Below is the paychart which shows monthly retirement pay for active duty officers (with between 20 and 30 years of service) who retire during 2008. For officers with more than 30 years of service, see this chart.
Active Duty military personnel can retire after 20 years of active duty service. A member who retires at 20 years of service receives 50 percent of his/her monthly base pay. For each year served over 20 years, the military member receives an additional 2.5 percent, up to a maximum of 100 percent of their base pay, at 40 years of service. NOTE: Most military members retire with 30 or fewer years of service. Only a few military personnel are selected to serve beyond 30 years.
Military members who entered the service after September 8, 1980 fall under a slightly different system that pays a little less. Instead of a direct percentage of the base pay they were receiving at the time of retirement, these members receive a percentage of their average base pay during the three years of service when their pay was the highest (which is usually, but not always their last three years of service).
The chart below assumes that those who retire in 2008 with more than 28 years of service fall under the old plan, and those with less than 28 years of service fall under the new plan.
The numbers are not exact, because actual retirement pay includes individual factors, such as loginity increases and the number of years one held their current rank at the time of retirement (for those who joined after September 8, 1980).
The Fiscal Year 2007 Military Authorization Act included a change in the law. Under previous law, the maximum retirement way one could receive was 75 percent of their base pay, after 30 years of service. The new law allows those with more than 30 years of service to retire and receive a higher percentage.
Military retirement pay is subject to federal income tax, but is not subject to social security tax. Whether or not military retirement pay is subject to state income tax varies from state-to-state, according to individual state tax laws.
For more information about the military retirement pay system, see Understanding Military Retirement Pay.
Monthly military retirement pay is based upon grade (rank) and years of service:
Monthly Retirement Pay