What pension benefits are available to military personnel?

By Daniel Kurt AAA
A:

The United States military provides its members many benefits, including what many regard as a rather generous pension system, although it takes 20 years of service to become eligible. One unique aspect of the system is that service personnel start receiving benefits whenever they retire, regardless of their age. Another attractive feature is that there's a cost of living adjustment each year to help retirees keep up with inflation.

There are actually three different guidelines that determine the value of your pension benefits, depending on when you entered the service:

1. If you joined prior to September 1980, your benefits are calculated using the "Final Pay" retirement system.

2. Payments for those joining between September 1980 and August 1986 are derived from the "High 36" method.

3. Those enlisting thereafter must choose whether to follow High 36 or a system known as "CSB/REDUX."

The three methods do have some things in common. In each one, service personnel with 20 or more years of service are entitled to a percentage of their base pay, which increases with each additional year of service. If you serve for 40 years, you're entitled to 100% of your base pay. That's about where the similarities end. The definition of "base pay" is one important distinction. The Final Pay system uses the pay you received during your last month of active service for this purpose; the other two methods take the average of your highest 36 months of pay. The percentage of base pay you get in retirement also differs. Final Pay and High 36 multiply your number of years of service by 2.5 to the get the percentage. For CSB/REDUX, the multiplier is 2 for the first 20 years, but jumps up to 3.5 for each additional year served beyond that.

There used to be a cap on benefits equal to 75% of base pay, but this limitation was lifted in recent years for most active duty personnel. In some cases, eligible service members can receive 100% or more of their base compensation if they have served long enough. One of the exceptions is for those who retired because of disability. These service members still have the 75% cap in place.

Members of the National Guard and Reserve who have at least 20 qualifying years of service can also receive a pension. However, benefits can't be received until the age of 60, unless one has been deployed for war or national emergency.

Similar to the pensions of active duty personnel, there are two systems for determining benefits. There are important differences, but in both cases one receives 50% of base pay for 20 years of service up to a maximum of 75%.

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