Retirement
In return for your years of service, the military offers an array of benefits, including a pension adjusted annually for inflation, money for college, health care coverage and more.
BASIC PLANS
20-YEAR RETIREMENT
Eligibility. Twenty years on active duty — or equivalent time spent in what is known as "qualifying service" as a reservist — is the basic eligibility requirement for military retirement. Service members who reach 20 years of active or qualifying reserve service can receive retired pay that increases each year through a cost-of-living adjustment.
Features. The fundamental features of the military retirement system include:
♦ Everyone with 20 years of active or qualifying reserve service, including those picked by selective early retirement boards, qualifies for retirement.
Under changes in law made in 2007, it is possible for someone to serve 40 years or more and receive 100 percent or more of basic pay under the retirement formula that applies to them. The only exception is for those who receive involuntary military disability retirement; their retirement pay is still capped at the old limit of 75 percent of their pay base.
Retirement pay increases when an annual cost-of-living adjustment is granted, usually late in the year, with the increase first appearing in January paychecks.
♦ Retirement pay for active duty begins immediately after separation. Eligible reservists must wait until age 60 to start collecting pay, even though they may accrue the required 20 creditable years of service much earlier. Reservists who have retired from service but have not reached age 60 are known as "gray-area retirees."
A 2008 change in law allows members of the Ready Reserve to begin drawing retirement pay three months earlier than age 60 for every three months of active duty under certain mobilization authorities in support of contingency operations, down to a limit of age 50. Only qualifying service performed after Jan. 28, 2008, counts toward the lower retirement age.
Formulas. There are three formulas for computing 20-year military retirement pay. Each applies to a specific group of retirees, based on the dates they became service members. For most, it is the date they came on active duty.
Retirement based on a disability has its own rules. (See "Disability retirement.")
The formulas:
♦ Retirees who became members of the military before Sept. 8, 1980, collect monthly retirement pay based on rank and the number of years they served on active duty. Those who separate at the 20-year mark receive half their final basic pay.
The figure for basic pay is determined by the pay rate for the member's retired grade and length of service as of the date the member went on the retired rolls. For each year of service beyond 20, retired pay increases by 2.5 percent of basic pay, up to a maximum of 100 percent of basic pay for 40 years of service.
♦ For individuals who entered military service on or after Sept. 8, 1980, but before Aug. 1, 1986, retirement pay is based on average basic pay over their three highest earning years in uniform, almost always the last three, a system known as "High-3." That average is multiplied by 2.5 percent for each year in uniform to determine retired pay. Thus, for 20 years of service, the High-3 formula offers retirement pay equal to 50 percent of average basic pay over the member's last three earning years.
♦ Those who entered military service on or after Aug. 1, 1986, can elect to receive retirement pay under the High-3 system or under another option known as the Career Status Bonus/Redux plan.
Under this plan, a service member at 14 years and six months of service who agrees to stay in uniform until reaching at least 20 years of service may elect to receive a $30,000 bonus, either as a lump sum or in annual installments, at the 15th year of service.
But retired pay for 20 years of service is lower — only 40 percent of average basic pay over the three highest earning years.
The legal formula for computing retired pay up to 30 years for Redux members is 2.5 percentage points for each year of service, reduced by 1 percentage point for each year of service short of 30 years. For example, a service member under Redux with 20 years of service would multiply 20 by 2.5, then subtract 10 (one point for each year of service short of 30), which yields 40.
Similarly, Redux members with 25 years of service would multiply 25 by 2.5, then subtract five; their retired pay would be 57.5 percent of their average basic pay over their three highest earning years. At 30 years, retired pay would be 75 percent of average basic pay over the three highest earning years.
After 30 years, the formula for Redux members changes — they get a straight 2.5 percentage points per year. For 40 years, this would give Redux members 100 percent of their average basic pay over their three highest earning years.
Annual cost-of-living increases under Redux are 1 percentage point lower than under the other two retirement plans. A one-time catch-up adjustment is made at age 62 to bring the value of retired pay under Redux in line with the other plans, but after that, the annual increases again begin to lag by 1 percentage point per year.
DISABILITY BENEFITS
You do not have to be retired from the military to receive disability benefits from the Veterans Affairs Department. There are two types of compensation: VA disability and VA pension.
VA disability. Former service members with injuries or diseases incurred or aggravated during active service can receive payments. The amount of tax-free monthly VA disability paid to veterans with no children currently ranges from $127 for a 10 percent disability rating to $3,017 for a 100 percent rating. Veterans with ratings of 30 percent or higher get more money for their spouse and for each child.
Contact: For current rates for all types of VA benefits payments, see www.vba.va.gov/bln/21/rates.
Veterans who do not qualify for military disability might qualify for VA disability and vice versa.
VA disability payments are tax free; most military retirement pay is not. Any part of military retirement pay that is based on disability, however, usually is not taxed.
Veterans classified as 100 percent disabled are entitled to use military commissaries, exchanges and theaters, as are their spouses and any children living with them. However, they are not eligible for military medical care; VA assumes that responsibility.
In addition to general compensation benefits, veterans who served in southwest Asia in the 1991 Persian Gulf War and have undiagnosed illnesses can apply for VA disability compensation even if they cannot directly trace their illnesses or injuries to their experiences in that conflict. Veterans who are sick for six months or more may be eligible for compensation for these chronic conditions.
In 2010, VA also put in place a new policy affecting veterans of the Vietnam War who have three specific diseases; those conditions are now automatically presumed to be service-connected as a result of exposure to Agent Orange, a toxic herbicide widely used in Vietnam. (See Health Care chapter, "Agent Orange.")
Once VA grants disability compensation, veterans may have to undergo exams every few years to determine the status of their ailments. Their disability status, and their VA compensation, could change based on these exams.
Contact: www.va.gov
VA pension. VA offers a pension for wartime veterans with limited income and permanent disabilities that are not connected to military service. Payments can vary based on income, number of family members and capacity for self-care.
Contact: www.vba.va.gov/vba/
DISABILITY RETIREMENT
Permanent disability. This is one of two types of disability retirement available through the Defense Department. Service members officially rated at least 30 percent permanently disabled are entitled to disability retirement pay. To qualify, they must have spent at least eight years in the military or the disability must have been incurred in the line of duty.
If one of those requirements is met, retirees can receive retired pay based on the larger of two formulas: multiplying their retired pay base either by the percentage of their disability rating or by 2.5 percent of their number of years of service, up to a 75 percent ceiling. The retired pay base is final basic pay for those who entered service before Sept. 8, 1980. For those who entered service after that date, it’s the average basic pay over their three highest earning years.
Historically, Defense Department and VA disability retirement have had important differences, chief among them the fact that the services assign ratings only to medical conditions that make a member "physically unfit" for continued service, with the intent of compensating for the loss of a military career. VA may rate any service-connected condition.
Also, military disability retirement ratings are final upon disposition, and VA ratings can vary over time, depending on how the condition progresses.
Finally, military disability compensation varies not only by the percentage disability rating, but also by a member's years of service and basic pay; VA payments are based on the percentage rating of the disability and the veteran’s family status.
Temporary disability. This is a second form of disability retirement available through the Defense Department.
Some service members have medical problems that prevent them from carrying out their military duties but may not be permanent. They are placed on the temporary disability retirement list maintained by each service and Defense Department paymasters.
The amount of monthly pay for those on the temporary retired list is determined by different rules from those that govern permanent disability.
The minimum payment is 50 percent of the last amount of basic pay before the member was taken off duty; the maximum is 75 percent.
Those who receive temporary disability retirement pay must undergo medical exams every 18 months to determine the status of their disability. Within five years, doctors must determine whether the disability is permanent. At that point, members can be returned to duty, given a disability rating that qualifies them for either permanent disability retirement pay or disability severance pay, or separated with no benefits.
Military disability retirement pay is taxable unless the disability is combat-related.
Disability severance. This is paid to members with less than 20 years of service and disabilities rated less than 30 percent.
Minimum severance pay is 12 months of basic pay for troops separated for a disability incurred in a combat zone and six months of basic pay for all other members. Maximum severance pay is 38 months of basic pay. This fully compensates members with as much as 19 years of service.
Service members who receive severance pay also may be eligible for monthly VA disability compensation if their disabilities are deemed service-connected.
Generally, severance pay must be repaid before members can begin receiving VA disability compensation. The only exception is for members who receive severance pay for a disability incurred while serving in a combat zone.
Service members with limited disabilities may be retained by their service, depending on individual circumstances.
DISABILITY EVALUATION
The disability rating and evaluation systems for service members and veterans have undergone major changes in recent years.
In late 2007, the Defense Department and VA began testing a new system for handling disability cases at three major military treatment facilities and the VA hospital in the Washington, D.C., area. The new system was designed to eliminate the duplicative and often confusing elements of the separate disability processes currently run by VA and the military. It features a single set of medical exams and a single disability rating to be determined using VA protocols. A principal goal of the system is to ease service members' transition to veteran status so they can quickly access VA benefits.
Worldwide implementation of the system began in October 2010 and is now in place in all 141 major military medical facilities in the U.S. and abroad.
The Defense Department maintains a website with information on IDES, including regulatory documentation and other data.
Contact: www.pdhealth.mil/hss/des.asp
RETIRED PAY OFFSET
A 19th-century law required disabled military retirees to forfeit $1 of retired pay for every dollar received in disability compensation. Congress has enacted two separate but similar programs that enable military retirees to receive both payments and has been widening their scope in piecemeal fashion. In retiree circles, this issue is known as "concurrent receipt.
Concurrent Retirement and Disability Payments. This program applies to retirees with at least 20 years of service and disabilities rated 50 percent to 100 percent that are not related to combat service.
For retirees rated 50 percent to 90 percent disabled, the offset in retired pay is being phased out over a 10-year period that began in 2005 and is due to end in 2014. Retirees with disabilities rated at 100 percent that are not related to combat service already receive full retired pay and VA disability compensation.
Those medically retired with less than 20 years of service for disabilities not related to combat, regardless of the disability rating — known as Chapter 61 retirees for the section of federal law under which they fall — and those with ratings of less than 50 percent for disabilities that are service-connected but not related to combat, are still subject to the dollar-for-dollar offset in retired pay.
In both his 2010 and 2011 defense budget requests, President Obama proposed phasing in concurrent receipt over several years for all Chapter 61 retirees, including those with less than 20 years of service, and disabled retirees with service-connected conditions rated 40 percent and below. But the proposals stalled because the administration did not suggest a way to pay for the expanded benefits.
The administration did not include a similar proposal in its 2012 or 2013 defense budget requests.
The 2008 Defense Authorization Act expanded full concurrent receipt to "individual unemployability" retirees with service-connected disabilities. IU retirees have formal VA disability ratings of less than 100 percent, but are considered fully disabled because their medical conditions prevent them from holding a job.
These retirees get full concurrent receipt of retired pay and VA disability compensation retroactive to Dec. 31, 2004, and are no longer subject to the 10-year phase-out of the retired pay offset.
CRDP payments, which are taxable, are made automatically by the Defense Finance and Accounting Service; retirees do not have to apply.
Combat-Related Special Compensation. Under the separate CRSC program, retirees with any VA-rated disabilities, regardless of percentage, that are the result of combat or combat-related training are eligible for a monthly payment that replaces their retirement pay offset and, in effect, gives them full concurrent receipt of both payments.
To qualify for CRSC, they must be receiving VA compensation for disabilities that are rated at least 10 percent.
Unlike CRDP, CRSC is open to all Chapter 61 retirees, even those medically retired by the military with fewer than 20 years of service. These retirees must still meet the other qualifying criteria, including having disabilities that are the direct result of combat or combatlike training.
CRSC payments, which are tax-free, are equal to the amount of VA disability compensation offset from retired pay.
Applicants must provide adequate, detailed documentation showing that their disabilities are combat-related rather than service-related. Members must apply to their own branch of service.
Retirees who are eligible for both CRDP and CRSC — mainly those whose disability ratings result from a combination of service- and nonservice-connected conditions — are allowed to choose which program to participate in, based on which one will pay them more. The fact that CRDP is taxable, while CRSC is not, is one consideration.
Contact: Armywww.hrcapps.army.mil/site/crsc/crscvcrdp.html; Air Force www.afpc.randolph.af.mil/library/combat.asp; Navy and Marine Corps www.donhq.navy.mil/corb/crscb/crscmainpage.htm.
The Defense Department maintains a website with general information on CRDP and CRSC, including contact information for each service, at http://militarypay.defense.gov/retirement/concurrent_dod_va.html.
STOP-LOSS
Stop-loss authority allows the services to retain individuals on active duty beyond their dates of separation, thus preventing them from voluntarily retiring or leaving the service. Stop-loss implementation authority was assigned to the secretary of defense by an executive order Sept. 14, 2001, and in turn was assigned to the heads of the individual services. Congress authorized a monthly payment of up to $500 for personnel affected by stop-loss orders.
VOLUNTARY RETIREMENT
The 2012 Defense Authorization Act included provisions authorizing various voluntary retirement tools that were used during the post-Cold War drawdown of the 1990s for the services to use as they see fit in managing a planned new drawdown of more than 100,000 troops over the next few years. The force management tools have been authorized through Dec. 31, 2018.
One provision authorizes a voluntary retirement incentive payment of a year's worth of basic pay to certain officers with 20 to 29 years of active-duty service. That authority would be limited to 675 officers.
Other tools include the use of selective early retirement boards for O-5s and O-6s; and extension of voluntary separation pay authority for officers and enlisted members, which was due to expire on Dec. 31, 2012.
At press time, the services had not announced details of how they plan to use these tools. However, Pentagon officials have said they expect voluntary separation pay to go to about 400 people in 2012 and to 8,500 each year from 2013 through 2017.