Military Retirement: Systems, Calculations, Benefits, and Planning

How Much Is Military Retirement?

The amount of military retirement pay varies significantly based on the retirement system an individual falls under (Legacy High-3 or Blended Retirement System), years of service, rank at retirement, and personal investment choices.

Understanding Military Retirement Systems

Military retirement is a complex benefit, primarily determined by which of two major systems a service member is enrolled in. The choice or default enrollment hinges on their entry date into service.

The Legacy (High-3) System

This system applies to service members who entered the military before January 1, 2018, and opted not to switch to the Blended Retirement System (BRS). It provides a traditional defined-benefit pension, calculated based on the average of the highest 36 months of basic pay. To qualify, service members generally must complete 20 or more years of active duty service.

The Blended Retirement System (BRS)

Introduced in 2018, BRS is the default retirement plan for service members who entered service on or after January 1, 2018. It also applied to those who entered before this date but opted-in during the transition period. BRS combines a reduced defined-benefit annuity with a government-matched Thrift Savings Plan (TSP) and Continuation Pay. This system aims to provide a retirement benefit to a larger percentage of service members, as only a fraction serve long enough to qualify for the full 20-year Legacy pension.

Calculating Your Military Retirement Pay

The calculation method is the most critical differentiator between the two systems.

High-3 System Calculation

For those under the High-3 system, the annual retirement pay is calculated as: (Average of the Highest 36 Months of Basic Pay) x (2.5% per Year of Service) x (Total Years of Service) For example, a service member retiring after 20 years would receive 50% (20 years x 2.5%) of their high-3 average basic pay. After 30 years, it would be 75%.

BRS System Calculation

Under BRS, the defined-benefit annuity portion is calculated differently: (Average of the Highest 36 Months of Basic Pay) x (2.0% per Year of Service) x (Total Years of Service) This results in a smaller annuity compared to High-3 for the same years of service (e.g., 40% after 20 years instead of 50%). However, this is supplemented by the TSP and Continuation Pay.

Impact of Years of Service and Rank

Both systems heavily factor in the total years of service and the rank held during the highest-paid 36 months. Higher rank generally means higher basic pay, leading to a higher retirement calculation. The 20-year mark is the minimum for full retirement benefits in most cases.

Key Components of the Blended Retirement System (BRS)

BRS is designed to provide a more flexible retirement structure.

Defined Benefit Annuity

As detailed above, this is the traditional pension component, but at a slightly reduced rate (2.0% per year of service) compared to the Legacy system.

Thrift Savings Plan (TSP)

This is a significant component of BRS. The government automatically contributes 1% of a service member's basic pay to their TSP account, regardless of personal contributions. After two years of service, the government begins to match service member contributions, up to an additional 4% (for a total of 5% government contribution). This provides a portable retirement savings vehicle similar to a 401(k).

Continuation Pay

At the 12-year mark of service, BRS members are eligible for a one-time lump sum payment, known as Continuation Pay. This payment is typically 2.5 to 13 times their monthly basic pay for active duty members, and 0.5 to 6 times for reservists, in exchange for committing to serve an additional four years. This can be a substantial sum, providing a boost to savings or for other financial goals.

Additional Benefits for Military Retirees

Beyond the monthly pension, military retirees often receive a robust package of benefits.

Healthcare (TRICARE)

Retirees and their eligible family members typically qualify for TRICARE, the military's healthcare program, offering comprehensive medical, dental, and pharmacy benefits at significantly lower costs than civilian plans.

Commissary and Exchange Privileges

Retired service members retain access to commissaries (grocery stores) and exchanges (department stores) on military installations, which offer tax-free goods and often lower prices.

Veterans Affairs (VA) Benefits

Retirees are eligible for various VA benefits, including healthcare services, disability compensation (if applicable), home loan guarantees, education benefits, and burial benefits.

Cost of Living Adjustments (COLA)

Military retirement pay is generally subject to annual Cost of Living Adjustments (COLA), typically tied to the Consumer Price Index (CPI), to help maintain purchasing power against inflation. BRS retirees may have slightly different COLA calculations than High-3 retirees in some years.

Taxation of Military Retirement Pay

Understanding the tax implications of retirement pay is crucial for financial planning.

Federal Taxes

Military retirement pay is considered taxable income by the federal government and is subject to federal income tax withholding, just like civilian pensions.

State Taxes

State tax laws regarding military retirement pay vary widely. Some states fully exempt military retirement pay from state income tax, while others tax it fully or partially. Retirees should consult their state's tax regulations.

Survivor Benefit Plan (SBP)

The Survivor Benefit Plan (SBP) allows military retirees to provide a continuing income to their eligible survivors (spouse, children, or other dependents) after their death. The retiree's gross retired pay is reduced by an SBP premium, and in return, the designated beneficiary receives a percentage of the retiree's pay. Enrollment is automatic for spouses and children unless declined.

Factors Influencing Your Retirement Amount

Several personal and service-specific factors can significantly alter the final retirement amount.

Active Duty vs. Reserve Component

Retirement calculations for reserve component members (National Guard and Reserves) differ. They typically accrue "points" for their service, and their retirement pay is calculated based on these points, often starting at age 60, rather than immediately upon retirement.

Time of Entry into Service

This is the primary determinant of which retirement system (High-3 or BRS) applies, fundamentally altering the calculation and available benefits.

Personal Investment Choices (BRS)

For BRS participants, the amount accumulated in their TSP account is heavily influenced by their personal contribution rates, investment choices within the TSP, and the compounding returns over time. This makes individual financial discipline a key factor in their overall retirement security.

Planning for Your Military Retirement

Regardless of the system, proactive financial planning is essential. Understanding your specific benefits, maximizing TSP contributions (especially under BRS), and considering the SBP are critical steps toward securing a stable financial future after military service. Consulting with a financial advisor specializing in military benefits can provide tailored guidance.