Mastering Military Retirement Laws: A Complete Guide

Understanding Military Retirement Laws

Military retirement laws govern how service members transition from active duty to retirement. These laws are vital for ensuring financial stability for retired military personnel. They’re also crucial for military planning and personnel management.

Types of Military Retirement

There are several retirement systems depending on when service members entered the military.

Final Pay System
High-36 Month Average System
REDUX System
Blended Retirement System (BRS)

Final Pay System

This applies to those who joined before September 8, 1980. It calculates retirement pay based on the final base pay at retirement.

Service members need at least 20 years of service. The retirement pay is 2.5% of the final base pay multiplied by years of service. For example, 20 years of service results in 50% of the final base pay.

High-36 Month Average System

This system applies to those who entered service after September 8, 1980, but before August 1, 1986. It calculates retirement pay based on the highest average of 36 months of basic pay.

Similar to the Final Pay System, it uses a multiplier of 2.5% per year of service. However, the difference lies in the calculation method, averaging out the highest 36 months instead of the final pay.

REDUX System

The REDUX option is for those who joined between August 1, 1986, and January 1, 2018. Service members choosing REDUX get an immediate $30,000 Career Status Bonus. The retirement calculation differs slightly.

Under REDUX, the multiplier is 2% for the first 20 years, and 3.5% after 20 years. For example, 20 years gives 40% of the average highest 36 months of basic pay, not 50% like in the other systems.

Blended Retirement System (BRS)

The BRS is for those who entered service on or after January 1, 2018. It combines the defined benefit of the previous systems with a defined contribution component.

Under BRS, retirement pay is 2% per year of service. It also includes a Thrift Savings Plan (TSP) with DoD contributions up to 5% of basic pay. A service member with 20 years will receive 40% of the high-36 average, along with TSP savings.

Eligibility and Length of Service

Active duty service members need at least 20 years of service to qualify for retirement benefits. Different calculations apply depending on the length of service.

20-Year Retirement: Eligibility starts at 20 years. This is the minimum for full retirement.

Reserve and National Guard Retirement: Reservists and National Guard members have different rules. They need 20 qualifying years but must wait until age 60.

Medical Retirement: Service members injured or ill might qualify for medical retirement. The DoD rates the medical condition to determine eligibility and compensation.

Retirement Pay Computation

Retirement pay calculation varies by the system chosen by service members. Here’s the basic breakdown by system:

Final Pay: 2.5% per year of service multiplied by final base pay.
High-36: 2.5% per year of service multiplied by the average of the highest 36 months of basic pay.
REDUX: 2% per year for the first 20 years, then 3.5% for each additional year, multiplied by the average highest 36 months of basic pay.
BRS: 2% per year of service multiplied by the average of the highest 36 months of basic pay plus TSP contributions.

COLA Adjustments

Cost-of-Living Adjustments (COLA) affect retirement pay. These adjustments help maintain the purchasing power of retired pay amidst inflation. The COLA rates are determined annually based on the Consumer Price Index (CPI).

Final Pay and High-36 receive full annual COLA increases. REDUX retirement pay gets reduced COLA, usually CPI minus 1 percentage point. BRS follows the full COLA adjustments in line with the High-36 system.

Concurrent Retirement and Disability Pay (CRDP)

CRDP allows eligible military retirees to receive both retirement pay and VA disability pay concurrently.

Eligible retirees must have at least a 50% disability rating from the VA. CRDP eligibility extends to retirees with 20 or more years of service, including those medically retired under Chapter 61 with 20 years of service.

Prior to CRDP, retirees had to choose between VA disability compensation or military retirement pay. CRDP allows proportionate payment from both sources.

Survivor Benefit Plan (SBP)

The SBP provides income protection to surviving spouses and children. Electing SBP allows retirees to ensure continued financial support for their families.

Retirees can choose different levels of coverage. It is funded by deducting a percentage from the retiree’s monthly pay. The benefit pays out to survivors upon the retiree’s death.

Thrift Savings Plan (TSP)

The TSP is a retirement savings and investment plan offered to service members under BRS. It’s similar to civilian 401(k) plans but designed for federal employees, including the military.

Service members can contribute a portion of their basic pay, with DoD matching up to 5%. TSP offers different investment options, catering to varied risk appetites and retirement timelines.

Early Retirement

Under specific conditions, service members may qualify for early retirement, often referred to as Temporary Early Retirement Authority (TERA). TERA is occasionally available to reduce force size.

Eligible members have served between 15 to 19 years. Retirement pay calculation under TERA involves similar formulas but with reduced benefits for fewer years of service.

Retired Reserve and Play Status

Retired Reserve status allows reservists to receive retirement benefits at age 60, but not earlier. However, under the National Defense Authorization Act (NDAA), some reservists can begin receiving pay before 60.

This early provision applies for every 90 days of active duty service performed in a fiscal year. Although they can receive retired pay earlier, healthcare benefits under TRICARE remain effective only from age 60.

Healthcare Benefits

Retired military personnel qualify for healthcare benefits under TRICARE. Options range to suit varied needs:

TRICARE Prime: Managed care option, requiring enrollment and an annual fee.
TRICARE Select: Fee-for-service option with annual deductibles and cost-shares.
TRICARE for Life: Supplement to Medicare for retirees aged 65 and over.

Whether active, reserve, or medically retired, healthcare is a critical benefit for retired military members and their families.

Important Considerations

Understanding military retirement laws is essential for service members planning their transition from active duty. Various systems and benefits can impact future financial stability.

Consider factors like length of service, type of retirement system, potential VA disability ratings, and SBP elections. Engage with military financial counselors or advisors to better navigate the intricacies of retirement.

Retirement Benefits for Survivors

Survivor benefits protect the families of deceased service members. Aside from SBP, several other benefits are in place:

Dependency and Indemnity Compensation (DIC): Monthly benefit from the VA for survivors of service members who died on active duty or due to service-related conditions.
Death Gratuity: Lump sum payment to designated survivors of service members who die on active duty.
Life Insurance: Coverage under the Servicemembers’ Group Life Insurance (SGLI) and the Veterans’ Group Life Insurance (VGLI) programs.

Survivors should promptly notify relevant authorities to receive these benefits.

Resources for Service Members

Several resources are available for military personnel to understand and manage their retirement planning effectively.

Defense Finance and Accounting Service (DFAS): Official website with detailed information on pay and benefits.
My Army Benefits: Comprehensive resource specifically for Army personnel.
Military OneSource: Department of Defense-sponsored outreach with information and counseling available.
Thrift Savings Plan (TSP) Website: Resources and tools for managing TSP accounts.
Veterans Affairs (VA): Assistance with disability claims and survivor benefits.

Utilize these resources to stay informed and make well-grounded retirement decisions.