The military retirement can be very confusing to understand and calculate. Depending on when you entered the service you may have the option of getting a bonus, contributing to the Thrift Savings Plan, or taking a lump-sum payment. Which option is best for you? We explain here.
Military Retirement Pay Options
There are four military retirement pay programs. What you use and whether you have a choice between them depends on when you entered military service. Those who entered the military before 1986 are in the Final Pay Retirement System or the High 36 Retirement System. Those who entered after Jan. 1, 2018 are in the Blended Retirement System. But those who entered the military between Aug. 1, 1986 and Dec. 31, 2017 get to either use the CSB/REDUX Retirement System or the Blended Retirement System. Which system is right for you? You’ll need to read on to learn.
Final Pay Retirement System
If you first entered the military before Sep. 7, 1980 you are eligible for the Final Pay Retirement system.
Under this system your retired pay is computed by multiplying your final monthly base pay when you retire by 2.5% for every year of your service. That means you get 50% of your base pay if you retire with 20 years of service or 100% of your base pay if you retire after 40 years.
High 36 Retirement System
If you first entered the military between Sep. 8, 1980 and July 31, 1986 you are eligible for the High 36 Retirement System.
The High 36 retirement system is almost exactly the same as the Final Pay Retirement System above except that you compute retired pay using the average base pay for your three highest paid years (36 months), rather than final monthly base pay. You get 50% of your average highest 36 months base pay if you retire with 20 years of service or 100% if you retire after 40 years. Your three highest paid years are usually the last three years of active service, and in many pay grades you may have reached the maximum pay several years before you retire.
CSB/REDUX Retirement System
If you first entered the military between Aug. 1, 1986 and Dec. 31, 2017 you qualify for the CSB/REDUX Retirement System OR the High 36 system.
Under the CSB/REDUX system your pension is based on the average of your highest 36 month's base pay like above, but the similarity ends there. The CSB/REDUX system gives you a "Career Status Bonus" (CSB) when you get to your 15 year service anniversary, but then reduces (REDUX) your retirement pay.
Under the CSB/REDUX you will get a $30K cash bonus (approximately $21K after taxes) and your retirement percentage is reduced from the normal 2.5% for each year of service by an amount equal to 1% for each year of service less than 30 years.
This means that if you retire at 20 years, your retirement will be 40% of your base pay - (30 years minus 20 years = 10 years, the normal High 36 retirement pay at 20 years is 50% of your base pay, BUT under CSB/REDUX that is reduced by 10% (1% for every year of service less than 30), so your retirement pay is only 40% of your base pay.)
If you serve 30 years or more this reduction doesn't happen.
Pretty complicated, but it gets worse. All retirement systems have an annual cost of living adjustment. This is a subtle, yet very important detail. Over the lifetime of your retirement the cost of living adjustment could more than double your retirement check.
The COLA for the final pay and high 36 systems is determined each year by the national Consumer Price Index. But the COLA for the CSB/REDUX retirement system is the Consumer Price Index minus 1%. So a retiree under the High 36 may see a COLA increase in their retirement check of 1.7%, while a retiree under the CSB/REDUX plan would get a COLA increase of only 0.7%.
Note: There is one more twist to the COLA for the CSB/REDUX retiree. At age 62 the 1% reduction goes away so that the High 36 and CSB retirees get the same monthly pay.
As you can see it is pretty complicated, check with your personnel office for details.
Blended Retirement System (BRS)
If you first enter the military after Jan. 1, 2018 you are eligible for the BRS. Under the BRS, your pension is similar to the CSB/REDUX system, you will get 40% of your base pay after 20 years. You also get a bonus at 12 years which is usually 2.5% of your annual base pay, however this amount can change depending on the needs of the service. The military will contribute 1% of your base pay to your Thrift Savings Plan (TSP) which is similar to a savings account or a 401(k) retirement plan. You will also be automatically enrolled in the TSP to contribute 3% of your base pay. You can raise, lower, or stop this contribution at any time. After you have been in for 2 years, the military will match up to 5% of your TSP contribution.
When you retire you can either get your full retirement or opt to get a lump-sum payment. If you take the lump-sum you will get a reduced monthly retirement check until age 67. You also will have a substantial amount of money in your TSP that can be withdrawn tax free, depending on your age.
When Can You Expect Your Retired Military Pay?
Military retirees receive their monthly pay on the first business day of the month. If the first of the month falls on a weekend or holiday, payday will instead be the previous business day. A list of retired military pay days can help you plan your finances.
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