What are Military Retirement Benefits?

retirement benefits for military

One of the best things about pursuing a career in the military is that you’re eligible to retire and receive your full benefits package after 20 years of service.

That means if you entered the military at age 22 you could retire when you’re just 42 years old. That’s still young enough to pursue a new career or even open your own business. Meanwhile, you’ll be collecting retirement pay from the military to supplement your income. It’s not a bad deal.

Military retirement packages are among the best in the United States. One reason for that reputation is that retired servicemembers can receive a pension for life. Pensions were common across many industries for decades, but in the 1980s companies started offering 401(k) plans in lieu of pensions as a way to cut costs. Only a few unions and employers, including the U.S. military, kept the pension system.

Types of Military Retirement Plans 

There are four military retirement benefit options you should be aware of. The type of retirement package you are eligible for depends on the date you first entered military service.

1. Final Pay

You’d be eligible for the Final Pay Retirement System if you began your military service prior to September 7, 1980. Of all the retirement plans the military offers, the Final Pay System uses the simplest formula. With Final Pay, you’d receive 2.5% of your final monthly pay for every year of service.

Here’s an example:

  • Final monthly pay upon retirement = $6,000
  • $6,000 x 2.5% = $150
  • $150 x 20 years served = $3,000

That means you’d receive $3,000 a month for life in retirement. Of course, the military does allow for an annual cost of living increase with each retirement package.

Also, if you retire after 40 years of active service, then you can expect to receive 100% of your monthly base pay as your retirement pension.

2. High-36

retirement benefits for military

If you began your military service between September 8, 1980, and January 1, 2018, you’re eligible for the High-36 Retirement System. High-36 is like the Final Pay System except your retired pay is based on an average of the 36 months you received the highest salary. This is typically your final 36 months of service.

Here’s an example:

  • Year 18 monthly salary = $5,667
  • Year 19 monthly salary = $6,250
  • Year 20 monthly salary = $6,583
  • Average monthly salary = $6,167
  • $6,167 x 5% = $154
  • $154 x 20 years of service = $3080

That means you’d receive $3,080 a month for life in retirement.

3. REDUX System

If you began military service between August 1, 1986, and December 31, 2017, you can choose between the High-36 System or the REDUX Retirement System.

Like High-36, REDUX is based on your highest 36 months of base pay. With REDUX, however, you’ll receive a Career Status Bonus after 15 years of service, which is lump-sum payment provided you agree to complete 20 years of service. However, your final retirement pay will be reduced by a certain percentage. If you choose to complete 30 years of service, then you can accept the Career Status Bonus without a reduction in retirement pay.

This option can be a bit complicated, so we recommend learning more about it here or speaking with your personnel officer to ensure you make the best choice.

4. Blended Retirement System (BRS)

If you entered military service after January 1, 2018, then you’re eligible for the Blended Retirement System (BRS). The name of the system comes from the “blending” of two sources of income in retirement.

With BRS, the military takes 40% of your highest 36 months of basic pay multiplied by 2% of your years of service to determine your pension.

Here’s an example:

  • Average monthly salary = $7,000
  • $7,000 x 2% = $140
  • $140 x 20 years of service = $2,800
  • $2,800 x 40% = $1,120

That means the military provided portion of your pension would be $1,120 a month for life in retirement. Admittedly, that doesn’t sound great, but remember this is a “blended” plan, so there is another source of income.

To make up for the reduced pension, the military will contribute 1% of your base pay toward a Thrift Savings Plan (TSP). This is additional money above and beyond your pay or any bonus. The TSP is very similar to a 401(k) plan typically offered by civilian employers. The contributions to the TSP will be invested into a mix of government bonds and stocks. You’ll be able to choose where your funds are invested.

Upon enrollment into the military, you’ll automatically start contributing 5% of your base pay into the TSP. You may increase, decrease, or cancel that contribution at any time. After two years of service, the military will match your contributions up to an additional 4% of your base pay. 

Moreover, with the BRS, you may be eligible for continuation pay after 12 years of service to incentivize you to stay until you reach 20 years of service. The bonus amount may vary depending on your rank and branch of service, so check with your personnel officer for details.

The biggest advantage of the BRS is that those who choose to leave the military after at least 2 years, but before 20 years of service will still leave with something saved toward their retirement. That’s good news because the government reports that 83% of those who join the military don’t stay long enough to be eligible to receive full retirement benefits.

After exiting from the military, you decide what to do with the funds in your TSP. You can leave the funds where they are, roll them into a personal IRA or a new employer’s 401(k) plan, or make a withdrawal. We recommend you check with an accountant to understand the tax implications of these options.

Health Care for Retired Servicemembers

retirement benefits for military

As an active duty servicemember, you were covered under TRICARE at no cost to you.

As a military retiree, you can choose to continue that coverage at a cost. There are different options including TRICARE Prime, TRICARE Select, and the U.S. Family Health Plan.

There is also vision, dental, and pharmacy benefits associated with TRICARE. You can learn more about the different options available to you here.

In addition, all military veterans are entitled to free care at all VA hospitals if their condition, disability, or injury is related to military service.

Additional Benefits for Military Retirees 

While pension plans and medical insurance are the most important benefits to the vast majority of military retirees, you should keep in mind that there are literally dozens of programs and benefits available to help retired service members in all areas of life.  

For example, retired servicemembers can receive:

That’s just a small sample of military retirement benefits. Check out this complete list.

Ready to Transition to a Civilian Career?   

Empire Resume has helped thousands of veterans successfully transition into the civilian workforce and we can help you as well. We can transform your military skills, achievements, and performance reviews into an expertly crafted military to civilian resume that will attract the attention of employers.

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Contact Empire Resume today at info@empireresume.com or 801-690-4085.

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