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Military Retirement :
(TSP Page HERE)

Service members who remain on active duty for 20 or more years are eligible for retirement. There are currently three, non-disability, retirement plans in effect. They are FINAL PAY, HIGH THREE and REDUX. REDUX was revised by the FY2000 National Defense Authorization Act to add a $30,000 Career Status Bonus (CSB) for those who accept the REDUX retirement system. Individuals formerly under REDUX may now choose between the High-3 and REDUX systems. The date you first entered the military determines which retirement system applies to you and whether you have the option to choose your retirement system.

  • The Final Pay plan affects service members who began service prior to September of 1980.
  • The High-3 Year Average plan affects service members who began service after September 8, 1980 but prior to August 1, 1986. It will also apply to individuals who entered on or after August 1, 1986, who do not elect the REDUX retirement system with the career retention bonus at their 15th year.
  • Members who entered the service on or after August 1, 1986, will be given a choice of retirement plans at their 15th year of service. There are two options:
    • Take the pre-1986 retirement system (High-3 Year Average System) OR
    • Elect the post-1986 retirement system (Military Retirement Reform Act (MRRA) of 1986, commonly referred to as REDUX) and take a $30,000 career retention bonus.

Final Pay Information

The Final Pay plan affects service members who began service prior to September of 1980. Each year of service is worth 2.5% toward the retirement pay multiplier. If you retire at 20 years then your retirement multiplier would be 50% (2.5% x 20 years). The longer an individual stays on active duty the higher the multiplier and the higher the retirement pay, up to the maximum of 75%. An example:

Years of Service at retirement: 20 years
Retirement Multiplier: 50% (20 years * 2.5% a year)
Basic Pay at Retirement: $4000.00 a month
Retirement Pay: $2000.00 a month

NOTES:

Only basic pay is used in retirement calculations. Allowances and special pays do not factor into retired pay.

Cost of Living Adjustments (COLAs) are given annually based on the increase in the Consumer Price Index (CPI), which is a measure of inflation. Under the Final Pay System, the annual COLA is equal to CPI. This is a different index than the one used for active duty annual active duty pay raises, which is based upon average civilian wage increases. Thus, retirement pay COLA's and annual active duty pay raises will differ.

High-3 Option

The High-3 Year Average plan affects service members who began service after September 8th, 1980 but prior to August 1, 1986. There is more to know about High-3 than "50% at 20 years." Several factors combine to determine each member's retirement amount and how it increases during retirement. High-3 applies to individuals who entered the service on or after September 8, 1980, but before August 1, 1986. It will also apply to individuals who entered on or after August 1, 1986, who do not elect the REDUX retirement system with the career retention bonus at their 15th year.

Each year of service is worth 2.5% toward the retirement multiplier. Hence, 2.5% x 20 years = 50% and 2.5% x 30 years = 75%. The longer an individual stays on active duty the higher the multiplier and the higher the retirement pay, up to the maximum of 75 percent. This multiplier is applied against the average basic pay for the highest 36 months of the individual's career. This typically, though not always, equals the average basic pay for the final three years of service. Also, remember only basic pay is used in retirement calculations in all retirement system options. Allowances and special pays do not affect retired pay.

NOTES:

Only basic pay is used in retirement calculations. Allowances and special pays do not factor into retired pay.

Cost of Living Adjustments (COLAs) are given annually based on the increase in the Consumer Price Index (CPI), which is a measure of inflation. Under the Final Pay System, the annual COLA is equal to CPI. This is a different index than the one used for active duty annual active duty pay raises, which is based upon average civilian wage increases. Thus, retirement pay COLA's and annual active duty pay raises will differ.

REDUX/High-3 Options
Members who entered the service on or after August 1, 1986, will be given a choice of retirement plans at their 15th year of service. There are two options:
Take the pre-1986 retirement system (High-3 Year Average System) OR
Elect the post-1986 retirement system (Military Retirement Reform Act (MRRA) of 1986, commonly referred to as REDUX) and take a $30,000 career retention bonus.

Who is Affected?
Service members who initially entered the military on or after August 1, 1986, are the only ones who may choose between the High-3 Year Average retirement system and the post-1986 (REDUX) retirement system that now comes with a $30,000 career retention bonus. Members who entered prior to August 1986 (but after September 8, 1980) will remain under the High-3 Year Average system. High-3 Option: The finer points of the High-3 Option There is more to know about High-3 than "50% at 20 years." Several factors combine to determine each member's retirement amount and how it increases during retirement. High-3 applies to individuals who entered the service on or after September 8, 1980, but before August 1, 1986. It will also apply to individuals who entered on or after August 1, 1986, who do not elect the REDUX retirement system with the career retention bonus at their 15th year.

Each year of service is worth 2.5% toward the retirement multiplier. Hence, 2.5% x 20 years = 50% and 2.5% x 30 years = 75%. The longer an individual stays on active duty the higher the multiplier and the higher the retirement pay, up to the maximum of 75 percent.

This multiplier is applied against the average basic pay for the highest 36 months of the individual's career. This typically, though not always, equals the average basic pay for the final three years of service. Also, remember only basic pay is used in retirement calculations in all retirement system options. Allowances and special pays do not affect retired pay.

Cost of Living Adjustments (COLAs) are given annually based on the increase in the Consumer Price Index (CPI), a measure of inflation. Under the High-3 System, the annual COLA is equal to CPI. This is a different index than the one used for active duty annual pay raises which is based upon average civilian wage increases. Thus, retirement pay COLAs and annual active duty pay raises will differ.

REDUX/Bonus Option
The REDUX retirement system and career retention bonus is a "package deal." It is the combination of these two items that can be advantageous to many individuals. The REDUX portion determines retirement income (the longer one's career, the higher that income) and the $30,000 career retention bonus provides current cash-available for investing, major purchases, or setting up a business after retirement.

REDUX System Details
REDUX has several features that are less well known than the reduced 20-year multiplier which changed from 50% in High-3 to 40% under REDUX. Both the multiplier calculation and annual cost of living adjustments differ from the High-3 system. Also, REDUX has a catch-up increase at age 62 that brings the REDUX retired pay back to the same amount paid under the High-3 System. REDUX is the only military retirement system with this feature.

Multipliers
Each of the first 20 years of service is worth 2.0% toward the retirement multiplier. But each year after the 20th is worth 3.5%. Hence, 2.0% x 20 years = 40%. But a 30 year career is computed by 2.0% times the first 20 years plus 3.5% for the 10 years beyond 20, resulting in 75%. This means that the retirement multiplier for a 30-year career is the same for both REDUX and High-3. The table below summarizes the initial multiplier at various years of service under High-3 and REDUX.

Years of service 20 22 24 26 28 30
REDUX 40% 47% 54% 61% 68% 75%
High-3 50% 55% 60% 65% 70% 75%

Under REDUX, the longer an individual stays on active duty the closer the multiplier is to what it would have been under High-3 up to the 30-year point where the multipliers are equal.

In precisely the same way as High-3, this multiplier is applied against the average basic pay for the highest 36 months of the individual's basic pay. This typically, though not always, equals the average basic pay for the final three years of service. Also, remember this is basic pay; allowances and special pays do not affect retired pay.

Cost of Living Adjustments (COLAs) for retired pay are given annually based on the increase in the Consumer Price Index (CPI), a measure of inflation. Under REDUX, the COLA is equal to CPI minus 1%.

A feature unique to REDUX is a re-computation of retirement pay at age 62. Two adjustments are made. The first adjusts the multiplier to what it would have been under High-3. For example, a 20-year retiree's new multiplier would become 50%, a 24-year retiree's multiplier would become 60% but a 30-year retiree's would remain 75%. This new multiplier is applied against the individual's original average basic pay for his or her highest 36 months. Then the second adjustment is done. Full CPI for every retirement year is applied to this amount to compute a new base retirement salary. At age 62, the REDUX and High-3 retirement salaries are equal. But, REDUX COLAs in later years will again be set at CPI minus 1%.

The $30,000 Career Retention Bonus
Those members who elect the REDUX retirement system at their 15th year receive a $30,000 Career Retention Bonus. To receive this bonus, the member must agree to complete a twenty-year active duty career. The member, of course, may continue beyond twenty years, but the obligation is only to that point. The entire $30,000 bonus is received shortly after the member commits to this service obligation. (Exact mechanics on administrative forms and payment procedures are still being developed, but the bonus will be paid shortly after making the decision, as opposed to receiving it at the end of the obligation or in annual installments.)

If the member doesn't complete the obligation of the twenty-year career, the member must repay a pro-rated share of the bonus.

Reservists who entered after July 1986
Reserve members who are serving on extended active duty with 14 1/2 of retirement creditable service may elect to take REDUX and receive the $30,000 career retention bonus (which commits them to continued active duty service).

Reserve members anticipating a Reserve retirement at age 60 are not eligible to elect the career retention bonus and REDUX. This is because the method of determining their multiplier was unaffected by the 1986 REDUX retirement changes. They were, however, affected by the reduced COLA provision which set COLA to CPI minus one. This recent legislation removes this provision. In other words, Reservists who entered after July 1986 and who will receive a Reserve retirement at age 60 will receive full CPI COLAs.

Retirement Resources

 

(TSP Page HERE)

 

 

 

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