Military Retirement Pay System
The military offers a very generous retirement pay system that allows you to retire after 20 years of service. That means a soldier can retire and start getting paid under the retirement pay system as early as the age of 37 if they joined the military at the age of 17! Few companies can claim to be so generous in providing for their employees retirement.
Military Retirement Pay Structure
Upon finishing 20 years of service, an active duty servicemember can retire and start drawing retirement pay. Each additional year of service above 20 years increases the percentage of base pay received. Servicemembers who joined after August 1986 have two separate retirement plans to choose from, which we discuss next.
Military Retirement Systems Explained
Effective August 1986 to present day:
Upon serving 15 years, the servicemember is asked to choose between two
different retirement plans, High-3 or Career Status Bonus/REDUX. If a
choice is not made, the soldier is automatically enrolled in the High-3
retirement plan. Both plans average the highest 36 months of basic
pay earned while serving—your retirement pay percentile will
be based off of this amount.
*For servicemembers joining prior to September 1980, jump to the Final Pay Retirement System.
High-3 Retirement Plan
The High-3 retirement plan grants you 50 percent of your base pay upon retiring after 20 years of service. For each additional year of service beyond 20, an additional 2.5 percent from your base pay is added to your retirement pay. High-3 also receives a cost of living adjustment (COLA) derived from the national Consumer Price Index (CPI). COLA can greatly increase your retirement pay over time so it needs to be considered when you choose your retirement plan.
Career Status Bonus (CSB)/REDUX
Career Status Bonus (CSB) and REDUX are linked together as a package retirement system. REDUX deals with your retirement income while the Career Status Bonus gives the servicemember a $30,000 cash bonus upon choosing the CSB/REDUX retirement plan after 15 years of service. The REDUX portion varies in some key ways from the High-3 military retirement plan. After 20 years of military service, servicemembers under REDUX will receive 40 percent of their base pay but 3.5 percent for each year of service beyond 20. CSB/REDUX also receives a Cost of Living Adjustment (COLA) linked to the national Consumer Price Index (CPI) but at a reduced rate of the CPI - 1%. To make things more complicated, at the age of 62 those under the CSB/REDUX retirement system are readjusted to have the same multiplier and COLA as High-3. So at the age of 62 the retirement salaries are the same for High-3 or REDUX but again grow apart in later years due to the lower COLA adjustment of REDUX.
Final Pay Retirement System
Soldiers who joined prior to September 1980 are under the Final Pay retirement system. It does not vary significantly from High-3 retirement—20 years of service equates to 50% of your base pay and the multiplier for each additional year of service is 2.5%. The Final Pay retirement plan also receives the Cost of Living Adjustment (COLA) at the full rate. The key difference is that the Final Pay retirement system uses the soldier's last month of basic pay when calculating retirement benefits which is very advantageous if they were recently promoted.
Retirement Pay Caps
There is no longer a cap on retirement pay! Previously, the maximum percentage of base pay that could be received during retirement was 75 percent, no matter if you served over 30 years in the military which would qualify for over 75 percent without the cap for High-3. This change took affect on January 1, 2007 thanks to the passage of the National Defense Authorization Act for fiscal year 2007. Technically, a servicemember can now receive greater than 100 percent of their base pay during retirement in the rare case that they serve over 40 years in the military.
However, there are a few situations in which caps still apply. Servicemembers retiring due to disability are still subject to the 75 percent cap even if they ordinarily would qualify for a greater percentage. Also, Army and Air Force enlisted members are limited to 75 percent if they receive the Extreme Heroism citation which adds 10 percent to their retirement pay. Such servicemembers can still earn over 75 percent in retirement benefits by waiving the 10 percent earned for their Extreme Heroism citation.
Military Retirement Pay Calculator
To calculate your retirement benefits for any of the retirement plans explained above, use the retirement pay calculators available at the Department of Defense Military Compensation website. It has retirement pay calculators for High-3, CSB/REDUX, or Final Pay.
Article Last Modified: September 3, 2010
Return to: Army Benefits