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Military Retirement Systems: A Summary
By USAA Education Foundation
Summer 2005
Three different retirement systems are in effect, depending on the date when you first became a member of the military.
Final Pay System
- Applies to members who first entered active duty before September 8, 1980.
- To calculate retired pay, multiply years of service by 2.5 percent (cannot exceed 75 percent). Multiply the result by your final base pay. Allowances for housing, subsistence or other special pays are not included in any retired pay calculation.
- Under this system, members retiring at 20 years receive 50 percent of their base pay. The amount increases with years of service up to a maximum of 75 percent of base pay for those retiring at 30 or more years.
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 member's career, which typically but not always will be the final three years of service.
CSB/REDUX Option
This is a three-phased retirement program designed to encourage members to remain on active duty past 20 years of service. Although it results in reduced retirement pay, it includes a $30,000 Career Status Bonus at the 15th year of active duty.
- Applies to members who first entered active duty on or after August 1, 1986.
- At the 15th year of service, these members have two options:
- Take the pre-1986 High-3 Retirement System
- Receive a one-time lump sum Career Status Bonus and have their retired pay calculated under the new System.
If the member chooses the CSB/REDUX option, two levels of multipliers are used to calculate retired pay:
- Each of the first 20 years of service is worth 2.0 percent.
- Each year from 20 to 30 years of service is worth 3.5 percent.
A person retiring at 20 years, for example, will receive only 40 percent of base pay in retirement. But the longer the member 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.
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Source: The USAA Education Foundation, a 501(c)(3) tax-exempt non-profit organization that provides consumer information to the military community and the general public.
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