What Is Retirement Pay for an E7 With 20 Years?

Military retirement pay provides a reliable income stream to service members who meet specific service length requirements. This financial security acknowledges the commitment and sacrifices made during a military career. Understanding how this pay is determined, especially for an E7 with 20 years of service, involves examining various retirement systems and influencing factors.

Military Retirement Pay Systems

Military retirement pay calculation depends on when a service member entered the military, as different systems have been in place. Primary systems for those with 20 years of service include Final Pay, High-3, and Redux. The Blended Retirement System (BRS) is the current standard for newer entrants.

The Final Pay system applies to service members who entered prior to September 8, 1980. Retired pay is calculated by multiplying the service member’s final basic pay by 2.5% for each year of service. This uses the basic pay received on the last day of active duty.

The High-3 system applies to those who entered service between September 8, 1980, and July 31, 1986, or after August 1, 1986, if they opted out of Redux. This system calculates retired pay based on the average of the highest 36 months of basic pay. The High-3 system uses a multiplier of 2.5% per year of service.

The Redux system was an option for service members who entered between August 1, 1986, and December 31, 2017, often chosen in exchange for a Career Status Bonus (CSB). Under Redux, the retirement multiplier is reduced compared to High-3, calculated at 2.5% minus 1% for every year of service under 30 years. A service member retiring at 20 years would receive 40% of their high-36 average basic pay, rather than 50% under High-3.

The Blended Retirement System (BRS) is the current retirement plan for service members who entered on or after January 1, 2018. While an E7 with 20 years would typically fall under High-3 or Redux, BRS combines a reduced defined benefit (2.0% per year of service) with government contributions to a Thrift Savings Plan (TSP). BRS includes automatic and matching contributions to the TSP, distinct from previous pension-only systems.

Calculating Retirement Pay for an E7 with 20 Years

Calculating retirement pay for an E7 with 20 years involves applying the specific formulas of the High-3 or Redux systems to their basic pay. The “high-36” average basic pay is the average of the highest 36 months of basic pay earned during a service member’s career.

For an E7 retiring under the High-3 system with 20 years of service, the multiplier is 50% (20 years x 2.5%). For example, if an E7’s highest 36 months of basic pay averaged $4,700 per month, the monthly retirement pay would be $4,700 multiplied by 50%, resulting in $2,350.

If an E7 with 20 years retired under the Redux system, the multiplier would be 40% (20 years x 2.0%). Using the same $4,700 average basic pay, monthly retirement pay would be $4,700 multiplied by 40%, resulting in $1,880. This shows a notable difference in initial retirement pay compared to High-3 due to the reduced multiplier.

The difference between High-3 and Redux can be significant over a lifetime. While Redux offered a $30,000 Career Status Bonus, its lower monthly pension and reduced Cost of Living Adjustments (COLAs) can lead to a substantial long-term financial disadvantage. Service members under Redux receive a one-time adjustment at age 62 to bring their pay up to High-3 levels, but subsequent COLAs revert to the reduced rate.

Factors Influencing Retirement Pay

Several factors can adjust military retirement pay, affecting a retiree’s net income. These include cost of living adjustments, the Survivor Benefit Plan, concurrent receipt programs, and taxation.

Cost of Living Adjustments (COLAs) are applied annually to military retirement pay to help maintain purchasing power against inflation. For retirees under Final Pay, High-3, and BRS, the annual COLA equals the percentage increase in the Consumer Price Index (CPI). For those under the Redux system, the COLA is one percentage point less than the CPI increase.

The Survivor Benefit Plan (SBP) allows military retirees to provide a continuous income stream to eligible beneficiaries, such as a spouse or children, after the retiree’s death. Participation in SBP results in a deduction from gross retirement pay. The decision to opt in or out has long-term financial implications for the retiree and beneficiaries.

Concurrent Receipt allows some military retirees to receive both their military retirement pay and Veterans Affairs (VA) disability compensation. The Concurrent Retirement and Disability Pay (CRDP) program allows eligible retirees with a VA disability rating of 50% or greater to receive both payments without offset. Combat-Related Special Compensation (CRSC) provides tax-free payments for combat-related disabilities, which can also restore retired pay reduced by VA disability.

Military retirement pay is subject to federal income tax. State taxation varies, with some states fully exempting it, others partially exempting it, and some taxing it fully. Retirees should consult their state’s tax laws.

Other Retirement Benefits

Beyond monetary payment, military retirees are eligible for non-monetary benefits that enhance their quality of life.

Healthcare access through TRICARE is a significant benefit for military retirees and their families. Upon retirement, service members can enroll in TRICARE Prime or TRICARE Select. For those aged 65 and older, TRICARE For Life acts as a secondary payer to Medicare, covering many out-of-pocket costs.

Retirees and their families retain access to military commissaries and exchanges. Commissaries offer groceries at reduced prices, while exchanges provide tax-free retail shopping. These privileges can result in considerable savings on everyday expenses.

Access to Morale, Welfare, and Recreation (MWR) facilities is another valuable benefit. MWR programs provide services and activities, including gyms, recreation centers, golf courses, and lodging at military installations worldwide.

Space-Available (Space-A) travel offers retirees the opportunity to fly on military aircraft when space is available, typically at little to no cost. While flights are not guaranteed and are subject to availability, it can be a cost-effective way to travel for those with flexible schedules.

Military retirees are also eligible for various benefits administered by the Department of Veterans Affairs (VA). These include educational benefits like the GI Bill, and home loan guarantees. The VA also provides healthcare services and other support programs.