Military careers bring with them a sense of duty, sacrifice, and commitment. As you navigate your path of service, it’s important to understand the pension benefits you’re eligible to receive due to your service. From traditional pension structures to the newer Blended Retirement System (BRS), we’ll help you understand the landscape of military retiree pay.
Types of Military Retirement Pay and Benefits
Military retirees receive a defined benefit pension following 20 years of service, and it is determined by when you retired. In recent years, the Department of Defense has updated this traditional retirement plan approach to add a more modern system that rewards servicemembers even if you don’t serve for 20 years.
The High-36 Model
The High-36 plan calculates retirement pay based on 50% of the average highest basic pay earned over a 36-month period of your career. After 20 years of service, you receive an additional 2.5% for each additional year. This retirement plan is being phased out and is available only for those who joined the service before December 3, 2017.
Final Pay Plan
Prior to the High-36 model, retirees had the Final Pay model, which uses a multiplier of 2.5% of your final basic pay times the number of years of creditable service. Active-duty retirement calculations are based on the combined years of active service (i.e., Active Duty or full-time National Guard duty). These are added to any additional years calculated by adding reserve points (except those for active service) and dividing by 360.
The Blended Retirement System
The Blended Retirement System is an evolution of the traditional military pension model, designed to add a retirement savings vehicle for servicemembers who serve in the military for less than 20 years. The system was introduced to address the evolving needs of the military and provide a comprehensive retirement package for a broader range of personnel.
The BRS incorporates a blend of defined benefits and a portable Thrift Savings Plan (TSP — more about that below), allowing you greater flexibility in your retirement planning. Servicemembers in the BRS who continue to serve 20 years or more and retire from the military still receive a defined benefit pension but it is calculated differently. Retirees in the BRS calculate their retired pay by multiplying their highest average 36 months of basic pay times 2% times their number of years of service. Eligibility for the BRS extends to those who entered military service on or after January 1, 2018. If you fall into this category, you're automatically enrolled in the BRS.
While the traditional pension rewards two or more decades of military service with a significant pension, the addition of TSP in the BRS recognizes the contributions of those who choose to transition to civilian life earlier. Whether you serve for a few years or make the military a lifelong commitment, you now have a retirement savings option that rewards your contributions to the nation's defense.
The Thrift Savings Plan
As we briefly mentioned above, access to the Thrift Savings Plan (TSP) is available for all service members and is included in the Blended Retirement System. TSP offers servicemembers a portable and flexible savings system. Similar to a 401(k) in the civilian sector, the TSP allows you to contribute a portion of your income toward retirement savings on a tax-deferred basis and includes employer contributions.
Thrift Savings Plan vs. 401(k)
Much like a 401(k), the TSP permits contributions from pre-tax income, helping you reduce your taxable income while simultaneously building a nest egg for the future. The TSP allows you to tailor your portfolio based on risk tolerance and financial goals by offering a range of investment options.
The TSP also offers employer-matching contributions. Under the BRS, the government provides automatic and matching contributions to the TSP — up to 5% of your base pay. This matching feature incentivizes servicemembers to actively participate in their retirement savings and maximize the benefit of their TSP.
However, there’s one key difference between the TSP and a traditional 401(k) — the TSP boasts exceptionally low administrative fees (0.038% vs. 0.2-5% as of 2023), making it a cost-effective option for military personnel.
Benefits of the Thrift Savings Plan
The TSP is an integral component of your retirement package. The BRS leverages the TSP's portability, enabling you to carry your retirement savings with you, even if you transition to civilian life before completing a 20-year military career. This flexibility aligns with the dynamic career paths of modern servicemembers, offering a portable and efficient means of building wealth for retirement.
Disability Retirement Benefits
Disability Retirement Benefits (DRB) provide support for servicemembers who experience disabling conditions during their service. To qualify for DRB, you must be found unfit for continued military service due to a physical or mental disability that interferes with your ability to perform your duties.
The calculation of DRB takes into account the servicemember's years of service and disability rating assigned by the Department of Veterans Affairs (VA). The disability rating is determined based on the severity of the condition and its impact on the servicemember's ability to work. A higher disability rating corresponds to a greater level of impairment.
It's important to know that there are two different ways of rating conditions that result from military service: the military rating and the VA rating. While the military rating is used to determine the level of impairment of active-duty soldiers, the VA rating is used to compensate Veterans for any service-connected impairments that may affect their ability to find and keep civilian jobs. However, it's also important to note that there may be differences between the two ratings, and the military must use the VA rating to evaluate injured soldiers. In some cases, the VA rating may be higher than the military rating, which means that Veterans may receive more compensation for their disability. Additionally, the military rating is permanent, while the VA rating may change over time based on the progress of the disability. Lastly, it's worth noting that the compensation a Veteran receives from the VA is based on the percentage rating they receive. In contrast, the military compensation is affected by years of service and basic pay.
AAFMAA Is Here for Veterans
We recognize the dedication and sacrifice made by our military Veterans and retirees. That’s why we offer multiple Membership benefits for you and your loved ones. Find out more about how AAFMAA can help you today.
This article was originally published October 3, 2021.