automatically pay 3% of your base pay to this TSP account. You can innovate how much you want to contribute to your retirement account. After you have been in for two years, the military will match up to 5% of what you contributed.
When you retire, you can either keep getting your full retirement, or you can get a lump-sum payment. If you take the lump sum and then stop working, your monthly retirement check will be smaller until you turn 67. You will have a lot of money saved in your TSP account. You can withdraw it, but you won’t have to pay taxes on the withdrawal if you are a certain age.
Taxes on Military Retirement Pay
Military Retirement Tax Withholdings
In the future, when you retire, your tax withholdings will depend on how you fill out the DD Form 2656-Data for Payment of Retired Personnel. So, this form tells DFAS where to send your pension after retirement. It also calculates your dependent data and tax withholdings, which is like an IRS Form W-4.
Within this form, you can ask DFAS to withhold more taxes at a higher rate. This might be helpful if you get a job after the military and earn a lot of money. This is also good for families with more dependents or exemptions that they are allowed to claim. The IRS has instruments on their website that you can use to figure out how much money the government will take from your paycheck every month.
Military Retirement Annual Tax Liability
However, your monthly withholding is not accurate. It only gives an idea of what you might owe. How much you pay in taxes depends on how much money you make outside of your military pension. It also depends on if you are supporting children and what deductions or credits for which you may be entitled to. When you do your yearly tax return, you are actually calculating how much money the government owes you for the taxes that they have already taken. You also need to know if there is more money coming to pay what they owe.
After you retire, it will be difficult at first. You might find yourself in a different tax situation than what you are used to now. If you do not feel secure doing this yourself, talk to a professional. They can help you figure out the best way to deal with your taxes. However, if you do this yourself, just remember that you might need to go back and do it again.
State Tax Withholdings for Military Retirement Pay
It is not much about state taxes. This is because most states do different things with military retirement pay, or they don’t tax it at all. There is 23 country that either doesn’t have an income tax or don’t tax military retirement pay, and above 20 that offer special considerations on pensions or military retirement income. Based on the state you live in, make a decision about your situation.
Other Withholdings from Your Military Pension
Once you’ve determined how much taxes you will need to take from your paycheck, make sure you sign up for programs like unemployment and health insurance.
- Survivor Benefit Plan- 6.5% of your pay is taken out before you get paid. This reduces the quantity of taxes you will owe.
- Tricare Prime is $23.55 for a single person or $47.10 for a family. The rates are subject to innovation every year, so please check the website.
- Tricare Dental – depends on where you live. The prices for a single-member plan are $30.29/month, and the prices for a family plan are $108.98/month.
- Here are tables on how much it costs to replace $400K in SGLI. If you are 42 years old, the monthly cost is $68.00 a month.
Maximize Your Military Retirement and Benefits
How to Maximize Your High-3 Retirement Earnings
If you first set foot in the military between September 8, 1980, and July 31, 1986, then you are eligible for the High-3 Retirement System. It’s also called the High-36. When you retire, the amount of money you get is different. You get your three best years and then average them together to find your final salary. Then you divide this by two if you have 20 years of service, and the number is 100% if you have 40 years of service.
How to Maximize Your Redux Retirement Earnings
Redux is a retirement plan for people who have been in the military since July 31, 1986. It’s not very good, but it’s still better than going without any plan. If you’re in this category, be sure to read over the plan and see if you want to sign up for it.
Under the REDUX system, you can get a $30,000 cash bonus if you are a service member when the system is 15 years old.
A person would get a 2.5% increase in their pension for each year they work after 20 years. That is a total of 50%. The difference in the middle of 20 and 30 years is ten years, so that the percentage multiplier would be 40%. Your basic pay is the money you get before taxes. It’s how much you are paid in your current rank.
After your 62nd birthday, the benefit is 2.5% of the number of years you worked times the standard of your highest 36 months salary. But it is better for those who have been in for a long time, so you should try to work longer before retiring.
If you need help calculating your benefits, try using the Department of Defense’s REDUX calculator.
How to Maximize Your Blended Retirement System (BRS) Earnings
As of January 1, 2018, the latest retirement system took effect for people who are eligible. The plan includes a smaller 20-year military retirement annuity and automatic and matching contributions to the Thrift Savings Plan (TSP). There’s also a mid-career continuation pay component and lump-sum distributions at retirement.
The new retirement system is different than before. It uses a 2.0% multiplier instead of a 2.5%. For someone with 20 years of service, this means that their pension will be worth 40% instead of 50%. Service members can find out how much they will get when they retire. They can compare the Legacy High-3 plan and the BRS.
New service members may not get as much money in retirement under the new system as they would have before, but if you do your 401(k) and TSP (Traditional Savings Plan), you might be able to make even more.
Contribute to Your Thrift Savings Plan (TSP)
The TSP is a plan for military retirees. It is offered to everyone who retired under the BRS retirement plan. It is a savings and investment plan that the federal government provides. It is like a 401(k), and people can save money. They get tax benefits like other companies who have 401(k)s.
Initially, the TSP was only for federal civilian employees. Then, starting on October 9, 2001, people who are thinking about joining the Army, Navy, Air Force, Marines, or Coast Guard were also allowed to participate in the TSP.
The TSP is for people who save for retirement. You can’t get the money out again until you retire. The amount of income you will get from your savings in a TSP account depends on how much money you put in during your working years and how well it has grown.
The money you place in your TSP is always yours. The Department of Defense will not keep the money that you contribute after you have served for two years.
If you’re like most military retirees, you’re probably on the lookout for ways to get the most out of your military retirement. The good news is that there are a number of options available to help maximize your benefits and make sure they last as long as possible.
While each person has different needs, this type of plan can provide valuable income over time while also providing some peace of mind knowing that it will be there when needed.