How Much Is Army Pension After 20 Years?
Understand the financial reality of an Army pension after 20 years, including how it's calculated, adjusted, and taxed for your retirement.
An Army pension provides a steady income stream for service members who complete a qualifying career. The amount received can vary significantly, influenced by factors such as the specific retirement plan, years of service, and rank held. This article explores the components that determine an Army pension after 20 years of service, from eligibility to tax implications.
Eligibility for Army Retirement
To qualify for an Army pension, a service member must generally complete at least 20 years of creditable service, which includes active duty time and, for Reserve and National Guard members, accumulated retirement points. While active-duty Soldiers can begin receiving their pension immediately upon retirement after 20 years, Army Reserve and Army National Guard Soldiers typically start receiving their pension after turning 60 years old, though this age can be reduced based on certain active service performed since 2008.
Understanding Your Retirement Plan
The gross pension amount for Army retirees depends on the retirement plan under which they served. The three primary plans are the High-3 (or High-36) system, the Career Status Bonus/REDUX option, and the Blended Retirement System (BRS).
The High-3 retirement plan applies to service members who entered service before August 1, 1986, or those who entered later but did not choose REDUX. Under this plan, the annual gross pension is calculated by multiplying 2.5% by the years of creditable service, and then multiplying that result by the average of the highest 36 months of basic pay.
The Career Status Bonus (CSB)/REDUX plan was an option for service members who entered on or after August 1, 1986. This plan offered a Career Status Bonus at 15 years of service in exchange for a commitment to complete 20 years. For those who selected REDUX, the pension calculation uses a reduced multiplier, resulting in 40% of the High-36 average basic pay after 20 years, with an additional 3.5% for each year beyond.
The Blended Retirement System (BRS) became effective in 2018, applying to service members who joined on or after January 1, 2018, or those who opted in with fewer than 12 years of service by December 31, 2017. BRS combines a reduced defined benefit pension with government contributions to the Thrift Savings Plan (TSP).
The pension calculation uses a 2.0% multiplier for each year of service, multiplied by the average of the highest 36 months of basic pay.
Beyond the pension, BRS includes a Thrift Savings Plan (TSP) with government contributions. The government automatically contributes 1% of basic pay to a service member’s TSP account after 60 days, and provides matching contributions up to an additional 4% after two years if the member contributes at least 5%.
BRS also features Continuation Pay, a one-time, mid-career bonus offered between 8 and 12 years of service in exchange for an additional service obligation. Active-duty members may receive 2.5 to 13 times their monthly basic pay.
Adjustments to Your Gross Pension
Net pension amount is adjusted by several factors, including Cost of Living Adjustments (COLAs) applied annually to help pensions keep pace with inflation, typically based on changes in the Consumer Price Index (CPI). For High-3 and BRS plans, the annual COLA generally equals the CPI increase.
However, the REDUX plan includes a reduced COLA, usually one percentage point less than other plans. REDUX retirees receive a one-time adjustment at age 62 to bring their pension to the High-3 level, but subsequent COLAs revert to the reduced rate.
The Survivor Benefit Plan (SBP) allows retirees to provide a continuous income stream to eligible beneficiaries, such as a spouse or children, after death. Opting into SBP reduces the retiree’s gross monthly pension. The cost is generally a percentage of the elected base amount.
Other deductions may come directly from the gross pension, including premiums for health insurance programs like TRICARE. TRICARE offers various plans, such as TRICARE Prime and TRICARE Select, many of which require monthly or annual enrollment fees and co-pays.
Tax Implications of Army Pension
The amount of an Army pension an individual actually receives is significantly affected by federal and state income taxes. Military retirement pay, based on age or length of service, is generally considered taxable income for federal purposes. However, military disability retirement pay and Veterans Affairs (VA) disability benefits are typically excluded from federal taxable income. Retirees receive Form 1099-R, which reports their pension income for tax purposes. Military retirement pay is not subject to Social Security or Medicare taxes.
State income tax treatment of military pensions varies widely across the United States. While some states fully exempt military retirement pay from state income tax, others offer partial exemptions, and a few tax it fully.
States that do not tax military retirement pay include:
Alaska
Florida
Illinois
Nevada
South Dakota
Tennessee
Texas
Wyoming
Other states may offer exemptions up to a certain amount, or based on age or income thresholds. California, for example, treats military retirement pay as regular income, although a partial exemption may be available.