Financial Planning and Analysis

How Much Does a Retired Air Force Colonel Make?

Understand the comprehensive financial landscape of a retired Air Force Colonel's military pension.

For a retired Air Force Colonel, military retirement pay is structured as a defined benefit plan. The amount depends on factors such as the retirement system applicable to their service, years served, and final pay grade. These benefits are calculated based on the service member’s entry date into military service.

The Foundation of Military Retirement Pay

Military retirement pay is a non-contributory defined benefit system, providing a pension for life to eligible service members. To qualify, an individual needs at least 20 years of active duty service. This pension is not funded by direct contributions from the service member’s pay.

An Air Force Colonel holds the pay grade of O-6. A service member’s basic pay, which forms the foundation for retirement calculations, is determined by their pay grade and total years of creditable service. As service members advance in rank and accumulate more years of service, their basic pay increases, influencing the eventual retirement pension amount.

Calculating a Colonel’s Retirement Pension

A retired Air Force Colonel’s gross retirement pension is calculated based on one of three main retirement systems, determined by their date of entry into military service: the Final Pay system, the High-3 system, and the Redux system.

For service members who entered before September 8, 1980, the Final Pay system applies. The pension is calculated by multiplying the service member’s final basic pay by 2.5% for each year of creditable service. For example, a Colonel with a final basic pay of $12,000 per month and 25 years of service would receive a monthly pension of $7,500 (25 years 2.5% = 62.5%; 62.5% of $12,000).

The High-3 system, also called High-36, applies to those who entered service between September 8, 1980, and July 31, 1986, and for those after August 1, 1986, who did not select the Redux option. This system calculates the pension based on the average of the highest 36 months of basic pay. This average is then multiplied by 2.5% for each year of service. For instance, if an O-6 Colonel with 25 years of service had an average highest 36 months of basic pay of $11,500, their monthly pension would be $7,187.50 (25 years 2.5% = 62.5%; 62.5% of $11,500).

The Redux system was an option for service members who entered after July 31, 1986, and chose to receive a Career Status Bonus (CSB) at their 15th year of service. This system uses the average of the highest 36 months of basic pay, but applies a reduced multiplier. This option was available until December 31, 2017.

For 20 years of service, the multiplier is 2.0% per year, increasing by 0.5% for each additional year beyond 20 years, up to 30 years of service. For example, a Colonel retiring under Redux with 25 years of service would have a multiplier of 40% for the first 20 years (20 2.0%) plus 3.5% for each of the five additional years (5 3.5% = 17.5%), totaling 57.5%. If their average highest 36 months of basic pay was $11,500, their pension would be $6,612.50 (57.5% of $11,500).

Adjustments to Retirement Pay

Several factors can modify a Colonel’s gross retirement pension over time, ensuring purchasing power is maintained or accounting for specific benefit elections.

Cost of Living Adjustments (COLAs) are applied annually to military retired pay to protect it from inflation. These adjustments are tied to changes in the Consumer Price Index (CPI). For those under the Final Pay and High-3 systems, the annual COLA matches the CPI increase. For retirees under the Redux system, the COLA is generally one percentage point less than the full CPI increase until age 62. At age 62, Redux retirees receive a one-time adjustment to restore their pension to what it would have been under the High-3 COLA rules, but subsequent COLAs revert to the reduced rate.

The Survivor Benefit Plan (SBP) is an optional program allowing retirees to provide a continuous income stream to eligible survivors after their death. Electing SBP results in a permanent reduction to the retiree’s gross monthly pay. The deduction for SBP is a percentage of the elected base amount, up to 6.5% of the gross retired pay. This deduction for SBP premiums is excluded from taxable income for federal purposes.

Disability compensation from the Department of Veterans Affairs (VA) can affect a retired Colonel’s overall income. VA disability compensation is a separate benefit and not considered military retired pay. A service member cannot receive both full military retired pay and full VA disability compensation simultaneously. Retirees waive a portion of their military retired pay equal to the VA disability compensation they receive. This arrangement, known as concurrent receipt, allows retirees with a VA disability rating of 50% or greater to receive both their full military retired pay and their full VA disability compensation, which is tax-exempt.

Tax Considerations for Retirement Income

Military retired pay is generally considered taxable income for federal income tax purposes, similar to other pension income. The specific amount of federal tax owed depends on the retiree’s overall taxable income and tax bracket.

State income tax treatment of military retirement pay varies across the United States. Some states fully exempt military retirement pay from state income tax, while others offer partial exemptions or tax it fully. Retirees should consult their state’s tax laws to understand how their military retirement income will be taxed.

In contrast, VA disability compensation is entirely exempt from taxation at both federal and state levels.

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