Frequently Asked Questions About Military Retirement
Getting a head start is critical to making the most of any service members retirement – no matter if youre with the Army, Navy, Air Force, Marines or Coast Guard. At a minimum, the transitioning process should start a year before your expiration of time-in-service date, but many people start planning even before that.
Meeting The Physical Evaluation Board
The evaluation board is charged with deciding whether a service members condition allows them to remain on active duty, be medically retired, or separated. The following conditions may apply depending on circumstances:
- Those with less than 20 years of active service and who have been awarded a disability rating of 30 percent technically qualify for medical retirement.
- Those with a disability rating below 30 percent may experience medical separation instead of retirement.
- Those with 20 or more years of active service will be recommended for retirement regardless of the disability rating.
- Those who have a disability which existed before entering military service are recommended for military discharge without benefits.
A Recomputation Of Retired Or Retainer Pay To Reflect Later Active Duty Of Members Who First Became Members After September 7 1980
.A member of an armed force
who first became a member of a uniformed service after September 7, 1980
who has become entitled to retired pay or retainer pay and
who thereafter serves on active duty ,
is entitled to recompute his retired pay or retainer pay upon release from that duty according to the following table.
|Retired pay base or retainer pay base under section 1407 which he would be entitled to use if||The retired pay multiplier or retainer pay multiplier prescribed in section 1409 for the sum of|
|he were retiring upon release from that active duty or||the years of service that may be credited to him in computing retired pay or retainer pay and|
|he were transferring to the Fleet Reserve or Fleet Marine Corps Reserve upon that release from active duty.||his years of active service after becoming entitled to retired pay or retainer pay.|
New Disability Incurred During Later Active Duty .A member of an armed force who first became a member of a uniformed service after September 7, 1980, who has been retired other than for physical disability and who while on active duty incurs a physical disability of at least 30 percent for which he would otherwise be eligible for retired pay under chapter 61 of this title, is entitled, upon his release from active duty, to retired pay under subsection .
was retired for physical disability under section 1201 or 1204 of this title or any other law or whose name is on the temporary disability retired list
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Will Crsc Reimburse The Full Amount Of Va Waiver
It is important to note that CRSC may not reimburse the full amount of the VA waiver if only some of the veterans service-connected conditions are combat-related. For example, the veterans branch of service may determine that only 40 percent out of their 60 percent combined disability rating is considered combat-related, in which case the branch would reimburse only the amount of VA compensation you would receive for a 40 percent disability rating.
How Years Of Service Are Calculated
For all plans, years of service includes credit for each full month of service as one-twelfth of a year. “Years of service” for officers includes all active service, periods of inactive reserve service prior to June 1, 1958, ROTC active duty time prior to October 13, 1964, constructive service credit for Medical and Dental Corps, and drills performed while in the inactive reserve after May 31, 1958.
“Years of service” for Fleet Reservists and all other enlisted retirements include all active service, active duty for training performed after August 9, 1956, any constructive service earned for a minority or short-term enlistment completed prior to December 31, 1977, and includes drills performed while in the Active Reserves.
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How Much Is My Military Pension Worth
When it comes to planning for their financial future, many veterans don’t realize what their service is really worth. They don’t know how to calculate military retirement pay present value properly because they aren’t focusing on the bigger picture. At US VetWealth, we can help you protect the true value of your service.
The typical veteran approach to salary negotiations during the standard post-military job hunt reflects this. So does their acceptance of the status quo military financial planning benefits when they retire. In both cases, many veterans are cheating themselves. The total value of their military retirement pay is actually much higher than they think it is.
There are two issues that many military and veteran families don’t understand:
- The concept of Regular Military Compensation and its relationship to the lifestyle they are living and
- The extent to which the status quo military life insurance and financial planning vehicles don’t reflect the true value of their service.
Converting Points To Year
To determine how much retired pay a member is eligible to get, calculate the number of equivalent years of service:
Total Number of Retirement Points ÷ 360
This formula determines the number of comparable years of service the member completed . Ten years of equivalent active-duty service amounts to 3,600 points.
Figuring payment is the same as for active-duty retirement pay:
Basic Pay × Number of Years Equivalent Active-Duty Service × 2.5%
Contingent on when a member joined the military determines whether a member is eligible for this amount or the smaller, averaged amount.
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Military Pensions As Divisible Community Property
Military pensions are a type of deferred compensation. This simply means a portion of the service members pay is set aside to be paid at a future date by the federal government as employer. In addition to military retired pay and Thrift Savings Plan, both of which are qualified plans, a spouse might also have non-military deferred compensation from other employment in the form of 401 or 403 plans, IRAs, bonus plans, stock options, and profit-sharing plans. The Arizona Divorce Handbook, by attorney Scott David Stewart, has an entire chapter devoted to property division in non-military pension division.
Whether earned while in the military or as a civilian employee, any deferred compensation categorized as community property is subject to division in the parties divorce. ARS § 25-318. Calculating military retired pay in advance of division, though, is a different kettle of fish, which is why it is important to contact a qualified divorce attorney near you when dealing with this situation.
Military Retired Pay Vs Military Retirement Pay Vs Military Pension Etc
Though this article generally uses the term “military retirement”, different sources will use different terms. The Uniform Services Former Spouses Protection Act at 10 U.S. Code § 1408 uses the term “Retired or Retainer Pay”, but other parts of the same code chapter use the term “monthly retired pay.” In fact, there are a host of terms used which all mean “military retirement”. So when you see any of the following terms, you know they mean the same thing:
- U.S. Military Retirement Pay
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Waiver Of Retired Pay In Exchange For Disability Pay
Before retiring, many service members have the option of waiving a portion of their disposable retired pay and elect, instead, a matching amount in VA disability compensation. The total monthly payment is the same, but the disability component keeps more money in the service members pocket.
The VA disability payment election impacts both spouses. The first has to do with divorce and taxes. For the military spouse, the disability portion is not taxable. This is incentive to waive some of the longevity pension that is disposable retired pay in exchange for disability pay . Another incentive is to prevent the other spouse from receiving any portion of the disability retired pay in an annulment, divorce, or legal separation.
For the other spouse, disability retired pay means less community property is available for division. Arizona law also protects the service members disability benefits from division. In fact, Arizona prohibits the court from attempting to consider disability benefits in property division from indemnifying the other spouse for the service members waiver of disposable retired pay in exchange for disability pay and from making up the difference to the other spouse by awarding him or her income or property belonging to the service member to be more equitable. That is, in order to balance things out between the spouses. Take a look at ARS § 25-318.01:
Tips For Maximizing Your Tsp
The following tips can help you maximize your Thrift Savings Plan contributions. The sooner you start, the better off youll be when it comes time to retire from the military.
Contribute at least 5%.
The TSP matching contribution comprises two parts: automatic 1% match and 4% agency match. If you do not contribute at least 5% of your pay, you are not making the most of what’s being offered to you. If you are participating in the BRS but not contributing to your TSP, you will only receive the Department of Defense’s 1% automatic contribution. If you do not contribute to your TSP, you do not receive any matching contributions.
Make catch-up contributions.
Catch-up contributions are extra deposits you can begin making into a TSP any time starting in the year that you turn 50 years old, as long as you expect to make the maximum regular contribution as an eligible federal employee. This gives you the chance to save up more for your retirement. You decide how much you want to deposit, and it’s automatically deducted from your basic pay every pay period. There is a yearly limit, determined by the IRS. Catch-up contributions automatically stop when you reach the limit or when the calendar year ends whichever comes first. They don’t continue from one year to the next. You must make a new catch-up contribution election each year.
Traditional TSP vs. Roth TSP.
Weigh your options.
Stay up to date.
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Can You Retire On Military Pensions Alone
Those who leave the military at 20 years are unlikely to be able to survive on just a military pension, since depending on whether youre on the legacy plan or new plan, your payments are only equivalent to 40-50% of your base salary. Youd have to stay in until 40 years on the legacy plan to get your full paycheck, and those on the BRS can never achieve more than 82% given the TSP component.
However, since the average retiring service member is in their 40s, its common to pursue another career and earn additional retirement benefits. You can earn a whole additional retirement pension if you work as a federal employee. Or if you go to the private sector, you can sock away money in a 401 or IRA that you can use to supplement your military pension.
How Are Tsps Invested
Money contributed to the TSP is put into a retirement fund automatically, but you should ensure its invested optimally for you. This is less of a problem now previously, TSP contributions were invested by default in the G fund, the most conservative fund. Younger service members who didnt realize this until later lost out on potential growth. As of January 1, 2018, contributions for new TSP enrollees default to an age-appropriate Lifecycle Fund, which is a mix of assets that rebalance over time based on the persons age. However, participants can manually invest in specific funds with differing levels of asset allocation and risk.
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Who Qualifies For Crdp
You are eligible for CRDP if:
- You are a regular retiree, with a VA Disability rating of 50% or higher, or
- You are a Reserve retiree with 20 or more qualifying years of service, have a VA Disability rating of 50% or higher, and have reached retirement age, or
- You retired under the Temporary Early Retirement Act with a VA Disability rating of 50% or higher, or
- You are a disability retiree who earned entitlement to retired pay under any provision of the law other than solely by disability and you have a VA Disability rating of 50% or higher.
Dealing With Military Retired Pay During A Divorce In Arizona
In Arizona divorce law, the marital portion of both vested and non-vested pensions are divisible community assets. Those marital assets include military retired pay that was earned by the service member during the marriage. As will become clear, it matters very much whether the military spouse is active duty or already receiving retired pay at the time the divorce commences.
Could a service members legal strategy include resisting the division of military retired pay? Quite possibly. Such tactics include challenging the courts jurisdiction over the pension, forum shopping for a more favorable venue, alleging the marital pension claim was not timely filed, claiming the other spouse waived any marital interest in the pension and electing disability pay in lieu of longevity retired pay. To overcome obstacles like these and obtain the best possible outcome in the divorce, the other spouse also needs a solid legal strategy. Consult a family law attorney near you at Stewart Law Group who has a meaningful experience with military divorce trials and appeals.
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When To Expect The First Check
Members retiring from the National Guard and Reserves dont get their retirement pay instantaneously after retirement they get their first pay at the age of 60.
Under the 2008 National Defense Authorization Act, Congress scaled down the age for receipt of Guard/Reserve retired pay by three months for every 90 days of specified duty performed during any fiscal year after January 28, 2008. Retired pay eligibility age cant be shortened below the age of 50.
Specified duty includes active duty for deployment to a combat zone and recall to active duty in reply to a national emergency declared by the president or supported by federal funds.
Enrollment In The Brs Depends On When You Joined The Service
If you joined before January 1, 2006, you remained in the legacy retirement system.
If you joined the service on or after January 1, 2018, you were automatically enrolled in the BRS.
If you joined between January 1, 2006, and December 31, 2017, you could stay in the legacy system or enroll in the new one. The last day to enroll in the BRS plan was December 31, 2018.
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How To Use The Final Pay Military Retirement Calculator
Service members who entered the armed forces before Sept. 8, 1980, and are still serving can use the Final Pay Calculator to estimate their future military pension amount.
Of all the retirement plans, the Final Pay system uses the simplest formula. Youll receive 2.5% of your final monthly basic pay for every year of service. For example, 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.
For the Final Pay calculator, youll enter all the same information that the other service members did for the High-36 calculator.
You can also reset the calculators results by adjusting the factors. For example, delaying your retirement year may result in a higher base pay due to automatic cost-of-living adjustments, even if you dont get a promotion. This would increase your retirement pay.
Both the High-3 and the Final Pay retirement calculators are for service members who joined before 1986 or 1980, respectively. If you joined after 2018, use the Blended Retirement System calculators for active duty or those in the National Guard or reserves.
Remember, the sooner you start planning for your transition to retirement, the more money youll have to spend when you get there.
How To Maximize Your Blended Retirement System Earnings
As of January 1, 2018, the new Blended Retirement System took effect for eligible service members. The plan includes a smaller 20-year military retirement annuity, automatic and matching contributions to the Thrift Savings Plan , a mid-career continuation pay component and lump-sum distribution options at retirement.
The Blended Retirement System is calculated using a 2.0% multiplier for each year of service instead of a 2.5% multiplier, making a 20-year pension worth 40% of the retirement pay multiplier instead of 50%. Service members can estimate their retirement benefits under the BRS and compare the Legacy High-3 with the BRS.
On the surface, new service members may not receive as much retirement as they would have under the traditional system. Still, if the 401 element, the TSP, is managed correctly, there’s the potential to make even more under the BRS.
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Which Retirees Receive This Cola Increase
If you retired under the Final Pay or High-3 retirement plans, and you have been retired for longer than one year, you should receive the full COLA increase. If you retired in 2020 , your COLA may be affected. COLA is applied on a sliding scale if you retired during the calendar year.
DFAS typically publishes a schedule for retirees who retired in the previous year.
Here is a previous example for military members who retired in 2013 . You can use these as a reference point.
Recent military retirees receive COLA based on the quarter in which they retired. For example, those who retired between January 1, 2013, and September 30, 2013, received a full or partial COLA, as follows:
The reduced payment is a one-time deal, and only affects retirees following the year in which they retired. Retirees will receive the full COLA increase in subsequent years of retirement.