Updated February 6, 2019
Defense Primer: Military Retirement
The military retirement system is a government-funded,
years (36 months) of basic pay. With the exception of those
noncontributory, defined-benefit system that has
opting into the Redux system, the multiplier for current
historically been viewed as a significant retention incentive
retirees is 2.5%. For those entering service on January 1,
for military personnel. The system currently includes
2018 the multiplier will be 2.0%. The basic formula for
monthly compensation for qualified active and reserve
calculating retired pay is:
retirees, disability benefits for those deemed medically unfit
YOS x multiplier x retired pay base
to serve, and a survivor annuity program for the eligible
survivors of deceased retirees. The amount of compensation
For a member who retired in 2017 with 20 YOS, retired pay
depends on years of service (YOS), basic pay at retirement,
is 50% of the average of the individual’s highest 36 months
and annual Cost-of-Living-Adjustments (COLAs).
of pay. If another member with 30 YOS retired in 2017,
retired pay is 75% of the high-three average. A service
What is the Purpose of the Military
member who entered service in 2018 and retires in 2038
Retirement System?
with 20 YOS will receive 40% of the high-three average
The non-disability military retirement system for active
and one who retires with 30 YOS in 2048 will receive 60%
duty members has evolved since the late 1800s to meet four
of the high-three average.
main goals.
How is Disability Retired Pay Calculated?
To keep the military forces of the United States young
A service member retired for disability may select one of
and vigorous and ensure promotion opportunities for
two available options for calculating their monthly retired
younger members.
pay; (1) the longevity formula for regular retirement:
To enable the armed forces to remain competitive with
YOS x multiplier x retired pay base.
private-sector employers and the federal Civil Service.
To provide a reserve pool of experienced military
Or, (2) the disability formula:
manpower as a “retired reserve” that can be recalled to
active duty in time of war or national emergency.
DOD disability percentage x retired pay base.
To provide economic security for former members of
The maximum retired pay calculation under the disability
the armed forces during their old age.
formula cannot exceed 75% of basic pay.
Who is Eligible for Retired Pay?
Figure 1. Retirement System Eligibility
Eligibility for non-disability retired pay depends on years of
service (YOS). In order to be vested in the defined benefit,
a member must complete 20 years of qualifying service. For
active component members this is one calendar year, and
for reserve component members, it is a year in which the
member earns at least 50 retirement “points.”
Service members determined to be unfit for continued
service and who have a permanent and stable disqualifying
physical condition may qualify for disability retirement,
commonly referred to as a Chapter 61 retirement. Eligibility
is based on having a permanent and stable disability of 30%
or more that was not noted at the time of entrance on active
duty. As a result, these members might retire without
having reached the 20-year mark.
How is Regular Retired Pay Calculated?
Retirement pay calculations for active duty personnel are
based on the date when the service member first entered on
active duty, the pay base at the time of retirement, and a
multiplier as defined by statute. Changes in law have
Source: CRS Report RL34751, Military Retirement: Background and
created four distinct systems for calculating retired pay: (1)
Recent Developments, by Kristy N. Kamarck
Final Basic Pay, (2) High-Three, (3) Redux, and (4)
Blended Retirement System. Currently the pay base is
either the final pay at retirement or average of the highest 3
https://crsreports.congress.gov
Defense Primer: Military Retirement
Table 1. Comparison of Benefits under the Military Retirement Systems
Category
Final Basic Pay
High Three
Redux
Blended System
Defined Benefit
Yes, 20 or more YOS
Yes, 20 or more YOS
Yes, 20 or more YOS
Yes, 20 or more YOS
Defined Benefit
2.5% per YOS
2.5% per YOS
2.5% per YOS, less 1%
2.0% per YOS
Multiplier
for each year of
service less than 30
Annuity at 20 YOS
50% of final basic pay
50% of high-3 average
40% of high-3 average
40% of high-3 average
Defined
No
No
No
Yes, 1% automatic, plus up to 4%
Contribution
matching, starting at 2 YOS
Continuation
No
No
Yes, at 15 years w/5-
Yes, between 8 to 12 YOS with
Incentive
year obligation
3-year obligation
Lump Sum Option
No
No
No
Yes
Source: Adapted by CRS from Military Compensation Background Papers, Seventh Edition, Nov. 2011, and FY2016 NDAA (P.L. 114-92).
How is it Funded?
How is Retired Pay Distributed?
Congress appropriates the funds required to pay future
Active duty retirees begin receiving their monthly annuity
retirees in the annual defense appropriations bill. This
from the Defense Finance and Accounting Service (DFAS)
money is transferred to the Military Retirement Fund
on the first business day of the month following their
(MRF), from which current retirees are paid. Under this
retirement. Reserve retirees are generally not eligible to
accounting method, legislation that affects future retirees
receive retired pay until they reach age 60. However, the
has present-day budget implications. The DOD actuary
age requirement may be reduced for members of the Ready
determines the amount of appropriations required based on
Reserve who were recalled to active duty or were called to
economic and demographic projections. Currently, for
certain active service after January 28, 2008. Reserve
every dollar of basic pay provided to active duty military
retirees who have accumulated enough qualifying years of
personnel, DOD contributes approximately an additional 32
service to be eligible for retired pay, but are not yet
cents into the MRF for future retirees under the legacy
receiving retired pay are sometimes called gray area
system and 24 cents for those under the BRS.
retirees. Retired pay is taxable, and DFAS withholds
appropriate taxes as well as deductions for retired pay
What Are Differences Under the
waived in offset of veteran disability benefits, and survivor
Blended System?
benefit program premiums.
The National Defense Authorization Act for FY2016 (P.L.
114-92) made significant changes to the military retirement
Relevant Statute
system for those entering the service on or after January 1,
2018. All other servicemembers are grandfathered into the
Title 10, U.S. Code, Chapters 61 - 73, and Chapter 1223
current system. Those with less than 12 years of service
prior to January 1, 2018 were offered the opportunity to opt
into the new system.
CRS Products
CRS Report RL34751, Military Retirement: Background and
The main change in the blended system is that it will
Recent Developments, by Kristy N. Kamarck
include defined contributions from the government in
CRS Report R40589, Concurrent Receipt: Background and Issues
addition to defined benefits. While the 20 YOS requirement
for Congress, by Kristy N. Kamarck
for the defined annuity remains in the new system, the
multiplier for this benefit is reduced from 2.5% to 2.0%. In
CRS Report R45325, Military Survivor Benefit Plan: Background
the new system, the government will make automatic 1%
and Issues for Congress, by Kristy N. Kamarck and Barbara
contributions to a service member’s individual Thrift
Salazar Torreon
Savings Plan (TSP) and up to an additional 4% matching
contributions.
Other Resources
The blended system also includes a continuation payment
Statistical Report of the Military Retirement System, DOD
as a retention incentive at the member’s mid-career point
Office of the Actuary
(8-12 YOS). Calculations for this benefit differ for active
Valuation of the Military Retirement System, DOD Office of
and reserve component members and the law provides some
the Actuary
flexibility to vary the payment amount based on the
Services’ manpower needs. Acceptance of the continuation
benefit incurs an additional 3-year minimum obligation of
Kristy N. Kamarck, Analyst in Military Manpower
service.
IF10483
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Defense Primer: Military Retirement
Disclaimer
This document was prepared by the Congressional Research Service (CRS). CRS serves as nonpartisan shared staff to
congressional committees and Members of Congress. It operates solely at the behest of and under the direction of Congress.
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