Military Retirement Planning

At Federal Financial Solutions, we want to help you understand all of the different aspect and components of your military service and how the retirement system works based on your time in service, full time or reserve and other factors that may be a part of your military retirement formula; including the possibility of buyback of that time if you leave the military and enter civilian service as a federal employee.

Military retirement offers unique benefits not commonly found in civilian careers. Service members who dedicate years to serving the United States military are provided with structured retirement systems that reward their service. These retirement options vary depending on when the member joined, their service component (active duty vs. reserve), and whether they opted into newer systems such as the Blended Retirement System (BRS).

1. Retirement Eligibility

Military retirement eligibility depends primarily on years of service:

Active Duty Retirement: Generally, service members must serve a minimum of 20 years of active duty to be eligible for retirement benefits.
Reserve/National Guard Retirement: Members in the Reserve Component become eligible for non-regular retirement (often called “gray area” retirement) after 20 qualifying years, with retired pay beginning at age 60, unless reduced by eligible deployment time.

Retired service members are referred to as being in the Retired Reserve (Reserve/National Guard) or Retired List (active duty).

2. Types of Retirement Plans

a. Final Pay System

Who it applies to: Entered service before September 8, 1980.

Retirement Pay Formula:
Retired Pay = Years of Service × 2.5% × Final Basic Pay
Example: A service member with 20 years earns 50% of their final base pay.

b. High-3 Retirement System

Who it applies to: Entered service between September 8, 1980 and December 31, 2017.
Retirement Pay Formula:
Retired Pay = Years of Service × 2.5% × Average of Highest 36 Months of Basic Pay
This method averages the highest three years (36 months) of base pay.

c. Blended Retirement System (BRS)

Who it applies to: Entered service on or after January 1, 2018, or opted in during the 2018 open season.
Combines:
- A reduced defined benefit pension (2.0% multiplier instead of 2.5%)
- Thrift Savings Plan (TSP) contributions (like a civilian 401(k))
Government Match
- Automatically contributes 1% of base pay to TSP.
- Matches up to an additional 4% for member contributions.
- Vesting occurs after 2 years of service.

The BRS was designed to provide retirement savings even for those who don’t complete 20 years of service, which is about 81% of military personnel.

3. Reserve Retirement

Reservists and National Guard members receive retirement pay based on a point system rather than continuous active duty.

Point System Basics:

15 points per year for being in an active Reserve status
1 point per day of active duty or annual training
Retirement eligibility: 20 qualifying years (minimum 50 points per year)
Pay starts at age 60 (can be reduced with certain mobilizations)

Retirement Pay Calculation:

Pay = Total Points ÷ 360 × Multiplier (2.5% or 2.0%) × Pay Base

Reservists also get access to benefits similar to active duty retirees, though often with some limitations.

4. Retired Pay Adjustments

Retired pay is adjusted annually based on the Cost-of-Living Adjustment (COLA), linked to the Consumer Price Index (CPI). This ensures that retirement pay keeps pace with inflation.

COLA adjustments may be slightly delayed or reduced under BRS or REDUX (an older option no longer available to new members).

5. Retirement Options Summary

System	Entry Date	Multiplier	Pension Start	TSP Match	Notes
Final Pay	Before Sept 8, 1980	2.5%	Immediate	No	Based on final base pay
High-3	Sept 8, 1980–Dec 31, 2017	2.5%	Immediate	No	Average of highest 36 months
BRS	After Jan 1, 2018	2.0%	Immediate	Yes	Portable TSP; smaller pension
Reserve	Varies	2.5%/2.0%	At age 60	Possible	Based on points

6. Disability Retirement

Military members may be medically retired if they’re found unfit for duty due to a service-connected disability:

Permanent Disability Retirement: For members with a disability rating of 30% or more.
Temporary Disability Retirement List (TDRL): For conditions not considered permanent.
Disability pay is based on either:
- Percent of disability rating × basic pay
- Or retirement pay formula (based on years of service)

Members receive whichever calculation is more beneficial.

7. Survivor Benefits and Family Planning

Upon retirement, service members can opt into the Survivor Benefit Plan (SBP):

Provides a portion (up to 55%) of retired pay to designated beneficiaries after the retiree’s death.
Premiums are deducted from retirement pay.
There’s also a Reserve Component Survivor Benefit Plan (RCSBP) for reservists.

8. Healthcare in Retirement

TRICARE for Life: For military retirees and their spouses enrolled in Medicare Part B.
TRICARE Prime/Select: For younger retirees (before Medicare eligibility).
Reserve retirees under age 60 may use TRICARE Retired Reserve (TRR) at cost.

9. Transition Assistance and Support

Military retirement is not just a financial change but a major life transition. Programs like the Transition Assistance Program (TAP) help retiring service members:

Find civilian employment
Access VA benefits
Pursue education through the Post-9/11 GI Bill or Yellow Ribbon Program

Additionally, VA disability compensation is available to eligible retirees who incurred service-connected disabilities.

10. Key Considerations

When evaluating retirement options, service members should consider:

Length of service vs. portability: Those unsure about completing 20 years may benefit more from the BRS.
Investment knowledge: BRS shifts some responsibility for retirement to the individual through TSP.
Family protection: Survivor benefits and healthcare continuity are vital planning elements.

Location and taxes: Some states do not tax military retirement pay, impacting long-term financial decisions.

Military retirement options have evolved over the years to meet the needs of a changing force. From traditional pensions to blended systems that include 401(k)-style savings, the Department of Defense offers a range of benefits to reward service. Understanding the nuances of each plan—whether Final Pay, High-3, or BRS—helps ensure service members make informed decisions about their futures. With careful planning and use of the many available benefits, military retirees can enjoy financial security and continued support well into civilian life.