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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.

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.

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.

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 43 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.

Above Information Derived from DFAS & DOD Finance Regulation
Above copyright © Nova Corp. Used with permission

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