Most people don’t volunteer for military service with retirement on their minds. A sense of patriotic duty, a tradition of family service, the chance to take advantage of opportunities for training and growth? Yes to all of these. But one of the most important ways your country can repay you for your service is with a reliable and secure retirement.
And that is exactly why the military retirement system is among the best retirement options possible. Understanding your retirement benefits and options is the best way to plan your career and ensure financial security for yourself and your family.
Understanding your military retirement plan also means keeping abreast of changes to the system. One reason the U.S. military retirement system is so outstanding is that it is frequently improved and updated to keep pace with changes in the economy and the best practices of civilian retirement plans.
A well-informed service member is best-positioned to make the most of military retirement options. That’s what this page is designed to do – help service members make informed decisions while helping veterans and those planning separation from the military to get all of the benefits they have earned with their service.
On this page, you’ll find the information you need about the various military retirement plans, the benefits provided by each, the choices you can make to maximize your retirement plan, and suggestions for disabled and low-income veterans
What Are the Types of Military Retirement?
There are four main military retirement systems. Your system depends upon when you first joined the service.
Eligibility: Service members who joined before Sept. 8, 1980.
Benefits: Final Pay, which covers the most senior retiring service members, provides a defined benefit that is 2.5% multiplied by the number of years of total service, multiplied by the member’s basic pay at the time of retirement. If you retire after 20 years of service, you would receive half of your final pay every month for life. For each year of additional service, add 2.5% of your pay to the monthly sum.
Eligibility: Service members who joined the service between Sept. 9, 1980, and July 31, 1986.
Benefits: With High 36, the monthly payment is determined by the average of your 36 highest-paid months (often the final three years of service). That amount is plugged into the same formula: 2.5% times years of service times average of highest-paid 36 months.
High 36 or CSB/REDUX
Eligibility: Service members who joined the service between Aug. 1, 1986, and Dec. 31, 2017.
Benefits: High 36/REDUX adds a Career Status Bonus into the plan. After 15 years of service, members who commit to another 15 years receive a cash bonus. Retirement income is calculated the same as with High 36, but there is a 1% penalty for each year below the 30-year threshold. The Career Status Bonus is no longer an option.
Blended Retirement System (BRS)
Eligibility: All service members who joined after Jan. 1, 2018.
Benefits: The Blended Retirement System (BRS) is the current system. BRS combines elements of previous retirement systems with benefits similar to a civilian 401(K) investment plan. The retiree receives a defined monthly benefit equal to 2% multiplied by service years multiplied by the average of the member’s 36 highest-paid months. In addition, a Thrift Savings Plan (TSP) is created with 1% of a member’s pay with additional matching funds based on the member’s elected contribution, up to 4% of pay.
While the calculations for benefits have changed as civilian plans have changed, including the addition of 401(K)-style options, the one constant is the security of a military pension.
Planning for Retirement
Planning for retirement from the military is not entirely different from planning to retire from any other line of work. There are some specific issues to address, but there are also issues that apply across the board, to military and civilian professionals alike.
- Downsize your debt: The more debt you can settle during your working life, the less of your retirement funds will be diverted toward paying that debt. Anil Suri, managing director of Bank of America’s Chief Investment Office, put it this way: “If you pay off a credit card that charges 15% interest, it’s like earning 15% on a risk-free investment.” Consider working with a nonprofit credit counseling agency, a solid option to get ahead of debts before you reach retirement age.
- Calculate likely income: The military retirement system makes this fairly direct, but it is still important to keep tabs on your benefits as you approach retirement. Knowing your likely income prevents unpleasant surprises and allows you to make realistic plans for your retirement.
- Estimate your expenses: Having a plan for how, and where, you will live and what that lifestyle will cost will help you live within your means in retirement.
- Consider future medical costs: Planning is important, but life doesn’t always follow even the best-laid plans. Maintaining health insurance and healthy habits, such as routine medical checkups, can help prepare for the unexpected.
Taking full advantage of all your benefits and retirement accounts begins with understanding them. If possible, increase contributions (and the matching amount from the government) to your Thrift Savings Account. Avoid any loans or pension advance programs that offer immediate funds at the expense of your retirement security. Understand the rules for second retirement benefits.
Military Retirement Benefits
The most important element of a retirement plan is security, and there is no plan with greater security than a military retirement plan. Once you become familiar with the details, you can relax, knowing that your financial future is secure.
The details have changed over time, because the military has worked to update and upgrade its plans as civilian retirement plans have evolved.
The Blended Retirement System (BRS) is the most up-to-date plan the military offers. It adds the benefits of a civilian 401(k) plan – matching contributions to an account that grows with the stock market – to the stability of a defined monthly pension payment. That payment is determined by a formula based on service time and highest personal pay rate.
The BRS represents an update to the High 36 (or High 3) system. That system sets a monthly payment based on 2.5% times months of service times pay: the highest 36-month (or 3-year) pay of your career. Example: After 20 years, you would receive a monthly payment equal to 50% of your highest pay.
For civilians, this kind of secure pension is almost a thing of the past. Private-sector companies largely shifted retirement programs to individual 401(k) accounts paid for by the employee with matching contributions from the company.
There should be no confusion about the effect of a military pension on Social Security benefits. There is none. Military service members pay Social Security taxes just as civilians do, and they are entitled to full Social Security benefits in addition to their military retirement benefits.
Federal income tax on military pensions is basically the same for any pension income. Taxes do vary widely from state to state. This can be an important consideration if you’re deciding where to live after retiring from the military. Your retirement income will go further in the 33 states with zero or low taxes on military pensions, while states like California and Vermont do tax military retirement income.
Specific tax questions can be answered by the Internal Revenue service: https://www.irs.gov/
VA Disability Compensation
Risk is a bigger part of military life than your financial life. The two collide when it comes to injuries or illnesses from military service. Service members with such disabilities may be eligible for VA disability compensation. This income, unlike regular military retirement benefits, is tax free.
Retirees must apply for disability benefits. The application for veterans pension benefits must be accompanied by supporting documents and other evidence. That could include medical records, either from the VA or a VA hospital or from a private physician or medical facility. Supporting statements from family, friends, colleagues and clergy may also be considered as evidence. Evidence may be submitted for a year after the initial application.
The average response time for disability claims is 155 days. If the response is not favorable, there are three options for appealing the decision: a supplemental claim, with additional evidence; a Higher Level Review, which involves an assessment by a higher-ranking reviewer, and a Board Appeal. In the event of a board appeal, your case is evaluated by a Veterans Law Judge.
This process is intended to protect veterans whose disability became apparent after separating from the military, and also to protect taxpayers from dishonest claims. There is an acknowledgement that a disability or illness may not present itself until after departure from the military.
Because the process is also designed to protect from fraudulent claims, a legitimate claimant may have to fight for deserved benefits.
Retirement Options for Low Income Veterans
Not everyone reaches retirement age with a secure pension and a well-planned future. The military system is designed to recognize this and to provide solutions for veterans with lower incomes. Their service is valued every bit as much.
Low-income veterans, as well as their survivors, may qualify for a tax-free pension based on financial need. To be eligible, veterans must not have been dishonorably discharged. Their net worth and income must be below certain benchmarks set by Congress. And they must be wartime veterans.
Benefits are available for veterans who meet those requirements and who had at least one day of wartime service. This should apply to veterans of recent conflicts in Iraq and Afghanistan.
Eligibility for veterans and their survivors is determined by their combined income weighed against their MAPR, or Maximum Annual Pension Rate. That rate is based on income, including Social Security, retirement benefits and income earned by your dependents. The current income limit is $138,489.
That limit includes income earned by you and your spouse, as well as your other assets and income. Your home, car, and other personal items are NOT counted as income. If your MAPR is higher than your actual income, you may qualify for VA benefits that bridge the gap.
While military pensions are part of your service record, VA pensions are separate and must be applied for by each service member. To qualify, you must be 65 years of age or older, or be disabled, a patient in a nursing home or receiving Social Security Disability.
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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