How to Calculate High-3 Military Retirement Pay

The military retirement system offers various benefits. One method for calculating these pensions is the High-3 retirement system. This system bases a service member’s retirement pay on an average of their highest 36 months of basic pay. Understanding this calculation method is important for financial planning.

Eligibility for High-3 Retirement

To qualify for retirement under the High-3 system, a service member needs to meet specific criteria regarding their entry into service and their total years of creditable service. Generally, this system applies to individuals whose military service began on or after September 8, 1980. Members who entered service prior to this date may fall under different retirement plans, such as the Final Pay system.

A primary requirement for High-3 retirement is completing a minimum of 20 years of creditable service. Creditable service encompasses active duty time and can also include converted reserve points, which are divided by 360 to determine active duty equivalent years. This threshold of 20 years is a fundamental aspect of eligibility.

Determining Your High-3 Average Pay

Calculating the “High-3” average basic pay is a foundational step in determining military retirement benefits. Basic pay is the only component of compensation included in this average; other forms of pay, such as allowances or special pays, are excluded.

To identify your High-3 average, you must pinpoint the 36 consecutive months during which you earned the highest basic pay. While these months are often the last 36 months of service due to career progression and pay raises, they do not necessarily have to be. Service members can consult official military pay charts, published by the Defense Finance and Accounting Service (DFAS), to find historical basic pay rates for their specific rank and years of service.

Once the 36 highest-earning consecutive months are identified, sum the basic pay received for each of those months. Divide this total by 36 to arrive at the average monthly High-3 basic pay. For example, if the total basic pay over the highest 36 months was $126,000, the High-3 average pay would be $3,500 ($126,000 / 36).

Calculating Your Service Multiplier

The service multiplier is a percentage applied to your High-3 average pay to determine your annual retirement benefit. For the High-3 system, this multiplier is 2.5% for each year of creditable service.

To calculate your total percentage, multiply your years of creditable service by 2.5%. For instance, a service member with 20 years of creditable service would have a multiplier of 50% (20 years x 2.5%). For those serving longer, the multiplier continues to increase, reaching a maximum of 75% for 30 or more years of service.

Fractional years of service are also accounted for in this calculation. For example, six months of service would be credited as half a year, contributing an additional 1.25% to the multiplier.

Performing the High-3 Calculation

The calculation for High-3 military retirement pay combines the previously determined values. The annual retirement pay is calculated by multiplying the High-3 Average Basic Pay by the Service Multiplier Percentage. This can be expressed as: (High-3 Average Basic Pay) x (Service Multiplier Percentage) = Annual Retirement Pay.

To convert the annual retirement pay into a monthly amount, simply divide the annual figure by 12. For example, if a service member’s High-3 Average Basic Pay is $5,000 and they have 20 years of creditable service, their service multiplier would be 50% (20 years x 2.5%). Their annual retirement pay would then be $2,500 ($5,000 x 0.50).

Dividing this annual amount by 12 yields a monthly retirement pay of approximately $208.33 ($2,500 / 12). In another example, a service member with a High-3 Average Basic Pay of $7,000 and 24 years of service would have a 60% multiplier (24 years x 2.5%). Their annual retirement pay would be $4,200 ($7,000 x 0.60), resulting in a monthly payment of $350 ($4,200 / 12).

Understanding Adjustments to High-3 Pay

After the initial High-3 retirement pay calculation, several factors can influence the actual amount a retiree receives over time. One adjustment is the Cost of Living Adjustment (COLA), which aims to help maintain purchasing power against inflation. These annual adjustments are tied to changes in the Consumer Price Index (CPI).

Another consideration is concurrent receipt, which addresses situations where military retirement pay might otherwise be reduced due to disability compensation. Programs like Concurrent Retirement and Disability Pay (CRDP) and Combat-Related Special Compensation (CRSC) allow eligible retirees to receive both their full military retirement pay and disability compensation. CRDP is for service-connected disabilities rated 50% or higher, while CRSC is for combat-related disabilities and may be tax-free.

For some service members, the Redux retirement system might be an alternative to High-3. While Redux offers a Career Status Bonus at 15 years of service, it results in a reduced annual COLA compared to the High-3 system, making High-3 more financially advantageous over a lifetime. Without eligibility for CRDP or CRSC, military retirement pay can be offset by Veterans Affairs (VA) disability compensation, meaning the VA payment reduces the military pension dollar-for-dollar.