Updated November 20, 2020
Defense Primer: Military Retirement
The military retirement system is a government-funded
Blended Retirement System. Currently the pay base is
system that provides a defined benefit to all retirees and
either the final pay at retirement or average of the highest
matching government contributions to the Thrift Savings
three years (36 months) of basic pay. With the exception of
Plan (TSP) for eligible servicemembers. It has historically
those opting into the Redux system, the multiplier for
been viewed as a significant retention incentive for military
current retirees is 2.5%. For those entering service on
personnel. The system includes monthly compensation for
January 1, 2018, the multiplier will be 2%. The basic
qualified active and reserve retirees, disability benefits for
formula for calculating retired pay is:
those deemed medically unfit to serve, and a survivor
YOS x multiplier x retired pay base
annuity program for the eligible survivors of deceased
retirees. The amount of compensation depends on years of
For a member who retired in 2017 with 20 YOS, retired pay
service (YOS), basic pay at retirement, and annual Cost-of-
is 50% of the average of the individual’s highest 36 months
Living-Adjustments (COLAs).
of pay. If another member with 30 YOS retired in 2017,
retired pay is 75% of the high-three average. A
What is the Purpose of the Military
servicemember who entered service in 2018 and retires in
Retirement System?
2038 with 20 YOS will receive 40% of the high-three
The non-disability military retirement system for active-
average and one who retires with 30 YOS in 2048 will
duty members has evolved since the late 1800s to meet four
receive 60% of the high-three average.
main goals.
How is Disability Retired Pay Calculated?
To keep the military forces of the United States young
A servicemember retired for disability may select one of
and vigorous and ensure promotion opportunities for
two options for calculating their monthly retired pay; (1)
younger members.
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.
Or, (2) the disability formula:
To provide a reserve pool of experienced military
manpower as a “retired reserve” that can be recalled to
DOD disability percentage x retired pay base.
active duty in time of war or national emergency.
The maximum retired pay calculation under the disability
To provide economic security for former members of
formula cannot exceed 75% of basic pay.
the armed forces during their old age.
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, typically
through weekend drill. Servicemembers 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 servicemember 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)
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 Govt.
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, November 2011, and FY2016 NDAA (P.L. 114-92).
How is it Funded?
on the first business day of the month following their
retirement. Reserve retirees are generally not eligible to
Congress appropriates the funds required to pay future
receive retired pay until they reach age 60. However, the
retirees in the annual defense appropriations bill. This
age requirement may be reduced for members of the Ready
money is transferred to the Military Retirement Fund
Reserve who were recalled to active duty or were called to
(MRF), from which current retirees are paid. Under this
certain active service after January 28, 2008. Reserve
accounting method, legislation that affects future retirees
retirees who have accumulated enough qualifying years of
has present-day budget implications. A DOD Board of
service to be eligible for retired pay, but are not yet
Actuaries determines the amount of appropriations required
receiving retired pay are sometimes called gray area
based on economic and demographic projections.
retirees. Retired pay is taxable, and DFAS withholds
Contributions to the fund are made by the services and the
appropriate taxes as well as deductions for retired pay
Treasury (to cover the unfunded liability).
waived in offset of veteran disability benefits, and survivor
What Are Differences Under the
benefit program premiums.
Blended System?
The National Defense Authorization Act for FY2016 (P.L.
Relevant Statute
114-92) made significant changes to the military retirement
Title 10, U.S. Code, Chapters 61 - 73, and Chapter 1223
system for those entering the service on or after January 1,
2018. All other servicemembers are grandfathered into the
current system. Those with less than 12 years of service
CRS Products
prior to January 1, 2018, were offered the opportunity to opt
into the new system.
CRS Report RL34751, Military Retirement: Background and
Recent Developments, by Kristy N. Kamarck
The main change in the blended system is that it includes
CRS Report R40589, Concurrent Receipt of Military Retired Pay
defined contributions from the government in addition to
and Veteran Disability: Background and Issues for Congress, by
defined benefits. While the 20 YOS requirement for the
Kristy N. Kamarck and Mainon A. Schwartz
defined annuity remains in the new system, the multiplier
CRS Report R45325, Military Survivor Benefit Plan: Background
for this benefit is reduced from 2.5% to 2%. In the new
and Issues for Congress, by Kristy N. Kamarck and Barbara
system, the government will make automatic 1%
Salazar Torreon
contributions to a servicemember’s individual Thrift
Savings Plan (TSP) and up to an additional 4% matching
contributions.
Other Resources
Statistical Report of the Military Retirement System, DOD
The blended system also includes a continuation payment
as a retention incentive at the member’
Office of the Actuary
s mid-career point
(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 three-year minimum obligation
Kristy N. Kamarck, Analyst in Military Manpower
of service.
IF10483
How is Retired Pay Distributed?
Active-duty retirees begin receiving their monthly annuity
from the Defense Finance and Accounting Service (DFAS)
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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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