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Figuring Out Your Military Retirement Benefits
Military retirement benefits can provide many valuable resources. Like most government programs, however, understanding the ins and outs of military retirement benefits is enough to make your head hurt.
The Three Systems Of Military Retirement
There are three basic systems of military retirement benefits. The type of system for which you are eligible depends upon the date on which you first entered the military.
The Final Pay System
If you entered the military before September 8, 1980, you are eligible for the Final Pay system. This system is relatively easy to figure out. Each year served translates into receiving 2.5% of your basic pay. Thus, if you retire after thirty years of service, you will receive 75% of your basic pay at the time of your retirement, not including allowances or special pay systems.
The High-Three Average System
The High-Three Average military retirement system applies to people who entered the military between September 8, 1980 and July 31, 1986. After fifteen years of service, this option is also offered to military personnel who joined the military after July 31, 1986. (The other option is called the REDUX option and is discussed in the following paragraph.) Unlike the Final Pay system which looks only at your base pay at retirement, the High-Three Average system looks at the average pay throughout the highest-paid 36 months of your career. Each year served earns you 2.5% of the highest 36-month average.
The REDUX System
Finally, the REDUX system is a system adopted by Congress as part of the National Defense Authorization Act of 1986 and amended in 2000. The REDUX system is for those who entered the military on or after August 1, 1986.
The REDUX system, like the High-Three Average, considers the average of the highest 36 months worth of wages. It is more complicated that the other two systems for several reasons.
First, the multiplier varies depending on time served. For instance, each year of the first 20 years is worth only 2% of the high average pay. Each year after the twentieth, however, is worth 3.5%. For instance, if an individual joined the army in 1987 at the age of twenty and retired in 2007 at the age of forty, his or her retirement pay would be 40% of the average of their 36 highest-paid months. If this same individual waited three more years and retired in 2010, he or she would receive 50.5%.
Additionally, REDUX offers a catch-up benefit to bring it in line with the High-Three Average benefit you reach the age of 62. Take the individual in the previous paragraph who retired from the military after twenty years of service at the age of 40. When this individual reaches the age of 62, his or her retirement benefit will jump to 50% of his or her highest 36-month average salary.
Finally after your fifteenth year of military service, you will be given a choice between the High-Three Average System and the REDUX system. If you select the REDUX system and agree to serve in the military for a minimum of thirty years total, you will receive a ,000 bonus.
Still Confused?
To find answers to your questions or to learn more about military retirement benefits, check out Military Benefits at http://www.military.com/benefits/military-pay/questions-about-pay.
Your well-deserved military retirement benefits can bring you extra financial security as you plan to retire, but it is important to understand how much pay you can expect to receive and, when you have a choice, to choose the system thats right for you.
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