If you weren’t thinking about retirement or other benefits when you enlisted in the military, that’s okay. You are still protected by one of the top three benefits of military service, along with medical and other important benefits. Military retirement pay is guaranteed by the federal government, which makes it more secure and reliable than many civilian retirement plans. Those government protections include cost of living adjustments (COLA) that are tied to the Consumer Price Index to shield against inflation. It is important to understand your retired military pay, which is based on when you joined the service and what available plan you opted into, so you can be prepared to make good decisions about retirement. Use the myPay tool to learn about your own retirement benefits.
Military Retirement Pay by Type
Understanding the entire military retirement pay system may take years. Fortunately, service members don’t have to do that. They really need to know only how the military retirement system applies to them. The most important factor is the date you personally joined the military. That will tell you which program or programs were in effect at that time. Those programs still apply to you. There are five main systems for determining military retirement pay:
- Final Pay, for those who enlisted before Sept. 7, 1980.
- High-36, which covers those who enlisted between Sept. 8, 1980, and July 31, 1986.
- CSB/REDUX, which was a choice available from Aug. 1, 1986, through Dec. 31, 2017.
- Blended Retirement System (BRS), which combines earlier plans, has been available for members who entered service as of Jan. 1, 2018.
- Disability, which has evolved over the decades but is still a vital part of the military retirement pay system.
This is the granddaddy of military retirement plans, and if you are eligible, you might be a grandparent yourself. The Final Pay system applies to members who entered service before Sept. 7, 1980. It is the oldest and easiest to understand of all the retirement programs.
Retirement pay is calculated by multiplying your final base pay by 2.5% for each year of service. For example, a 20-year service member would receive 50% of their final base pay. Add cost of living adjustments (COLA) to get the total amount. COLA is based on the Consumer Price Index to keep pace with inflation. Typically, your first retirement pay will be disbursed on the first day of the first full month after you leave the service. Example: If you retire on March 1, your first pay will arrive on April 1, assuming all outstanding debts have been settled. Your retirement pay will arrive on the first of every month thereafter.
This plan (also known as High-3) gets its name because your retirement pay is based on an average of the highest 36 months (or 3 years) of your military career. That average is multiplied by 2.5% times the number of years of service. If you serve 20 years, the minimum service time eligible for the High-36 program, you would receive 50% of the average of your 36 highest-paid months. Cost of Living Adjustments (COLA) are made yearly based on the Consumer Price Index.
This is the retirement plan you receive if your service began between Sept. 8, 1980, and July 31, 1986, and is the primary retirement option for those whose service began between Aug. 1, 1986 and Dec. 31, 2017. If you retire after 20 years, but you were paid the highest amount from Years 10 through 12 of your service, your retirement pay is based on the average of your three highest-paid years.
It takes some time to process retirements, but you can expedite it by making sure you have filed a DD-2656 form. It may take 30 to 45 days for the process to be completed and for monthly checks to begin being issued.
This plan is basically an adjustment of the High-36/High-3 plan, and it was available to members who began service between Aug. 1, 1986, and Dec. 31, 2017. As with High-36, retirement pay is calculated using an average of your three highest-paid years of service. The difference is that, after 15 years of service, members receive a Career Status Bonus of $30,000 (which is subject to taxes upon payment). Members who selected this option were then obligated to serve at least another five years. With the CSB, members who served 20 years are paid a reduced retirement pay. If they retired after a full 30 years, there is no pay reduction. Retirement pay was determined by service time and highest-paid years of service: 2.5% of pay multiplied by years of service.
A cost of living adjustment (COLA) is made when the retiree reaches age 62. This one-time adjustment brings the retired member’s monthly payments up to date with current High-36 payments. Your first payment should arrive on the first day of the month after your retirement. Sometimes there are delays. For example, if you have not filed a DD-2656 form, that can take some time to straighten out. But you should receive your monthly payment, minus withholding for taxes, on the first day of every month.
Blended Retirement System (BRS)
The Blended Retirement System is the current standard military retirement plan. It applies to all members who began their service after Jan. 1, 2018. As you might expect, BRS includes a combination of features from the High-36 and REDUX plans.
Its primary update is the Thrift Savings Plan (TSP), which resembles a civilian 401(K) in basic ways. The government will add 1% of your salary into a TSP after 60 days of service. After two years of service, and up through 26 years of service, the government will match up to 4% of salary you dedicate to the TSP. By contributing 4% of your earnings, you can accumulate income equal to 9% of your salary. Your TSP is protected from federal taxes.
In addition to the TSP contribution, your BRS includes a defined benefit based on service time and pay rate. This benefit equals years of service multiplied by the average of your highest three years of pay, multiplied by 2%. So, a 20-year veteran would retire with a monthly payment equal to 40% of their highest three years of salary. In addition, after 12 years, you receive a bonus equal to 2.5% of your annual base pay.
Retirement payments can be delayed by necessary administrative work, but should begin on the first day of the first month after retirement. Payment, as calculated by service time and tax withholding, should follow on the first of every month thereafter.
For service members who are deemed medically unfit for service because of a disability, VA disability pay is determined using special formulas. If the Department of Defense issues a disability rating of 30% or more, the member is qualified for disability pay. The DoD disability rating can be appealed.
Monthly payments are determined by the member’s retired pay base, as determined by Final Pay, High-36 or BRS, according to the member’s entry date. This pay base is multiplied by either the percentage of disability determined by DoD, or by years of creditable service multiplied by 2.5% or 2%. Those multipliers are determined by whether the member was a participant in a legacy retirement plan or was enrolled in the Blended Retirement System (which adds a Thrift Savings Plan).
Payments should begin on the first day of the first month after leaving the service. If administrative procedures delay the first payment, the service member is paid retroactively for full benefits. Monthly payments continue on the first of every month, with withholding for tax purposes.
Retired Pay Base
To understand the various plans, it helps to first understand the basic building blocks. The most important of these is Retired Pay Base, which is calculated one of two ways, depending on when you entered the service. Final Pay, the retirement system before Sept. 7 1980, bases your retired pay base on your final basic pay. Beginning Sept. 8, 1980, High-36 replaced Final Pay. Your retired pay base is calculated by your highest average pay for a three-year (36-month) period.
Your retired pay base is then used in the calculations for other modifications and additions, including service time and cost of living adjustments. These are all based upon, but are not identical to, your military base pay.
How Does the Retired Pay Multiplier Work?
Perhaps the most confusing part of the military retirement pay formula is the pay multiplier. A closer look reveals the logic of the system and should make it easier to grasp.
At its simplest, the multiplier adds 2.5% to your retirement income for each year of military service. In both the Final Pay and High-36 systems, that means a 20-year service member gets 50% of their applicable pay. In Final Pay, the applicable pay is the member’s pay at the time of their retirement. High-36 changes that so the applicable pay is the average of the member’s highest three-year pay rate. This protects members who finished their careers at a lower pay rate for any reason.
Years of creditable service are determined based on whether you are retiring from full-time active duty or the Reserves.
With the REDUX system in 1986, the calculations changed. The REDUX system introduced a Career Status Bonus on the 15th anniversary of a member’s entry into the service. This $30,000 bonus (before taxes) obligated the recipient to remain in the service for another five years and incentivizes a 30-year commitment. The High-36 multiplier applies, but is reduced 1% for each year served under 30 years. So, retiring after 20 years would mean a 40% multiplier along with the $30,000 bonus.
The Blended Retirement System (BRS) uses a High-36 formula multiplied by 2% times years of services. BRS adds a Thrift Savings Plan, which includes a government contribution equal to 1% of your salary, with matching funds up to 4% of your pay. The TSP is protected from taxation.
For members who are deemed medically unfit to continue service, monthly payments are based on the higher of two options: the disability percentage determined by the Department of Defense (up to 75%) or the result of multiplying service years by the applicable retirement plan multiplier. That’s 2.5% or 2%, depending on your retirement plan.
These variables are best understood in graphic form:
|Years of Service||20||21||22||23||24||25||30||35||40||41|
How Does the Cost of Living Adjustment Affect Retirement Plans?
Your military retirement benefits, as determined by the appropriate formula based on when your service began, stays basically the same. The world does not, however, and that’s why your retirement payments are supplemented by the annual cost of living allowances (COLA). Most of the military retirement payments work that way.
To account for inflation and other economic factors, the military uses the Department of Labor’s Consumer Price Index (CPI) to calculate the cost of living allowances. Under most military retirement plans, an annual COLA is added based on changes in the Consumer Price Index. This is the practice in Final Pay, High-36 and BRS retirement plans.
The exception is the REDUX plan. Veterans whose retirement plan is a REDUX plan receive a one-time COLA of their monthly payment at age 62. This payment restores the payment to what it would have been under the High-36 formula.
Military retirement plans have changed quite a bit over the past 40 years or so, but one thing remains constant. Service members have strong, secure retirement benefits backed by the United States government. Your personal retirement plan is based upon when you began your military service. As programs evolved to keep up with changes in civilian plans, choices were added to give the service member greater freedom. To make those choices, and to be prepared for retirement, it is smart to understand your plan and keep track of your assets.
For assistance, there are online resources provided by the government to help understand each of these systems better.
For the oldest, bedrock retirement system, you can use this Final Pay Calculator.
This High-3 Calculator provides information whether you know the program as High-3 or High-36.
If you are in the CSB/REDUX program, you can check your status with this REDUX Calculator.
Finally, this BRS Calculator will help navigate the more complex Blended Retirement System.
About The Author
Phil Sheridan writes about military benefits for Military Money. Phil spent over 30 years learning about labor negotiations, salary caps, stadium negotiations and a lot of other finance-related matters as a reporter and columnist for the Philadelphia Inquirer and ESPN.
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