In recent years, the military retirement pay system has become a little more complex. How much you’ll earn is based on when you joined, how long you served, and which branch you served in. There are a lot of variables, and if you’re thinking of retiring from the military in the coming years, it pays to know what to expect.
How Does the Military Retirement Pay System Work?
When planning for retirement, you want to know what kind of income, if any, you have to work with. If you’re retiring from the military, you should be able to determine how much money you’ll be getting, but it can take a little figuring out. Here’s what you need to know.
Who is retired military?
Not just any military member who leaves the service is considered retired. To be considered retired from the military (versus a veteran), you must honorably serve a minimum of 20 years. Severe injury may also grant retirement before the required 20 years.
If you are a commissioned officer, you must have at least 10 years of commissioned service to retire at your commissioned rank. Otherwise, you’ll retire at your enlisted rank.
The final pay system
Military members who entered active duty on or prior to September 8, 1960 may calculate pay using the “Final Pay” method. Multiply your “service factor” (2.5% times the number of years served) by the final basic pay on the day of your retirement.
So if you served 22 years, you’d receive 55% (2.5% x 22 years) of your ending base salary as retirement pay.
The High-36 system
For those who entered active duty after September 8, 1960, your retirement earnings calculation is similar to that of Final Pay, except that you will multiply your service factor by the average of the highest 36 months of basic pay, rather than your final basic pay.
The REDUX system
There’s a third retirement system for newer military enlistees who enlist after August 1, 1986. After 15 years of service, members make a choice to either enroll in the High-36 retirement program or to receive an immediate monetary bonus of $30,000. In doing so, you select the REDUX system. In this system, your “service factor” is calculated by taking 2.5% times your years of service, then reducing that factor by 1% for each year under 30 years.
So using this system, if you retire after 22 years, you’ll earn 47% of your highest 36 months of base pay. After age 62, the REDUX ends and you’ll receive normal retirement pay.
Disability retirement pay
If you have been found medically unfit for further military service, you will likely be granted some disability retirement. Based on your years of service and the level of your disability, you may be considered retired or separated. If your disability rating is at least 30%, you will receive a retired pay base times a multiplier percentage. This multiplier percentage is determined either by your level of disability or your years of creditable service.
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