Military retirement pay has gotten complicated with all the system changes, TSP integration, and tax rule variations flying around. As someone who spent my final three years on active duty helping fellow service members understand their retirement calculations and then navigated my own retirement pay setup, I learned everything there is to know about how these payments actually work. Today, I will share it all with you.
### The Three Retirement Systems
Your entry date determines which system you’re under, and that decision was made for you when you joined.
**Final Pay** applies if you entered before September 8, 1980. Your retirement pay is based on your final monthly base pay when you retire. Serve 20 years, get 50%. Serve 30 years, get 75%. The calculation uses your actual final pay, not an average.
**High-36** covers anyone who joined between September 8, 1980, and December 31, 2017 (unless they opted into BRS). This system averages your highest 36 consecutive months of basic pay and multiplies that by 2.5% for each year of service.
Example: Your highest 36 months average $5,000 monthly. You served 22 years. Your retirement pay is $5,000 x 0.55 (22 x 2.5%) = $2,750 monthly.
**Blended Retirement System** launched January 1, 2018. The pension multiplier drops to 2% per year, but you get TSP matching from the government. Same $5,000 High-36 average with 22 years gives you $2,200 monthly from the pension—but you should have substantial TSP savings from years of matched contributions.
That’s what makes military retirement endearing to us veterans—the system has evolved over decades, but everyone gets a fair calculation based on when they served.
Probably should have led with this section, honestly.
### Qualifying for Retirement Pay
Twenty years of active duty service is the standard requirement. Hit your 20-year mark, and you’re eligible for immediate retirement with full benefits.
Reserve and Guard retirement works differently. You need 20 qualifying years based on points earned through drills, annual training, and active duty orders. But you don’t start collecting retirement pay until age 60 (or earlier if you have qualifying active duty service under certain programs).
I’ve watched Reserve friends serve 25 calendar years but only accumulate 18 qualifying years. They’re not eligible for retirement yet, despite spending a quarter-century in uniform part-time.
Medical retirement bypasses the 20-year requirement. If a medical evaluation board determines you’re unfit for continued service due to service-connected conditions, you may qualify for immediate medical retirement regardless of years served.
### The Actual Calculation That Determines Your Income
For High-36 (the most common current system), here’s exactly how it works:
Find your highest 36 consecutive months of base pay. Add them up. Divide by 36. That’s your High-36 average.
Multiply that average by 2.5% for each year of service. Twenty years equals 50%. Twenty-five years equals 62.5%. Thirty years equals 75%.
The calculation only considers base pay—not BAH, BAS, special pays, or bonuses. Just base pay. That’s why your retirement check is noticeably smaller than your active duty paycheck.
I retired as an E-7 with 22 years. My High-36 average was about $4,200. My retirement calculation: $4,200 x 0.55 = $2,310 monthly. After taxes and SBP deductions, my take-home was roughly $1,950.
Active duty, I was bringing home over $5,000 monthly when you counted BAH, BAS, and other allowances. The drop is substantial, which is why most military retirees start second careers immediately.
### Cost of Living Adjustments Protect Your Purchasing Power
COLA increases happen annually, tied to the Consumer Price Index. When inflation rises, your retirement pay increases to match.
I retired in 2016 receiving $2,310 monthly. Today, after multiple COLA adjustments, that same pension pays about $2,720 monthly. The actual value in terms of purchasing power remains roughly constant.
Without COLA, inflation would steadily erode your pension’s value. After 30 years of retirement, your check would buy half what it did initially. COLA protection is a massive benefit that most civilian retirement accounts don’t automatically provide.
### Survivor Benefit Plan: Insurance for Your Spouse
SBP costs you 6.5% of your gross retirement pay while you’re alive. In exchange, your designated beneficiary (usually your spouse) receives 55% of your retirement pay for the rest of their life if you die first.
Using my numbers: I pay about $150 monthly for SBP coverage. If I die, my wife receives 55% of my gross retirement amount—roughly $1,270 monthly—for the rest of her life.
It’s insurance. Like all insurance, you’re betting something bad (your early death) might happen. If you live to 90, you paid SBP premiums for decades and your spouse never collected. If you die at 55, your spouse receives guaranteed income for potentially 30+ years.
I elected SBP. My wife is younger than me, has no independent retirement income, and statistically will outlive me. The decision made sense for our situation.
### Disability Retirement and Concurrent Receipt
Medical retirement pay is calculated differently. The system compares your years-of-service calculation against your disability rating and pays whichever is higher.
If you have 15 years of service and a 60% disability rating, the system might calculate both values and pay you based on the higher amount.
Concurrent Receipt allows eligible retirees to receive both full military retirement pay and full VA disability compensation without offset. Before this policy, disability pay reduced retirement pay dollar-for-dollar. Concurrent Receipt eliminated that offset for many retirees, significantly increasing their total monthly income.
Combat-Related Special Compensation (CRSC) provides similar relief for combat-related disabilities. The policies are complex, but they represent recognition that disability compensation and retirement pay serve different purposes and shouldn’t offset each other.
### TSP Under the Blended Retirement System
BRS participants receive automatic 1% TSP contributions from the government, plus matching up to 4% of additional contributions you make.
Contribute 5% of your pay, and the government matches with another 4%, plus the automatic 1%—total of 10% going into your TSP.
Over a 20-year career, those matched contributions compound substantially. A service member contributing 5% throughout their career could easily accumulate $200,000-400,000 in TSP by retirement, depending on pay grade and investment performance.
The reduced pension (2% vs 2.5% per year) under BRS costs you about $500 monthly compared to the legacy system. But if you maximized TSP contributions, your total retirement package potentially exceeds the legacy system.
The catch? It requires discipline to contribute consistently. I’ve seen too many junior enlisted skip TSP because they needed money immediately, then regret it enormously at retirement.
### Tax Implications You Need to Understand
Military retirement pay is federally taxable income. You receive a 1099-R annually and report it on your federal return.
Some states exempt military retirement pay from state income tax. Others tax it fully. A few offer partial exemptions. This affects your net income significantly depending on where you retire.
I moved to Florida post-retirement partly because Florida has no state income tax. That saves me about $2,400 annually compared to if I’d retired in California or New York.
Disability pay from the VA is tax-free, which is why concurrent receipt (getting both retirement pay and VA disability without offset) is so valuable. You’re receiving more total income, and a larger percentage is tax-free.
### Transition Assistance Helps You Navigate the System
TAP workshops cover retirement pay calculations, benefit elections, and financial planning. They’re mandatory for a reason—the system is complex, and mistakes made at retirement can’t always be corrected.
SBP elections are particularly crucial. Once you elect coverage (or decline it), changing your mind later is difficult or impossible. Understanding the decision before you make it matters enormously.
I attended every TAP session, took notes, and asked questions. The counselors explained details I wouldn’t have understood from reading regulations alone.
### Verifying Your Payments Through DFAS
The Defense Finance and Accounting Service manages retirement payments. Your myPay account lets you verify payment amounts, view deductions, update direct deposit information, and adjust tax withholding.
I check my account quarterly to ensure everything remains correct. Errors happen—wrong tax withholding, incorrect SBP deductions, missing COLA adjustments. Catching them early makes corrections easier.
### Planning Around Retirement Pay
Understanding your retirement pay calculation lets you plan strategically during your final years of service.
Maximize your High-36. A promotion in your final three years significantly increases your lifetime retirement income. An E-6 who makes E-7 at year 19 boosts their High-36 average substantially compared to retiring as an E-6.
Contribute to TSP if you’re under BRS. The matching contributions are free money that compounds for decades.
Understand your state tax situation and consider where you’ll retire. Moving from a high-tax state to a no-tax state increases your effective income without changing your pension.
Make informed SBP decisions. Run the numbers for your specific situation, considering your spouse’s age, health, and other income sources.
### What This All Means for Your Future
Military retirement pay provides guaranteed lifetime income that’s inflation-protected and starts early compared to civilian retirement. The calculation is straightforward once you understand which system applies to you.
Combined with TRICARE healthcare, commissary access, and VA benefits, the retirement package represents comprehensive support that provides genuine financial security.
Understanding the system—how it’s calculated, what affects it, how to maximize it—lets you make informed decisions throughout your career and enter retirement with realistic expectations and solid planning.
