Military Retired Pay



The military (active duty) retirement system is arguably the best retirement deal around. Unlike most retirement plans, the Armed Forces offer a pension (technically a "reduced compensation for reduced services.") with benefits, that starts the day you retire, no matter how old you are. That means you could start collecting a regular retirement pension as early as 37 years old. What's more, that pension check will grow with a cost of living adjustment each year.

However there are many factors that determine exactly how much your pension will be. Over the past twenty five years, the government has made some significant changes to the military retirement system.

Retirement Pay Update:


Military Retirement Pay Cap Now Lifted!

One of the more significant changes made by the National Defense Authorization Act for Fiscal Year 2007 was the lifting of the 75 percent cap used in the calculation of retired pay for members eligible for service retirements.

Anyone retiring due to service in excess of 30 years of total active service will receive credit for service over 30 years. For example, a member who served 32 years will receive 80 percent of their retired pay base and a member who has served 42 years will receive 105 percent of their retired pay base. In most cases, there is no longer a cap on the percentage multiplier to be utilized in the computation of retired pay.

Cap Lift Exclusions

There are two categories that have been excluded from the lifting of the percentage cap. The first is for a member retired by reason of disability. Such members are still capped at the 75 percent by law. A member with 30 or more years of service must be retired based on service, not disability, in order to have the retired pay computed using a percentage greater then 75 percent.

The second area is for Army and Air Force enlisted servicemembers who have been cited for Extraordinary Heroism (EH). The laws that provide the additional 10 percent of retired pay for extraordinary heroism for Army and Air Force members contains language that limits their computations to not exceed 75 percent. The new law did not change that language. Therefore, if their computation includes the additional 10 percent for the EH, they are limited to 75 percent. If the member has over 30 years of service, DFAS can compute their pay ignoring the EH, and then exceed the 75 percent.

Determining Your Retirement Payment Rate


If you entered the service:

* Prior to September 1980 you are eligible for the Final Pay retirement system.
* Between September 8th, 1980 and August 1986 you are eligible for the High 36 system.
* After August 1986 you are eligible to choose either the High 36 retirement system, or the Career Status Bonus/REDUX (CSB) retirement system. If you decline to make a choice you will automatically receive the High 36 retirement plan.


Computing Retired Military Pay

There are various provisions of law under which the computation may be made, but retired pay is generally computed either on length of service or on a percentage of disability. If you are retired for disability, you may elect to have your pay computed by either method. The following is a summary of what you need to know about computing retired pay:

Formulas for Computing Retired Pay



* If you first entered a uniformed service* before September 8, 1980:

  • Compute your retired pay based on length of service by multiplying the basic monthly pay for your retired grade at the time of retirement by the years of creditable active federal service at the rate of 2.5 percent for each whole year of service. This is called the "Final Pay" retirement system. That means you get 50% for 20 years of service up to a maximum of 100% for 40 years.**

* If you first entered a uniformed service* between September 8, 1980 and July 31, 1986:

  • Compute your retired pay using the same formula as the Final Pay system above, except you use the average basic pay for your three highest paid years (36 months) rather than final basic pay. This is called the High 36. Under the High 36 system you you get 50% for 20 years of service up to a maximum of 100% for 40 years.**

* If you first entered a uniformed service* on or after August 1, 1986 you have the option to take either the High 36 or CSB/Redux Retirement:

  • High 36 Option: Compute your retired pay using the same formula as the Final Pay system above, except you use the average basic pay for your three highest paid years (36 months) rather than final basic pay. This is called the High 36. Under the High 36 system you you get 50% for 20 years of service up to a maximum of 100% for 40 years. **

  • CSB/Redux Option: Compute your retired pay by multiplying your High 36 by 2% per year for the first 20 years, and then 3.5% for each additional year passed 20. That means you get 40% of your High 36 for 20 years, but up to a maximum of 100% for 40 years.**

* Uniformed services include the National Oceanic and Atmospheric Administration (NOAA) and the U. S. Public Health Service (USPHS).

**Note: Recent changes now allow retirement pay to reach up to 100 percent of the basic monthly pay for those who serve 40 years.

Servicemembers on the Temporary Disability Retired List will receive no less than 50 percent of their basic pay or average high three earnings years. A servicemember may not receive temporary disability retired pay for longer than 5 years from the date they was placed on the TDRL.


Annual Increases in Retired Pay

Your retired pay increases every year. These increases reflect rises in the Consumer Price Index (CPI). The increases affect the amounts of gross monthly pay, federal withholding tax, SBP costs and annuities.

Annual Increases in Retired Pay

Your retired pay increases every year. These increases reflect rises in the Consumer Price Index (CPI). The increases affect the amounts of gross monthly pay, federal withholding tax, SBP costs and annuities.

Note: Retired members who entered the Armed Forces on or after September 8, 1980 and who became entitled to retired pay on or after January 1, 1996 receive an initial cost-of-living increase computed, using the quarter of the retirement date, minus 1%. Cost-of-living increases thereafter for members meeting the above conditions will be unreduced. Cost-of-living increases for retired members who entered the Armed Forces on or after August 1, 1986, are reduced by 1%



2008 COLA for Retired Pay

Each year your military retirement pay is adjusted to meet the increased cost of living. This Cost of Living Adjustment (COLA) varies from year to year based on the previous year's Consumer Price Index (CPI).

Note: This annual Cost of Living Adjustment is NOT in anyway related to the annual military pay raise for active duty and reserve servicemembers.

The COLA for 2008 is 2.3 percent for retired pay, SBP annuities, Social Security, and veterans disability compensation, effective December 1, 2007. It will be reflected in the January retirement check.

Retirees who first became a member of the uniformed services before Sept. 8, 1980 and retired before July 1, 2007 will receive the 2.3 percent Cost of Living Adjustment.

Retirees who first entered the military after Sept. 8, 1980 and retired before Jan. 1, 2007 will also receive the 2.3 percent COLA. Note: the detailed COLA rates for retirees who retired on or after Jan. 1, 2007 has not been released by DFAS.

Retirees who first became members of the uniformed services on or after Aug. 1, 1986 and elected to receive a Career Status Bonus at 15 years, and retired on or before Jan. 1, 2007, will receive an increase of only 1.3 percent. Note: the detailed COLA rates for retirees who retired on or after Jan. 1, 2007 has not been released by DFAS.

This data will be updated as soon as it is available.