How to Plan for DoD Retirement
DoD retirement planning has gotten complicated with all the system changes, benefit options, and financial decisions flying around. As someone who spent years managing military personnel programs and helping service members navigate their transition to civilian life, I learned everything there is to know about strategic retirement planning. Today, I will share it all with you.
Understand Your Retirement Systems
Before you can plan effectively, you need to know exactly which retirement system governs your pension. The DoD operates two primary systems, and your entry date determines everything about your benefits calculation.
Legacy High-3
The High-3 system has been around for decades and calculates your retirement pay using your highest three consecutive years of base pay. You need 20 years of service to qualify, and you’ll receive 50% of that High-3 average at the 20-year mark, increasing by 2.5% for each additional year served.
Blended Retirement System (BRS)
The BRS changed the game when it launched in 2018. It reduces the pension multiplier from 2.5% to 2.0% per year of service, but adds automatic and matching TSP contributions from day one. That’s what makes the BRS endearing to us younger service members—you walk away with something even if you don’t serve 20 years. The system also includes continuation pay at your 12-year mark if you commit to additional service.
Calculate Your Retirement Benefits
Probably should have led with this section, honestly. You can’t plan effectively without knowing what numbers you’re working with. Both systems have calculators available, but understanding the inputs and variables helps you project different scenarios.
High-3 Calculator
- Enter your current or projected rank at retirement
- Input your years of service at retirement date
- Calculate the average of your highest three consecutive years of base pay
- The calculator generates your estimated monthly pension payment
Don’t just run the calculator once with today’s numbers. Project forward to see how promotions and time in service affect your pension. The difference between retiring as an E-7 versus E-8 can amount to thousands of dollars annually for the rest of your life.
BRS Calculator
- Include your current TSP balance and contribution rate
- Factor in the DoD automatic 1% and matching contributions up to 4%
- Account for continuation pay if you’re eligible
- Project TSP growth based on reasonable market assumptions
The BRS calculator shows you two distinct income streams—your pension and your TSP balance. Together they can provide more total retirement income than the legacy system, but only if you actually maximize those TSP contributions throughout your career.
Utilize the Thrift Savings Plan (TSP)
Your TSP represents one of the best retirement savings vehicles available anywhere. The expense ratios are incredibly low, the fund options are solid, and if you’re under BRS, you’re getting free matching money from the government.
Contribution Limits
- For 2023, the annual contribution limit is $22,500
- Service members age 50 and older can contribute an additional $7,500 in catch-up contributions
- Combat zone tax exclusion (CZTE) contributions don’t count against these limits in certain circumstances
If you’re under BRS and not contributing at least 5% of your base pay, you’re literally leaving free money on the table. The government matches dollar-for-dollar up to 3%, then 50 cents on the dollar for the next 2%. That’s an instant return on your investment before any market gains.
Investment Options
The TSP offers lifecycle funds (L Funds) that automatically adjust your asset allocation as you approach your target retirement date. If you want more control, individual funds let you build your own portfolio across government securities, domestic stocks, international stocks, and small-cap stocks.
I’ve seen too many service members park everything in the G Fund because it feels safe. While the G Fund has its place—especially as you near retirement—you need growth from stocks when you have decades until retirement. A balanced approach considering your risk tolerance and timeline typically works best.
Healthcare Considerations
TRICARE coverage in retirement is one of the most valuable benefits you’ll receive, often worth more than many civilian health insurance plans that cost families $1,500+ monthly. Understanding your options helps you choose the right plan for your situation.
TRICARE Options
- TRICARE Prime: HMO-style managed care with lower out-of-pocket costs. You need to live near a military treatment facility and use their network.
- TRICARE Select: PPO-style plan with more provider flexibility but higher costs per visit. Works better if you don’t live near a base or want more control over your healthcare providers.
- TRICARE For Life: Activates when you reach 65 and enroll in Medicare Part B. TRICARE becomes secondary insurance covering what Medicare doesn’t. The combination provides excellent coverage with minimal out-of-pocket expenses.
Factor TRICARE costs into your retirement budget early. The premiums are significantly lower than civilian insurance, but they’re not zero. Plan ahead so there are no surprises when your first retiree TRICARE bill arrives.
Plan for Survivor Benefits
The Survivor Benefit Plan is one of the most important decisions you’ll make at retirement, yet it’s often rushed through during out-processing. SBP ensures your spouse or designated beneficiary continues receiving income after you’re gone.
SBP Features
- Provides 55% of your selected base amount to your beneficiary for life
- You can designate your spouse, former spouse, children, or a combination as beneficiaries
- Premiums cost approximately 6.5% of your base amount, deducted monthly from your retirement pay
- Coverage is government-backed and continues regardless of your beneficiary’s health or circumstances
That’s what makes SBP endearing to us retirees with families—it provides peace of mind knowing your spouse won’t lose your retirement income if something happens to you. Yes, it reduces your monthly check, but it’s essentially life insurance that can’t be cancelled and adjusts with COLA increases.
Seek Professional Financial Advice
Financial advisors who specialize in military benefits understand the unique aspects of your compensation package that civilian-focused advisors might miss. They can help optimize your TSP allocation, plan your drawdown strategy, and coordinate with your other income sources.
Choosing an Advisor
- Look for advisors with specific experience in military retirement planning—they should understand High-3, BRS, TSP, SBP, and TRICARE
- Certified Financial Planners (CFPs) have met rigorous education and ethical standards
- Consider fee-only advisors who charge for their advice rather than earning commissions on products they sell. This eliminates potential conflicts of interest.
Schedule annual reviews with your advisor to adjust for life changes, market conditions, and policy updates. A good advisor keeps you on track even when circumstances shift unexpectedly.
Stay Informed on Policy Changes
DoD retirement policies evolve regularly through legislation and regulatory updates. What was true when you entered service might be different by the time you retire, and staying current ensures you don’t miss beneficial changes or get blindsided by new requirements.
Monitor official DoD websites, attend pre-retirement briefings even if you’re years away from retirement, and join veteran service organizations that track policy changes. The Military Officers Association of America (MOAA) and similar organizations provide excellent updates on legislation affecting retirees.
Make Estate Planning a Priority
Estate planning extends beyond immediate financial concerns to ensure your wishes are carried out and your family is protected if you become incapacitated or pass away.
Essential Documents
- Will: Specifies exactly how your assets will be distributed and who will care for minor children
- Power of Attorney: Designates someone to make financial and legal decisions if you’re unable to
- Healthcare Directive: Documents your medical care preferences including end-of-life decisions
- Beneficiary Designations: Review all accounts regularly—your TSP, life insurance, and retirement account beneficiaries supersede your will
Update these documents after major life events like marriages, divorces, births, or deaths. I’ve seen too many cases where outdated beneficiary designations caused family conflicts and financial hardship because the retiree never updated their paperwork after a divorce or remarriage.
Consider Post-Retirement Employment
Many DoD retirees transition into second careers rather than fully retiring. The combination of military retirement pay plus civilian employment income can provide excellent total compensation while you’re still young and energetic enough to work.
Transition Assistance
- The Transition Assistance Program (TAP) is mandatory and provides job search training, resume writing workshops, and interview preparation
- SkillBridge and similar programs let you intern with civilian companies during your final months of service while still receiving military pay
- Federal employment through USAJOBS offers veterans preference, and your military service counts toward federal retirement if you pursue that path
- Defense contracting leverages your security clearance and military expertise, often offering competitive salaries
Start your job search 12-18 months before retirement. The market moves slowly, and you want options ready when you take off the uniform. Your retirement pay provides a financial cushion that lets you be selective about opportunities rather than taking the first offer out of desperation.
Review Housing Options
Where you live in retirement significantly impacts your financial situation and quality of life. Your housing needs might change dramatically without the military dictating your location every few years.
Considerations for Relocation
- Cost of living varies dramatically between states and cities. Your military retirement check goes much farther in some locations than others.
- Proximity to quality healthcare facilities becomes increasingly important as you age. Living near a military treatment facility or VA hospital provides options.
- State tax policies differ substantially—some states exempt military retirement pay entirely, while others tax it as regular income. This difference can save you thousands annually.
- Access to base facilities for commissary, exchange, and recreation adds value if you live near a military installation
Research your options thoroughly. States like Florida, Texas, and Washington offer no state income tax. Others like Illinois specifically exempt military retirement pay. The savings add up significantly over a 30+ year retirement.
Maintain a Healthy Lifestyle
Probably should have led with this section, honestly. All the financial planning in the world doesn’t matter if you’re not healthy enough to enjoy your retirement. Military life keeps you relatively fit through regular PT requirements and fitness tests. Retirement removes that structure, and many retirees struggle to maintain their fitness without it.
Keep using military fitness centers if you live near a base—they’re excellent facilities at minimal cost. Establish new fitness routines before you retire so the transition doesn’t derail your health. Regular preventive care through TRICARE catches issues early when they’re most treatable.
Mental health matters just as much as physical fitness. Retirement removes the daily mission and camaraderie that defined your military life. Find new purpose through volunteering, hobbies, education, or second careers. Stay connected with your veteran community through organizations and social groups.
Strategic DoD retirement planning combines financial preparation with lifestyle considerations to create a comprehensive approach. Start early, stay informed, make deliberate decisions at key choice points, and regularly review your progress. You’ve earned these benefits through your service—maximize them all for a secure and fulfilling retirement.
