One of the great benefits of entering the military is that if offers financial security, not only when you are a member but also in retirement for those who have made it their career.
The official steps toward planning military retirement begin about one or two years before retirement, but thinking about what you want in civilian life and how you want retirement to look should begin long before that.
The transition from the military to civilian life is a big change, one that can be stressful – getting your retirement plan in order will be one less thing to worry about.
Military retirement plans are based on branch, length of service, pay grade and more. While military retiree pay used to be just for those who have served 20 years or more, there are benefits that can be tapped into before that milestone is reached.
The Department of Defense requires that those planning to retire from military service follow a specific process, but there are also things that you must make decisions about yourself (or with your spouse) to ensure health care, financial stability and more.
What to Do Before You Retire
Picture retirement and what you want out of it. If you have a family, include them in the discussion. Will you work? Will you move somewhere you’ve always wanted to live? Then, of course, there are the nuts and bolts required by the military that you have to complete to get there. Some elements of military requirement planning must start more than a year before your separation date.
To make sure you meet the requirements:
Visit the Defense Department Transition Assistance Program website. The Department of Defense website has detailed transition assistance information and resources; they’re also available at your installation’s Transition Assistance Program office. The earlier you check out this information, the more smoothly your planning will go – a couple years before you plan to retire is a good goal.
Initial Counseling and Pre-Separation Counseling. This is considered the official start to retirement and must be completed 365 days before retirement date; the military recommends it be started at least two years before retirement. It involves one-on-one meetings with a counselor to discuss transition plans. Spouses and caregivers are encouraged to attend.
TAP Curriculum. This is another mandatory program that provides preparation for employment and benefits, but also things you may not think about, such as family concerns. The DOD TAP website explains what’s required.
Medical Exam. Everyone who retires from the military is required to undergo a medial and dental exam at their installation’s clinic at least 90 days before retirement.
Final Move. The government will pay for your move to anywhere in the U.S., or to your country of record if it’s outside the U.S. for up to a year after your retirement date.
Military Retirement Documents. There are three documents essential to your successful military requirement:
- DD form 2468, the “TAP checklist,” which you are required to fill out when you start the TAP process
- DD form 2656 determines what your retirement pay will be and how you will get it, your beneficiaries, tax withholding and more
- DD form 214, your “separation papers,” which you receive at your final outprocessing appointment and which are necessary to access almost all military retirement benefits.
Understand the Types of Military Retirement
Aside from what the military requires, there are things you should add to your military retirement checklist to ensure a smooth transition to civilian life.
Retiring from the military isn’t the same for every member. Learning which retirement plan you qualify for, or is best for you, is key to your civilian life finances.
Everyone who enters the military is automatically enrolled in a retirement plan, but the plan differs based on date of entry, length of service and more. While 20 years of service was once necessary to access retirement pay, the Blended Retirement System, enacted in 2018, allows members who haven’t served 20 years to access benefits.
In general, military members eligible to receive retirement benefits are:
- Active-Duty Component: Served 20 years in the U.S. Army, Navy, Air Force or Marine Corps
- Reserves Component: Served 20 years in the reserves, based on a points system, typically from age 60
- Disability Retiree: If found unqualified for further service because of a permanent, stable disability, even if it comes before 20 years of service
There are several retirement plans, with different qualifying standards. They are:
High-3 Retirement System (High-36)
The High-3 Retirement System (High-36) is for those who entered the military between Sept. 8, 1980, and July 31, 1986, and is calculated using average base pay for the three highest-paid years (as opposed to final base pay). Those who served 20 years get 50%; those who served 40 years get 100%.
Redux Retirement Plan
Active-duty service members who entered the military after July 31, 1986, and before Jan. 1. 2018, and plan to serve 20 years may opt in to the Redux plan after 15 years (making them no longer eligible for High-3). By opting in, they get a $30,000 bonus (before taxes). The retirement plan is then based on 2.5% of length of service minus 1% for each year under 30 years, times basic pay. After age 62, that changes to average of the highest 36 months’ base pay.
Blended Retirement System
Those who joined the military after Jan. 1, 2018, can opt into the BRS, which combines an annuity that’s smaller than the High-3 with matching contributions to the Thrift Savings Plan (TSP), which is similar to a 401(k). BRS is calculated by multiplying 2.0% for each year of service, which results in a 40% retirement benefit after 20 years, rather than the 50% the High-3 provides. The TSP is designed to close that gap, or surpass it.
Thrift Savings Plan (TSP)
The TSP is only offered to military members enrolled in the BRS. Similar to a 401(k), it was created for federal civilian employees, but was made available to service members in 2001. It has the same savings and tax benefits as a 401(k), as well as similar penalties for early withdrawal.
Create a Post-Retirement Budget
Having a budget is always a good idea, but it’s essential to a good financial foundation when you’re making the major transition from military to civilian life. Your regular income will change, things that were once provided won’t exist, you will pay more for many items – your finances will look completely different. Adding a budget to your military retirement checklist doesn’t have to be complicated. A budget is simply a monthly assessment of your income, what bills and expenses you must pay and what you will do with what’s left over. It can be done as simply as writing it all on a legal pad. Think of it as something that can change as your circumstances do. You’re in charge of it, and by doing it, you are taking charge of your finances.
There are four major things to consider in a post-military retirement budget:
Income: Calculate how much you will receive monthly from the military retirement plan you are enrolled in. Retired military pay is calculated based on your start date, basic pay, highest pay and more, depending on the plan. The Department of Defense military retirement pay calculators can do the math for you.
Tax Withholding: Taxes, federal and state (if you live in one of 42 states with a state income tax), will be deducted from your retirement check before you get it. So will medical, dental and a Survivor’s Benefit Plan premium if you pay into that program. Because it’s a pension, not wages, Social Security will not be deducted. Be sure to find out what the “take-home” amount of your monthly check will be after deductions so you can budget accurately.
Adjustments: Your monthly benefit will change year to year, depending on the cost of living.
Social Security: Military retirees may be eligible for Social Security, and neither payment will be affected by the other. Check the Social Security Administration website for more information.
Once you figure out your budget, you will know whether you need to find another source of income, make adjustments to expenses, and more. It can even help determine what part of the country you live in. You don’t have to wait until you’re retired to establish your retirement budget – the sooner you know what your financial picture is after you retire from the military, the better equipped you’ll be.
Enroll in Eligible Benefits
The military retirement pay benefit isn’t the only one available to military retirees. There are a variety of benefits, most of which are available to veterans and their families no matter what their length of service.
GI Bill/Education Training: The GI Bill, structured around length and type of service, provides money for college, as well as other types of career training, to veterans and dependents. How long GI Bill benefits last after service ends and which of the four iterations of the GI Bill you qualify for depends on length of service and when you joined the military.
Final Move: The Department of Defense will pay moving costs to anywhere in the country within one year of your retirement, or out of the country to your home of record.
TRICARE: The military’s health care program is available to military veterans and retirees, as well as their families, providing comprehensive coverage that includes medical care, prescriptions, dental and more. Retirement means a status change, and you must re-enroll within 90 days of retiring to keep benefits.
Dental/Vision Coverage: The Federal Employee Dental and Vision Insurance Program administers several dental and vision plans that qualified retirees can enroll in. Each plan is different, and has a different monthly premium.
Life Insurance: All military retirees continue with the Servicemembers’ Group Life Insurance plan for 120 days after separation; veterans in good health who want Veterans Group Life Insurance can convert during or after the 120 day-deadline; others have to convert before it expires.
Home Loans: The Department of Veterans Affairs backs mortgages through private lenders for anyone who’s served in the military for 24 months or more. The loans require no money down and no minimum credit score, though the lender may have a qualifying credit-score requirement. The loans can be used to buy, build or renovate a home.
Survivor Benefit Plan: Military retirees with a family pay a monthly SBP premium, which provides for a spouse or dependent children after the retirees’ death. Enrollment is automatically for the maximum amount unless changed by the retiree.
Military Retirement Timeline Checklist
There’s a lot to consider when preparing to retire from the military, so having a checklist handy will keep things in order. The following checklist can be downloaded and referred to as you move toward the next phase of your life.
» Military Retirement Planning Checklist: Download
About The Author
Maureen Milliken has been writing about finance, banking, investment, entrepreneurship, real estate and other related topics for more than 30 years. She started as the “Business Beat” columnist for the now-defunct Haverhill (Mass.) Gazette and currently is one of the hosts of the Mainebiz business-focused podcast, “The Day that Changed Everything” in addition to her daily writing. She also is is the author of three mystery novels and two nonfiction books.
- N.A. (ND) Eligibility for Military Retirement Pay. Retrieved from https://www.dfas.mil/retiredmilitary/plan/eligibility
- N.A. (ND) Transition Components. Retrieved from https://www.dodtap.mil/dodtap/transition_gps.html
- N.A. (ND) Retiring. Retrieved from https://tricare.mil/LifeEvents/Retiring