How Much Do Retired Military Members Make?

Military retirement pay is a significant defined benefit for individuals who dedicate a career to uniformed service, providing a predictable income stream to those who meet specific length-of-service requirements. It offers financial stability, recognizing the commitment and sacrifices made during years of service. Understanding its components is important for service members planning their post-military financial future.

Sources of Retired Military Income

Retired military members may receive income from several distinct sources, each with specific eligibility criteria and tax implications. The primary military retired pay, often called a pension, is the most common for career service members. This annuity is directly tied to years of service and basic pay earned. Its specific calculation varies depending on the retirement system.

Disability compensation from the Department of Veterans Affairs (VA) is another source of income. This tax-free compensation is paid to veterans for illnesses or injuries sustained during military service. The amount received depends on the severity of the service-connected disability, as determined by a VA disability rating, not on years of service. Eligibility for VA disability compensation is separate from military retired pay.

Two programs, Concurrent Retirement and Disability Pay (CRDP) and Combat-Related Special Compensation (CRSC), offer additional benefits for some military retirees. Historically, military retired pay was reduced dollar-for-dollar by the amount of VA disability compensation received. CRDP allows eligible retirees to receive both their full military retired pay and their full VA disability compensation concurrently. To qualify for CRDP, a retiree must have 20 or more years of service and a VA disability rating of 50% or higher.

Combat-Related Special Compensation (CRSC) is a tax-free benefit for retirees whose VA-rated disabilities are directly combat-related. This program restores military retired pay that would otherwise be waived due to VA disability compensation. To be eligible for CRSC, a retiree must be receiving military retired pay and have a VA disability rating of at least 10% that is combat-related. Retirees cannot receive both CRDP and CRSC for the same period and elect the program that provides the greater financial benefit.

Calculating Your Military Pension

A military pension calculation is determined by two factors: years of creditable service and the average of the highest basic pay. Different retirement systems apply based on a service member’s Date of Initial Entry into Military Service (DIEMS). These systems include the High-3, REDUX, and the Blended Retirement System (BRS), each with its own formula and characteristics.

The High-3 Retirement System is the most common plan for service members who entered between September 8, 1980, and December 31, 2017. Under this system, retired pay is calculated by multiplying the average of the highest 36 months (three years) of basic pay by 2.5% for each year of creditable service. For example, a service member retiring with 20 years of service receives 50% of their High-3 average basic pay, while 30 years yields 75%.

The REDUX Retirement System was an option for service members who entered service between August 1, 1986, and December 31, 2017, and opted for a Career Status Bonus (CSB) at their 15-year mark. This system uses a modified calculation: 2.0% per year for the first 20 years, then 3.5% for years 21 through 30, reverting to 2.5% for years 31 and beyond. For instance, a 20-year retiree under REDUX receives 40% of their High-3 average basic pay, a lower percentage than High-3. The reduced multiplier is offset by the upfront CSB, but this system also features a reduced Cost of Living Adjustment (COLA) compared to High-3.

The Blended Retirement System (BRS) applies to service members who entered service on or after January 1, 2018, or those who opted into it from a legacy system. The BRS combines a reduced defined benefit pension with government contributions to a Thrift Savings Plan (TSP) and mid-career Continuation Pay. The pension component calculates retired pay by multiplying the average of the highest 36 months of basic pay by 2.0% for each year of service; for example, a 20-year retiree receives 40% of their High-3 average basic pay. The government automatically contributes 1% of basic pay to the service member’s TSP, with matching contributions up to an additional 4% after two years of service. Continuation Pay, offered around the 12-year mark, is a one-time bonus for committing to additional service.

Across all military retirement systems, the length of creditable service and basic pay associated with rank determine the pension amount. A service member’s rank directly influences their basic pay, which impacts the “high-36” average used in all pension calculations. Longer careers and higher attained ranks result in a greater monthly pension amount. Understanding these factors is important for projecting potential military retirement income.

Adjustments, Deductions, and Taxation

Once a military pension is established, several factors can adjust the net amount a retired service member receives. Cost of Living Adjustments (COLAs) are annual increases applied to military retired pay to help maintain purchasing power against inflation. These adjustments are tied to the Consumer Price Index (CPI) and are effective December 1st each year. While High-3 and BRS retirees receive the full COLA, those under the REDUX system receive a COLA one percentage point lower than the CPI increase.

A deduction from gross retired pay is for the Survivor Benefit Plan (SBP). The SBP is an annuity program allowing retirees to provide a continuous income stream to eligible survivors, such as a spouse or dependent children, after the retiree’s death. Participation in SBP is optional, but if elected, premiums are deducted directly from the monthly retired pay. The premium is calculated as 6.5% of the elected base amount of retired pay, which can be all or a portion of the retiree’s retired pay. This deduction ensures a financial safety net for beneficiaries.

At the federal level, military retired pay based on age or length of service is considered taxable income. It is subject to federal income tax, similar to other pensions. The amount of tax depends on the retiree’s overall taxable income and their federal income tax bracket. In contrast, VA disability compensation and Combat-Related Special Compensation (CRSC) are tax-exempt at the federal level, providing an advantage for those receiving these benefits.

State income taxation of military retired pay varies across the United States. Some states fully exempt military retired pay from state income tax, making them more financially advantageous for retirees. Other states offer partial exemptions, often based on age, income thresholds, or a specific dollar amount. A few states fully tax military retired pay, treating it the same as any other retirement income. Due to this variability, retired service members should research the tax laws of their state of residence to understand their state income tax liability.