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Determining Your Retirement Pay

Military members receive different types of pay, depending on their job, assignment, and other individual factors. As a member of the military, you may receive combat pay, subsistence allowance, housing allowance, hazardous duty pay, flight pay, jump pay, sea pay, submarine duty pay, and more. When it comes to retirement pay calculation, however, only basic pay counts. Everyone in the military receives basic pay. The amount of monthly basic pay you receive is based on your rank and how many years of military service you have.

In the vast majority of cases, your retirement rank is the same as the rank you held at the time you retired. However, if you spent part of your military career as a commissioned officer, this may not be the case. To retire in your commissioned rank, the law requires that you have at least 10 years of service as a commissioned officer.

This will not affect your retirement pay if you are under the High 36 program because it’s computed using your highest 36 months of basic pay. But if you entered the military before September 8, 1980, the amount of time you spent as a commissioned officer could have a significant impact on your retirement pay.

A military member who entered the service prior to September 8, 1980, and first enlisted and later became commissioned, but has less than 10 years of commissioned service, would retire using the basic pay of the highest enlisted rank he held. Because enlisted members generally make much less in basic pay than commissioned officers, this could put a seriously affect your finances.

Basic pay rates from 1949 to present can be found on the Defense Finance and Accounting Web site at www.dfas.mil/militarypay/militarypaytables.html.

Retirement pay is calculated differently for those who retire from active duty and for those who retire from the National Guard or reserves. That is because those on active duty serve full time, while those in the Guard and Reserves serve a mixture of full-time and part-time duty. To retire from active duty you must have at least 20 years of active-duty military service. The basic formula to calculate your retirement pay is

Basic Pay × Number of Years Active-Duty Service × 2.5%

Every year, Congress passes a Defense Authorization Act and a Defense Appropriations Act, which — among other things — set the military basic pay rates for the upcoming year.

Whether you receive this amount or a slightly less averaged amount, casually referred to as “High 3,” depends on when you joined the military. You can get all the details on High 3 in the “The High 36 Retirement Program” section.

Active-duty members begin receiving their retirement pay on the first day of the month after their official date of retirement. Unlike active-duty pay, in which the monthly earned pay is equally divided between two paydays (the 1st and the 15th of each month), you receive your retirement pay only on the 1st of the month. If the 1st falls on a weekend or holiday, you receive your monthly retirement pay on the first business day after the 1st.

Computing Reserve Retirement Points and Pay

The formula used to compute National Guard and Reserve retirement pay is the same as for active duty, with one major exception: Because active-duty service is full time and Guard/Reserve service is a mixture of part-time and full-time duty, you first have to calculate equivalent active-duty time.

Members of the National Guard and Reserves receive retirement points. At a minimum, they are required to perform one weekend of drill per month, plus two weeks of active-duty training per year. Sometimes they spend extra time on active duty, such as if they need to attend a military training school or if they are called for deployment.

Guard/Reserve members receive 4 points for each weekend drill and 1 point for each day spent on active duty, such as deployments, active duty for training (ADT) (including the two weeks of training per year), and attending military school.

Qualifying Years

Like active-duty members, Guard/Reserve individuals must have at least 20 years of service to qualify for retirement. However, those years must be qualifying years. A qualifying year is one in which you earn a minimum of 50 retirement points.

If you perform the minimum required duty (one weekend per month of drill, plus two weeks per year of active-duty training) for a year, you receive a total of 62 points, making that a qualifying year for retirement. That actually gives you a little buffer zone in case you have to miss a weekend drill or two during the year.

60/75 Point Rule

Weekend drill is inactive duty time, an important distinction because the law only allows you to accumulate a total of 60 points per year of inactive duty time for service prior to 1996, and 75 points per year for duty performed after 1996, regardless of how many weekends you work.

Full-time duty spent in  military schools and during deployments is active-duty time, not inactive-duty time, and is not subject to the 60/75 point rule. For example, if you were deployed to Iraq for a year, you’d earn 365 retirement points (366 retirement points if you deployed during a leap year).

Converting Points to Years

To determine how much retired pay you may be eligible to receive, the first step is to calculate the number of equivalent years of service. The formula for computing equivalent years of service for Guard/Reserve retired pay is fairly simple:

Total Number of Retirement Points ÷ 360

The formula computes the number of equivalent years of service the soldier has completed (comparable to full-time active-duty service). For example, 3,600 points equals 10 years of equivalent active-duty service.

The formula to compute your pay is then the same as for active-duty retirement pay:

Basic Pay × Number of Years Equivalent Active-Duty Service × 2.5%

As with active-duty retirement pay, whether you receive this amount or a lesser, averaged amount depends on when you first joined the military.

When to Expect your First Check

Members who retire from the National Guard and Reserves do not receive their retirement pay immediately upon retirement. They receive their first pay when they reach the age of 60.

Under the 2008 National Defense Authorization Act, Congress reduced the age for receipt of Guard/Reserve retired pay by three months for each 90 days of specified duty performed in any fiscal year after January 28, 2008. Specified duty includes active duty for deployment to a combat zone and when called to active duty in response to a national emergency declared by the president or supported by federal funds. Your retired pay eligibility age, however, cannot be reduced below the age of 50.

The High 36 Retirement Program

During the 1980s, Congress decided that military retirement pay benefits were too generous, and made revisions while trimming the federal budget.

Congress enacted a provision, the High 36 Retirement Program, that could affect the final retirement pay you receive. Some folks call this the “High 3” program because 36 months equals 3 years.

If you joined the military before September 8, 1980, you’re not affected by the High 36 program. Your retirement pay is your final base pay multiplied by the number of years of active-duty service multiplied by 2.5 percent.

On the other hand, if you joined the military on or after September 8, 1980, your retirement pay will be reduced significantly under High 36.

Under High 36, instead of using your final base pay in the formula, you use the average of your highest 36 months of basic pay. The exact amount of retired pay varies with each individual because of pay increase factors during the member’s final 36 months of service. For example, military members receive a cost of living allowance (COLA) every January, which increases their basic pay. Also, their basic pay increases when they have more time-in-service. Finally, if they get promoted during their final 36 months of service, that increases their basic pay. On average, High 36 retirement pay is about 10 percent less than retirement pay for those who aren’t subject to High 36.

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