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Understanding Military Retirement Pay

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Very important note: A little known provision of the law, changed in 1980, states that if you are a commissioned officer or an enlisted with prior commissioned service, you must have at least 10 years of commissioned service to retire at your commissioned rank. If you have less than 10 years of commissioned service, and voluntarily retire, you retire at your enlisted rank, and only the highest 36 months of active duty enlisted base pay counts for retirement computation. The Service Secretary can waive this to 8 years. Note: The secretarial waiver authority expired on December 31, 2001.

Just in case things aren't confusing enough, there is a third retirement system for individuals who joined the military on or after August 1, 1986.

These individuals are required to make a decision at the 15-year point of their career. They can elect to participate in the same retirement program above, or they can choose to receive an immediate monetary bonus ($30,000), and elect the "REDUX" system.

If they elect the "REDUX" system, The factor is determined by taking 2 ½ percent times your years of service then reduce that factor by 1 percent point for each year less than 30 years. Using the same examples, as above, a person with 22 years of active duty service would retire at 47 percent of the average of their highest 36 months of base pay. The "REDUX" ends at age 62, and the individual then begins to receive his/her "normal" retirement pay.

Additionally, folks who elect "REDUX" will have their annual cost of living allowance reduced by 1 percent. At age 62, those percentage points are added back to the retired pay, however.

For all plans, years of service includes credit for each full month of service as one-twelfth of a year. "Years of service" for officers includes all active service, periods of inactive reserve service prior to June 1, 1958, ROTC active duty time prior to October 13, 1964, constructive service credit for Medical and Dental Corps, and drills performed while in the inactive reserve after May 31, 1958. "Years of service" for Fleet Reservists and all other enlisted retirements include all active service, active duty for training performed after August 9, 1956, any constructive service earned for a minority or short-term enlistment completed prior to December 31,1977, and includes drills performed while in the Active Reserves.

Just to confuse you a little more, your pay will be computed according to provisions of the Tower Amendment if it applies to your situation. The Tower Amendment was enacted to ensure that you will not receive a lesser amount of retired pay than you would have received if you had retired on a prior date, because of a recent retired pay cost-of-living (COL) adjustment. In the past, there have been times where the retiree COL exceeded the annual military payraise, which would have resulted in more pay, had the member retired prior to the COL date. The Tower eligibility date is usually the day prior to the effective date of an active duty pay increase. Tower pay is computed by utilizing the active duty pay rates in effect on that date, your rank/rate on that date, total service accumulated on that date, and all applicable cost-of-living increases.

For example, assume a member at the rank of E-8 with 22 years, 7 months service on June 30, 2000. The member's pay would be computed as follows:

  • 2 1/2% x 22.58 years = 56.45%. 56.45% x $3,119.40 (January 1, 2000 active duty rate for an E-8 over 22 yrs) = $1,760.90 = $1,760.00  

Since the E-8 was eligible to retire on December 31, 1999, DFAS would also compute the entitlement as of that date.

The E-8 has 22 years, 1 months service as of December 31, 1999. The pay would be computed as follows:

  • 2 1/2 % x 22.08 = 55.20% 55.20% x $2,976.60 (1/1/99 active duty rate for an E-8 over 21 yrs) = $1,643.00 + 2% (COL Increase) = $1675.00  

In this situation therefore, this retiree would receive monthly retainer pay of $1791.00 since the Tower Amendment computations are not more beneficial than the current pay computation.

Just for information, by law, all military retirement pay is rounded down to the nearest dollar.

Disability Retirement

If you have been found to be physically unfit for further military service and meet certain standards specified by law, you will be granted a disability retirement.

Military members with 20 or more years of active service (service retirement eligible) can retire, regardless of the percentage level of disability, if they are found to be unfit and removed from the service by reason of physical disability. People with less than 20 years of active service at the time they are removed from the service by reason of physical disability may be either separated or retired, based on the following:

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