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Understanding Military Retirement Pay

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The military retirement pay system used to be easy to understand: You put in 20 years, and you got 50 percent of your base pay immediately upon retirement. You put in more than 20 years and you got 2.5 percent more for each year of active duty after 20 years (up to 75 percent).

During the draw-down, Congress decided military retirement pay was too simple, and decided to complicate it. Congress started with small changes, moving the annual Cost-of-Living Allowance to January 1st, instead of October 1st, but then got serious and dug in to make some major changes. Here are some basics of the military retirement pay system that you should be aware of:

For Navy and Marine Corps members, you are considered to be a "retired member" for classification purposes if you are an enlisted member with over 30 years service, or a warrant or commissioned officer.

Enlisted Navy and Marine Corps members with less than 30 years service are transferred to the Fleet Reserve/Fleet Marine Corps Reserve and their pay is referred to as "retainer pay".

Air Force and Army members with over 20 years service are all classified as retired, and receive retired pay.

When a Navy or Marine Corps member completes 30 years, including time on the retired rolls in receipt of retainer pay, the Fleet Reserve status is changed to retired status, and they begin receiving retired pay.

Don't become confused. The above is for information purposes only. The law treats retired pay and retainer pay exactly the same way.

Military retirement pay is unlike civilian retirement pay systems. First and foremost, there is no "vesting" in the military retirement system. There is no special retirement accounts, no matching funds provision, no interest. You either qualify for retirement by honorably serving over 20 years in the military, or you do not. If you are discharged from the military with 19 years, 11 months, and 27 days of service, for example, you do not qualify for retirement pay (other than a few "early retirement" programs, which were designed to reduce the size of the armed forces).

Another significant difference between military retirement, and civilian retirement, is that a retired military member can be recalled to active duty. According to Department of Defense (DOD) Directive 1352.1:

  • Involuntary Order to Active Duty. The Secretary of a Military Department may order any retired Regular member, retired Reserve member who has completed at least 20 years of active military service, or a member of the Fleet Reserve or Fleet Marine Corps Reserve to active duty without the member's consent at any time to perform duties deemed necessary in the interests of national defense in accordance with 10 U.S.C. 683 (reference (b)). This includes the authority to order a retired member who is subject to the Uniform Code of Military Justice (UCMJ) to active duty to facilitate the exercise of court-martial jurisdiction under Section 302(a) of reference (b). A retired member may not be involuntarily ordered to active duty solely for obtaining court-martial jurisdiction over the member.

In all honesty, however, the chances that a military retiree would be recalled to active duty after age 60, or who have been retired for more than five years, are slim. DOD categorizes retirees into three categories, with category I as the most likely to be recalled to active duty, and category III as the least likely. Individuals over the age of 60 are in category III, which is the same category as individuals with disabilities. Recall of category III retires is extremely unlikely. According to DOD, the categories are:

  • Category I. Nondisability military retirees under age 60 who have been retired less than 5 years. E1.1.3.2.
  • Category II. Nondisability military retirees under age 60 who have retired 5 years or more.
  • Category III. Military retirees, including those retired for disability, other than categories I or II retirees (includes warrant officers and health care professionals who retire from active duty after age 60).

Pay Computation

For members who entered active duty or on prior to 8 September 1980, retired pay amounts are determined by multiplying your service factor (normally referred to as your "multiplier") by your active duty base pay at the time of retirement.

If you entered active duty after 8 September 1980, the base pay is the average of the highest 36 months of active duty base pay received. Additionally, your initial (first) cost-of-living adjustment will be reduced by 1 percent.

The "multiplier" for the above two plans is 2.5% (up to a maximum of 75%). For example, a person who entered active duty on or before 8 September 1980, and spent 22 years on active duty, would receive 55% of his/her base pay as retirement or retainer pay. A person who entered active duty after 8 September 1980, and spent 22 years on active duty, would receive 55% of the average of the highest 36 months of active duty base pay.

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