How Much Is E7 Retirement Pay With 20 Years?

Military retirement pay is a significant benefit for service members completing a qualifying career. For an E7 with 20 years of service, the amount received depends on the applicable military retirement system, gross pay calculation, and various adjustments and deductions.

Military Retirement Systems and Their Impact on Pay

The military uses different retirement systems, each fundamentally affecting how a service member’s retirement pay is calculated. The applicable system depends primarily on their entry date, influencing the pension formula’s multiplier. Most E7s retiring with 20 years of service fall under one of three main systems: High-3, REDUX, or the Blended Retirement System (BRS).

The High-3 System, also known as High-36, applies to most service members who entered service between September 8, 1980, and January 1, 2003, and did not opt for REDUX. Under this system, retirement pay is calculated using the average of the highest 36 months of basic pay. This average is then multiplied by 2.5% for each year of service.

The REDUX System was an option for service members who entered service between August 1, 1986, and January 1, 2003, and elected a Career Status Bonus (CSB) at their 15-year mark. REDUX uses a 2.0% multiplier per year of service, rather than 2.5%. This results in a lower initial monthly annuity compared to the High-3 system, offset by the upfront CSB.

The Blended Retirement System (BRS) is the default for service members who entered service on or after January 1, 2018. It was also an opt-in choice for those who entered between December 31, 2005, and January 1, 2018. BRS combines a reduced defined benefit annuity with government contributions to a Thrift Savings Plan (TSP) and Continuation Pay. The annuity portion uses a 2.0% multiplier per year of service, applied to the average of the highest 36 months of basic pay.

Calculating Gross Retirement Pay for an E7 with 20 Years

Gross retirement pay for an E7 with 20 years of service is calculated by applying each retirement system’s formula to the service member’s basic pay. Retirement pay is based solely on basic pay, excluding allowances like Basic Allowance for Housing (BAH) or Basic Allowance for Subsistence (BAS). The “high-3” average is the highest 36 months of basic pay earned over a career, typically the last three years.

Under the High-3 System, the formula is the average of the highest 36 months of basic pay multiplied by 2.5% for each year of service. For example, if an E7’s average highest 36 months of basic pay is $5,000, their gross monthly retirement pay after 20 years would be $5,000 (20 years 2.5%). This results in $5,000 50%, yielding a monthly gross retirement pay of $2,500.

Under the REDUX System, the calculation uses a 2.0% multiplier per year of service. The formula is the average of the highest 36 months of basic pay multiplied by 2.0% for each year of service. Using the same E7 example with a $5,000 average, their gross monthly retirement pay after 20 years would be $5,000 (20 years 2.0%). This equates to $5,000 40%, resulting in a monthly gross retirement pay of $2,000.

For service members under the Blended Retirement System (BRS), the annuity portion is calculated using the average of the highest 36 months of basic pay multiplied by 2.0% for each year of service. Using the same E7 example with a $5,000 average, the BRS annuity would be $5,000 (20 years 2.0%), which is $5,000 40%, resulting in a monthly gross annuity of $2,000. The BRS also includes government contributions to the Thrift Savings Plan (TSP) and Continuation Pay.

Cost of Living Adjustments (COLAs) are applied to retirement pay to help maintain purchasing power. Military retired pay is adjusted each year, effective December 1st, based on changes in the Consumer Price Index (CPI). High-3 and BRS retirees receive the full COLA increase. REDUX retirees receive a COLA one percentage point less than the full CPI increase until age 62.

Adjustments and Deductions to Retirement Pay

After gross retirement pay is calculated, several adjustments and deductions can reduce the net amount received. Understanding these elements helps retirees anticipate their actual monthly income.

Federal income tax withholding applies to military retirement pay, as it is taxable income. The amount withheld depends on the retiree’s W-4 elections and overall tax situation. While military retirement pay is taxable at the federal level, certain benefits like Veterans’ disability payments are excluded.

State income tax rules vary across the United States. Many states do not tax military retirement pay, offering full exemptions. Other states provide partial exemptions or tax it as regular income, with some offering exclusions based on age or income. A few jurisdictions, such as California and Washington D.C., fully tax military retirement pay. Retirees should consider their state’s tax laws to understand the impact on their net pay.

The Survivor Benefit Plan (SBP) is a common deduction, providing an annuity to eligible survivors upon the retiree’s death. Electing SBP results in a premium deducted from gross retirement pay. SBP premiums for spouse coverage are generally 6.5% of the elected base amount, which can be any amount between $300 and the full gross retired pay. These premiums are excluded from federal taxable income.

Beyond taxes and SBP, other potential deductions include Servicemembers’ Group Life Insurance (SGLI) or Family SGLI premiums, garnishments for legal obligations, or repayment of debts owed to the government. These deductions are specific to individual circumstances and contribute to the difference between gross and net retirement pay.

Receiving Your Retirement Pay

Receiving military retirement pay involves a clear and consistent process. Payments begin the month following a service member’s official retirement date. For instance, if a service member retires in July, their first payment is received in August.

Military retirement payments are usually made on the first business day of each month. If the first day of the month falls on a weekend or a holiday, the payment is typically processed on the preceding business day. This consistent schedule allows retirees to plan their finances effectively.

Direct deposit is the standard and most common method for receiving military retirement pay. Funds are electronically transferred directly into the retiree’s designated bank account. This method minimizes delays and provides immediate access to funds.

The Defense Finance and Accounting Service (DFAS) manages military retirement pay. The myPay online system is an important tool for retirees. Through myPay, retirees can:
View their Retiree Account Statements (RAS).
Manage direct deposit information.
Change mailing addresses.
Access their tax forms.

At year-end, DFAS issues a Form 1099-R, reporting total taxable retirement income and withheld taxes for filing purposes.