Although many American corporations have done away with a traditional pension system, the U.S. military has not. If you’ve put in long years of service with the U.S. Armed Forces, you’re entitled to a fairly significant retirement payout. However, determining exactly how much you’ll earn as a member of the military with a long service record can require some advanced calculations. There are, in fact, four different military pension programs available, and which one applies to you will depend in large part on when you began your military service. Here’s a quick overview of what type of retirement benefit you may be entitled to if you served in the military.
Final Pay Retirement System
As a service member, you’re eligible for the Final Pay Retirement System if you entered into the military before Sept. 7, 1980. The payout calculations for the FPRS are probably the simplest of any of the military’s retirement systems. To determine your payout, simply multiply your final monthly base pay by 2.5% for every year of your service. For example, if you served for 20 years and earned $5,000 in your final month, your pension payout would be $2,500, or 50% of $5,000. If you served for 40 years, your monthly pension would be 100% of your final monthly paycheck.
High 36 Retirement System
The High 36 Retirement System was designed for individuals first entering service between Sept. 8, 1980 and July 31, 1986. The High 36 Retirement System is similar to the FPRS except that it uses the average base pay for your three highest-paid years — hence the “High 36” moniker — rather than simply your final month’s base pay. For those in the military, the final three years of service are typically the highest-paid years and are usually used in the High-36 calculation. Those with 20 years of service will therefore receive 50% of their average highest 36 months of base pay.
CSB/Redux Retirement System
This retirement system is in place for those entering service between Aug. 1, 1986 and Dec. 31, 2017, although those beginning service in that era could also opt for the High 36 System instead. The basic payout structure of the CSB/Redux System is like the High 36 system, in that the average of the highest 36 months of base pay is used. However, this system offers a one-time, $30,000 “Career Status Bonus” after 15 years of service in exchange for the reduction of future benefits. Those accepting the CSB must reduce their future payout by 1% for each year of service less than 30 years.
The math can get confusing, but here’s a simple example. Under the High 36 Retirement System, retirees with 20 years of service will receive 50% of their base pay, or 20 years x 2.5% per year. Those opting for the CSB bonus will receive 40% instead. The math works like this: 20 years of service is 10 years less than 30 years of service. Thus, the payout is reduced by 10%, or 1% per year of service less than 30.
Blended Retirement System
On Jan. 1, 2018, the Blended Retirement System went into effect. This system was designed to address the needs of the 83% of service members who do not stay in the military for the full 20 years required to get the normal retirement benefit. The BRS includes a defined benefit, a defined contribution to a Thrift Savings Plan (TSP) and Continuation Pay for members who have more than 12 years active duty.
Eligibility for the BRS is determined as follows:
- Service members entering the military before Jan. 1, 2006 remain in the legacy retirement system.
- Service members entering the military on or after Jan. 1, 2018 are automatically enrolled in the BRS.
- Service members entering the military between Jan. 1, 2006, and Dec. 31, 2017 could either stay in the legacy or enroll in the BRS, as long as they selected the BRS by Dec. 31, 2018.
The BRS has many moving parts. The BRS creates a pension payout similar to the CSB/REDUX system, in that you’ll get 40% of your base pay after 20 years. You’ll also receive a bonus, although unlike the CSB/REDUX System, the bonus amounts to 2.5% of your annual base pay and it is paid out after 12 years of service.
Additionally, the military will contribute 1% of your base pay to your Thrift Savings Plan (TSP), and you will be automatically enrolled in the TSP at a 3% contribution level, which you can raise, lower or stop at any time. Finally, after 2 years of service, the military will match up to 5% of your TSP contribution.
