How Much Do Retired Military Make a Month?
Understand how monthly retirement pay for military personnel is calculated, varying by service history and retirement system.
Military retirement pay is a significant benefit for individuals who have dedicated a substantial portion of their lives to service. The monthly amount received varies considerably, reflecting individual service histories, including factors such as pay grade, total years of service, and the specific retirement system under which they retire. This retirement benefit provides a steady income stream in recognition of long-term commitment.
Determining Eligibility and Basic Pay Calculation
Eligibility for military retirement pay typically requires a minimum of 20 years of creditable service. This threshold applies to active duty members and, with specific criteria, to reserve component members who generally become eligible for retired pay at age 60. The foundation of calculating retired pay involves two primary components: the service member’s basic pay and their total creditable years of service. The basic pay component is usually either the service member’s final basic pay or an average of their highest basic pay over a certain period. The number of creditable years of service directly impacts the “multiplier” used in the calculation. For many retirement systems, each year of service contributes a percentage to this multiplier, commonly 2.5%. For instance, 20 years of service would typically result in a 50% multiplier (20 years 2.5%). This multiplier is then applied to the determined basic pay amount to arrive at the gross retired pay. The specific method for determining the basic pay amount and the exact multiplier percentage is dependent on the retirement system the individual falls under, which is largely dictated by their Date of Initial Entry to Military Service (DIEMS).
Key Military Retirement Systems
The amount of monthly military retirement pay is heavily influenced by the specific retirement system applicable to a service member, determined by their entry date. Three primary systems govern these calculations: the Final Pay System, the High-3 System, and the Blended Retirement System (BRS).
The Final Pay System applies to those who entered military service before September 8, 1980. Under this system, retired pay is calculated by taking 2.5% of the service member’s final basic pay at retirement and multiplying it by their total years of creditable service. For example, a service member retiring with 20 years of service would receive 50% of their final basic pay. This system uses the basic pay earned on the last day of service.
The High-3 System, or High-36, is for those who entered service between September 8, 1980, and December 31, 2017. Under this plan, retired pay is based on the average of the highest 36 months (three years) of basic pay. The calculation uses a multiplier of 2.5% for each year of service, applied to this average highest 36 months of basic pay. Therefore, a service member with 20 years of service would receive 50% of their average highest 36 months of basic pay.
The Blended Retirement System (BRS) became effective on January 1, 2018, and applies to all new entrants on or after this date. Service members who entered prior to this date but after August 1, 1986, had the option to opt into BRS. The BRS combines a defined benefit (annuity) with a defined contribution component through the Thrift Savings Plan (TSP).
The annuity portion of BRS calculates retired pay using a reduced multiplier of 2.0% per year of service, applied to the average of the highest 36 months of basic pay. A service member retiring with 20 years of service under BRS would receive 40% of their average highest 36 months of basic pay. The BRS also includes government automatic 1% contributions to a service member’s TSP account after 60 days of service, and matching contributions up to an additional 4% after two years of service. Additionally, BRS participants may be eligible for a one-time continuation pay bonus in exchange for an additional service obligation.
Additional Factors Influencing Monthly Retirement Pay
Several factors can influence the actual net monthly retirement pay received by military retirees. These factors include annual adjustments, tax obligations, and optional deductions for survivor benefits.
Cost-of-Living Adjustments (COLAs) are applied annually to military retired pay. These adjustments are based on changes in the Consumer Price Index (CPI), ensuring that the purchasing power of retired pay is maintained against inflation.
Federal income taxes are applied to military retirement pay. This income is generally considered taxable, similar to a civilian pension. However, certain benefits, such as disability payments from the Department of Veterans Affairs, are typically exempt from federal income tax. State income tax treatment of military retirement pay varies significantly across the country. Some states fully exempt military retirement pay from state income tax, while others partially exempt it or tax it fully. It is advisable for retirees to understand the specific tax laws in their state of residence.
The Survivor Benefit Plan (SBP) allows military retirees to ensure a continuous lifetime annuity for eligible beneficiaries after the retiree’s death. Participation in SBP requires a monthly premium, which is deducted from the gross retired pay. Other potential deductions from monthly retirement pay can include allotments, court-ordered payments, or recoupment of overpayments.