The Basics of Active Duty Retirement

By Laura Roler, Military Saves Associate, AFC® Candidate, FINRA Military Spouse Fellow

If you’ve committed to a military career, you’ve earned some life-long benefits.

Voluntary retirement after 20 years or more of active duty service qualifies you for a military pension for the rest of your life.
How much will you receive, and how much additional savings will you need for a comfortable retirement?  That depends on how many years of qualifying service you committed, and which retirement plan you choose.

You will generally be expected to choose your retirement plan between 14 ½ and 15 years of service.  There are three retirement formulas to choose from; each one results in the percentage of your basic pay that you will receive for your retirement pension.  See the calculation below (courtesy of DFAS): 

Retired Pay Formula

   Retired Pay Base 
x Service Percent Multiplier 
= Gross Retired Pay

Below is a brief summary of each plan.  Most current service members will choose between the High-3 and REDUX plans; compare and choose carefully! 

Final Pay Plan – You are eligible for this plan if your entry to military service was before September 8, 1980

Retirement pay is based upon your final rank and length of service as of your retirement date.  For each year of service beyond 20, retired pay increases by 2.5 percent of basic pay, up to a maximum of 100 percent of basic pay for 40 years of service.

High-3 Plan
(or High 36 Plan) – You are eligible for this plan if your entry to military service was after September 8, 1980

but before August 1, 1986 OR entered on or after August 1, 1986 and did not choose the REDUX plan (below)

Retirement pay is based on your average basic pay over the 36 highest earning months (usually your last three years), multiplied by 2.5 percent for each year in uniform, up to a maximum of 100 percent of basic pay for 40 years of service.

REDUX Plan – You are eligible for this plan if your entry to military service was on or after August 1, 1986

Under this retirement plan, at 14 ½ years of service, you may elect to receive a $30,000 bonus (lump sum or annual installments) beginning at 15 years upon agreement to complete at least 20 years.  Your retirement pay is based on your average basic pay over the three highest earning years, multiplied by 2 percent for each year short of 30.  At 30 years and thereafter, each year of service begins to be multiplied by 3.5 percent, resulting in 75 -100 percent of base pay and up for 30+ years of service.

Your military pension should begin immediately after separation, and your benefits will be reviewed annually for a possible cost of living adjustment (COLA), which could potentially increase the amount of your military pension benefits.

If you are beginning a second career in the civilian workforce, your efforts to save for retirement should continue with an employer-sponsored retirement plan, such as a 401(k) plan, or an Individual Retirement Account (IRA), through automatic payroll deductions.  Make a commitment to a successful retirement by following the Military Saves motto:  “Set a goal. Make a plan. Save automatically.”

More helpful links in planning for your retirement:

Military Retirement Calculator
Thrift Savings Plan
4 Things to Consider When Retiring From the Military
Marine Corps Community Service Retiree Life
Navy Retired Activities
Army Retirement Services Office
Air Force Retiree Services
US Coast Guard Retiree Services

Looking for information on the Blended Retirement System? Click here

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