The Military Retirement System: How It Works

It has been the object of a lot of confusion.

When I was in the Army, the military retirement system was cut and dried.

But that is not the way it is now.

There are decisions that must be made by military members that could drastically effect their retirement income.

While I do have my opinions about the political moves that brought about these military retirement changes, I am going to keep them to myself.

But, at the end of this post, you are more than welcome to give your opinions.

But please be somewhat civil about those comments.

In today’s post, I am going to attempt to de-confuse people about the military retirement system.

I will explain what choices you have depending on when you joined the military branch.

I will also lead you to a military retirement calculator where you can get an estimate of what you will get when you choose to retire.

I hope this post will help you but if you have any questions, you can ask them in the comment section below and we will do our best to provide you with an answer.military retirement

Before I move forward I just want to say that no matter the changes in the military retirement system, it is still one of the best retirement plans available.

You can use the multiple tools toward the end of this post to determine which plan will suit you and your family best.

Other Posts You Might Enjoy:

  1. The Retirement Process in the Army National Guard
  2. How to Calculate Your Army, USAR or ARNG Retirement Pay
  3. How to Correct Your Retirement Points Statement NGB Form 23
  4. The 2016-2017 Military Budget: 10 Facts You Should Be Aware Of
  5. NGB Form 23 Retirement Points Summary Statement

4 Military Retirement Plans

At this point in time, there are 4 separate military retirement plans.

Knowing which plan you fall under or have a choice of is dependent on when you entered service.

The 4 plans are:

  1. The Final Pay plan
  2. and, The High 36 plan
  3. The CSB/REDUX plan
  4. The Blended Retirement plan

For some military members, you will have to choose which plan you desire.

So let’s take a look at the entry dates for each plan.

Who can only take the Final Pay Retirement plan?

If you entered service before September of 1980, you are only eligible for the Final Pay plan.

You can scroll further to see how it works.

Who is under the High 36 Retirement plan?

If you joined after September 8th, 1980 – August 1st, 1986, you are under the High 36 plan.

If you joined after August 1st, 1986, you can choose this plan or the next one.

I will explain how this system works further down.

Who is eligible for the CBS/REDUX Retirement plan?

Anyone who joined military service after August 1st, 1986 can choose between this or the High 36 plan.

If the member does not make a decision, they will be automatically put under the High 36 plan.

And the Blended Retirement plan…

This is where the majority of confusion will probably be evident.

Starting December 31st, 2017, any members who entered service after December 31st, 2005 will have the choice of the Blended Retirement plan, the CBS/REDUX plan or the High 36 plan.

For anyone who enters service after January 1st, 2018, the Blended Retirement plan will be their only option at this point in time.

Now I will attempt to explain how each system works.

The Final Pay Retirement Plan

The Final Pay system is actually quite simple.

You receive 2.5% for every year of service so if you were in for 20 years, you will get 50% of the pay you retired at… Your final pay.

Each year there should be a COLA cost of living adjustment, but for the past few years it seems these have not been added.

These are to be measured by the Consumer Price Index.

This has been a huge protest against political factions, but that is a whole different post at some point.

The High 36 Retirement Plan

The High 36 retirement plan works essentially like the Final Pay plan with the only difference being the system does not go by the service member’s final pay; it measures it by averaging the service member’s highest paying of 36 months during their complete service.

Many service members who were deployed for long periods find this plan to be more profitable.

The CBS/REDUX Retirement Plan

This is the plan that every member who is eligible for will really want to research if it will be their best option.

CBS stands for Career Status Bonus.

The first point of this plan is at 15 years you will receive $30,000 if you promise to serve 20 years.

While that lump sum seems great, you really want to add the other losses that will incur.

You will receive a multiplier of only 1.5% unless you put in 30+ years.

If you can handle 30 years, the multiplier will rise back to the 2.5%.

So, if you retire at 20 years, you will only get 40% of your highest 36 months instead of 50%.

Another negative point is the cost of living raise if one is given.

If the CPI means a cost of living raise of 2%, the member who is on the CBS/REDUX plan will only get a 1% raise because it is CPI minus 1%.

Will the $30,000 be worth those losses?

The Blended Retirement Plan

Should you accept this new plan or not?

Just recently the Pentagon accepted this new plan that will take affect in 2017.

It has similarities and differences to the CBS/REDUX plan.

You do get a bonus after 12 years of service with an obligation to serve 20 years.

That bonus is 2.5% of your annual base pay.

At retirement, just like the CBS/REDUX plan, you will receive 40% of the highest paying average of 36 months.

1 huge difference is the military will begin matching funds in the member’s Thrift Savings Plan account.

It does seem like this may be a good plan, but you will want to really research it closer before accepting it.

Calculate Your Retirement

Calculating your retirement pay under the various choices is a wise move.

The people over at Military.com have provided some calculators that can help you get a close estimate of your retirement pay.

Final Pay calculator

They also developed another tool that can help you make the best decision on which retirement plan would be your best option.

Try out their retirement choice calculator here.

National Guard and Reserves Retirement

The National Guard and Reserves Retirement system has not changed.

You must have 20 years of service to be eligible for retirement pay, and pay is based on accumulation of points.

This link explains the system to compute your retirement pay for National Guard or Reserves.

Final thoughts

I really hope this post was able to give you a better understanding of the military retirement plans.

I want to add another factor that was made in 1980.

If you are a Commissioned Officer, you must be so for 10 years to be eligible to retire at your commission rank.

If not, you will be retired at enlisted rank.

Now, lets hear all thoughts.

You can give your opinions, suggestions and questions below.

Please keep it at a sane level.

Debate is good, but arguing is bad.

There is a HUGE difference.

Thank you and have a great day.

References

  1. The Military Retirement System

  2. Military Retirement: Too Sweet A Deal?

  3. http://militarypay.defense.gov/Pay/Retirement.aspx

  4. Retirement Changes Mean Tough Choices For Troops

  5. Understanding Military Retirement Pay

  6. The New Military Retirement System Has Major Flaw, Financial Experts Warn

  7. New Military Retirement Law Creates Big Decisions For Many Troops

  8. New Military Retirement System Gets Pentagon Ok

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Chuck Holmes

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Email: chuck@part-time-commander.com

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One thought on “The Military Retirement System: How It Works

  1. Daniel

    80% of service members leave the service with exactly 0 dollars for retirement (from the government, they can choose to do contribute to TSP or IRA but there is no matching under the old plan) if they leave a day before 20 years (lets ignore the early retirement in general, those are exceptions). Under the new plan pretty much every SM leaves with something in their TSP and as a counterbalance for the matching, the ones who hit 20 get only 80% of what they had been getting (but they may, or may not depending on market returns, actually end up with more money due to the matching TSP funds). There may be retention issues by that reduction but the compensating controls (the bonuses at 12 and 15 years) may complicate that argument.

    I do think I have seen items that Reserve retirement will be changing as well, I know that we are expecting new briefings in my state next year that will clarify. (http://militaryadvantage.military.com/2015/05/reserve-guard-retirement-choices-in-sharper-focus/)

    Reply

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