Military Retirement Pay and Pension

Written by True Tamplin, BSc, CEPF®

Reviewed by Subject Matter Experts

Updated on July 11, 2023

Are You Retirement Ready?

Overview of Military Retirement Pay and Pension

Military retirement pay and pension refer to the financial benefits provided to service members upon retiring from the United States Armed Forces.

These benefits are designed to support military personnel after completing a successful career in the Army, Navy, Air Force, Marine Corps, or Coast Guard.

The amount of retirement pay and pension depends on several factors, including the type of retirement (active duty, reserve, or disability), the years of service, and the retirement system chosen (Legacy High-3 or Blended Retirement System).

In addition to the retirement pay, military retirees may be eligible for other benefits such as healthcare through TRICARE, access to commissaries and exchanges, and Survivor Benefit Plan (SBP) coverage for their dependents.

Eligibility Criteria for Military Retirement

Active Duty Retirement

To be eligible for active duty retirement, service members must meet specific time in service requirements. Generally, personnel must complete at least 20 years of service, although certain career fields may have different requirements.

Additionally, age restrictions may apply, with mandatory retirement ages varying by service branch and rank.

Reserve Retirement

Reserve retirement differs from active duty retirement because eligibility is based on a point system.

Reservists must accumulate a minimum of 20 "qualifying years" and at least 1,000 points to be eligible for retirement. Age restrictions also apply, with most reservists becoming eligible for retirement pay at age 60.

Disability Retirement

Disability retirement is available to service members who become physically or mentally unfit to perform their duties due to a service-connected disability.

The Medical Evaluation Board (MEB) process determines eligibility and a disability rating of at least 30% is required to qualify for disability retirement.

Military Retirement Plans

Legacy High-3 Retirement System

Eligibility Criteria

The Legacy High-3 retirement system is available to service members who entered service before January 1, 2018.

Retirement Pay Calculation

Under the High-3 system, retirement pay is calculated as the average of the highest 36 months of basic pay, multiplied by 2.5% for each year of service. For example, if a service member served 20 years, their retirement pay would be 50% of their highest 36-month average.

Cost of Living Adjustments (COLA)

High-3 retirement pay is subject to an annual cost of living adjustment (COLA) based on the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W).

Blended Retirement System (BRS)

Eligibility Criteria

The Blended Retirement System (BRS) applies to service members who entered service on or after January 1, 2018 or those who opted into the system during the 2018 calendar year.

Defined Benefit Component

The defined benefit component of the BRS is similar to the High-3 system, but with a 2.0% multiplier instead of 2.5%. This means that a service member with 20 years of service would receive 40% of their highest 36-month average.

Thrift Savings Plan (TSP)

The BRS includes an automatic and matching contribution to the service member's Thrift Savings Plan (TSP) account. The government contributes 1% of the service member's basic pay, with an additional matching contribution of up to 4%.

Continuation Pay

BRS participants may receive a one-time continuation pay bonus after completing 12 years of service, provided they agree to serve an additional four years.

Lump Sum Option

Under the BRS, service members can opt to receive a portion of their retirement pay as a lump sum at the time of retirement, with the remaining pay reduced accordingly.

Comparing High-3 and BRS

Factors to Consider When Choosing a Plan

When comparing the High-3 and BRS systems, factors to consider include expected years of service, anticipated career earnings, and investment risk tolerance.

Pros and Cons of Each System

The High-3 system provides a higher defined benefit, while the BRS offers additional benefits like TSP contributions and continuation pay. The choice between the two systems depends on individual circumstances and financial goals.


Survivor Benefit Plan (SBP)

Definition and Purpose of SBP

The Survivor Benefit Plan is a government-sponsored insurance program designed to provide financial support to the surviving spouses or dependents of military retirees in the event of their death.

Enrollment Process and Options

Service members can enroll in SBP at the time of retirement or within a specified window after retirement. Various coverage options are available, including spouse-only, spouse and child, child-only, and former-spouse coverage.

Premiums and Coverage Amounts

SBP premiums are based on the chosen coverage amount and are automatically deducted from the retiree's monthly retirement pay. Coverage amounts can range from a minimum of $300 per month up to the full amount of the retiree's retirement pay.

Beneficiary Types and Rules

SBP beneficiaries can include spouses, former spouses, dependent children, or other eligible persons. Specific rules apply to each beneficiary type, and marital or family status changes may impact coverage.

Effects on Retirement Pay

Enrolling in SBP reduces the retiree's monthly retirement pay by the cost of the premiums. However, SBP premiums are typically tax-deductible, which may offset some of the financial impact.

Federal and State Tax Implication of Military Retirement Pay and Pension

Federal Income Tax on Military Retirement Pay

Military retirement pay is generally considered taxable income at the federal level. Retirees should consult a tax services professional to determine their specific tax liabilities and potential deductions or credits.

State Income Tax Considerations

State income tax treatment of military retirement pay varies by state. Some states fully exempt military retirement pay from taxation, while others offer partial exemptions or tax credits. Retirees should research their state's tax laws or consult a tax professional for guidance.

Tax Planning Strategies for Military Retirees

Tax planning strategies for military retirees may include maximizing deductions, utilizing tax-advantaged investment accounts, and considering residency in a tax-friendly state.

Healthcare Benefits for Military Retirees


Overview of TRICARE Options

TRICARE is the primary healthcare program for military retirees and their eligible dependents. Various TRICARE options are available, including TRICARE Prime, TRICARE Select, and TRICARE for Life.

Eligibility and Enrollment Process

Military retirees and their eligible dependents must enroll in a TRICARE plan within a specified enrollment period to receive coverage. Enrollment can be completed online, by phone, or by mail.

Costs and Coverage

TRICARE costs and coverage depend on the chosen plan, with variables such as premiums, copayments, and deductibles. Retirees should review their options to determine the best fit for their needs and budget.

Dental and Vision Coverage

Dental and vision coverage is available to military retirees and their eligible dependents through the Federal Employees Dental and Vision Insurance Program (FEDVIP).

Veterans Affairs (VA) Healthcare Benefits

In addition to TRICARE, military retirees may be eligible for healthcare benefits through the Department of Veterans Affairs (VA), particularly if they have a service-connected disability.

Additional Benefits and Resources for Military Retirees

Commissary and Exchange Access

Military retirees maintain access to commissaries and exchanges, offering discounted groceries, merchandise, and services.

Morale, Welfare, and Recreation (MWR) Facilities

Retirees can access various Morale, Welfare, and Recreation (MWR) facilities, such as fitness centers, golf courses, and recreational lodging.

Space-Available Travel

Space-Available (Space-A) travel allows military retirees to fly on military aircraft when space permits, often at a significantly reduced cost or even for free.

Veterans Service Organizations (VSOs)

Veterans Service Organizations (VSOs), such as the American Legion and Veterans of Foreign Wars (VFW), provide valuable resources, support, and advocacy for military retirees and their families.

Educational and Employment Resources

Military retirees can access various educational and employment resources, including tuition assistance, vocational training, and job placement services.

Financial Planning to Maximize Military Retirement Pay and Pension

Create a Retirement Budget

A well-thought-out retirement budget is essential to ensure financial stability during your retirement years. Consider all sources of income, such as military retirement pay, Social Security, and investment income, as well as expenses, including housing, healthcare, and leisure activities.

Save and Invest

Developing a diversified investment portfolio and employing a long-term savings strategy can help ensure your financial security in retirement. Consider consulting a financial advisor to tailor an investment plan to your specific needs and goals.

Consider Estate Planning

Estate planning is crucial to ensure your assets and wishes are protected and properly executed after your death. A comprehensive estate plan includes a will, power of attorney, healthcare proxy, and trust arrangements.

Manage Debt and Credit

Reducing debt and maintaining a healthy credit score are important components of a sound financial plan. Strategies may include debt consolidation, refinancing, or implementing a debt repayment plan.

Plan for Long-Term Care

Long-term care planning ensures you receive the necessary care and support in your later years. Consider long-term care insurance, establishing a dedicated savings account, or researching assisted living and nursing home options.



Navigating military retirement pay, pensions, and benefits is crucial for securing a stable financial future.

Planning for military retirement is essential to secure a stable financial future.

By understanding and maximizing the benefits and resources available, you can make informed decisions shaping your retirement years.

Seeking professional financial advice can help you navigate the complexities of military retirement pay, pensions, and other benefits, ensuring you are well-prepared for the next chapter of your life.

Military Retirement Pay and Pension FAQs

About the Author

True Tamplin, BSc, CEPF®

True Tamplin is a published author, public speaker, CEO of UpDigital, and founder of Finance Strategists.

True is a Certified Educator in Personal Finance (CEPF®), author of The Handy Financial Ratios Guide, a member of the Society for Advancing Business Editing and Writing, contributes to his financial education site, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University, where he received a bachelor of science in business and data analytics.

To learn more about True, visit his personal website or view his author profiles on Amazon, Nasdaq and Forbes.

Meet Retirement Planning Consultants in Your Area

Find Advisor Near You