Military Retirement

Military retirement is the pension a member of the uniformed services earns for a career of qualifying service, most commonly 20 years of active duty. It is a defined benefit: a monthly payment for life, computed as a multiplier times years of creditable service times a measure of base pay, and increased each year by a cost-of-living adjustment. Which formula applies depends on the member's entry date, and reserve and National Guard members earn a version of the benefit based on a points system that generally begins paying at age 60.

Four systems coexist because Congress changed the rules over time and generally did not disturb people already serving. Final Pay, for those who entered before September 8, 1980, uses 2.5 percent per year of service times final basic pay. High-3, for entrants from September 8, 1980 through 2017, uses the same 2.5 percent multiplier but applies it to the average of the highest 36 months of basic pay. REDUX was an optional path under High-3 that paid a $30,000 Career Status Bonus at 15 years in exchange for a reduced multiplier until age 62. The Blended Retirement System, the default for those entering from January 1, 2018, lowers the pension multiplier to 2.0 percent per year but adds automatic and matching government contributions to the member's Thrift Savings Plan, plus continuation pay at a mid-career point. The trade in the Blended system is a smaller guaranteed pension for a portable retirement account the member keeps even if they leave before 20 years.

Two related programs shape the real value of the benefit. The Survivor Benefit Plan lets a retiree elect a continuing annuity for a surviving spouse or child, funded by a reduction in the retiree's monthly pay, which is the main way to keep income flowing to a family after the retiree dies. And a veteran who receives both military retired pay and VA disability compensation faces coordination rules: Concurrent Retirement and Disability Pay allows both in full at a disability rating of at least 50 percent, and Combat-Related Special Compensation covers combat-related disability without that rating floor. Because the underlying basic-pay tables and the annual cost-of-living adjustment change over time, retired-pay dollar amounts are not fixed and should be taken from current figures.

Retired pay is the product of three things: a multiplier, years of service, and a base-pay figure.

1. Identify the system from the entry date, which fixes the multiplier (2.5 percent for High-3 and Final Pay, 2.0 percent for the Blended Retirement System).

2. Multiply the per-year rate by years of creditable service to get the total percentage.

3. Apply that percentage to the pay base: final basic pay under Final Pay, or the average of the highest 36 months of basic pay under High-3 and the Blended system.

A hypothetical example. A member retires with 20 years of service and a high-3 average basic pay of $6,000 a month. Under High-3, the multiplier is 2.5 percent times 20 years, or 50 percent, so retired pay is 50 percent of $6,000, which is $3,000 a month, rising each year with the cost-of-living adjustment. The same member under the Blended Retirement System would have a 2.0 percent times 20, or 40 percent, multiplier, for $2,400 a month, but would also have a Thrift Savings Plan balance built from government contributions during service. The pension is smaller in the Blended system; the account is meant to make up part of the difference.

Pros

• A defined-benefit pension for life, inflation-adjusted, generally after 20 years of service.
• The Blended Retirement System adds a portable Thrift Savings Plan balance the member keeps even without reaching 20 years.
• The Survivor Benefit Plan can extend income to a surviving spouse or child.

Cons and cautions

• Legacy systems generally pay nothing if the member separates before 20 years, an all-or-nothing cliff the Blended system was designed to soften.
• The Blended Retirement System's lower multiplier means a smaller guaranteed pension, shifting more responsibility onto the member's own saving.
• Coordinating retired pay with VA disability compensation involves specific rules that can reduce or reshape the payment.