How military retired pay is calculated: High-36, BRS and REDUX

Military retired pay looks complicated from the outside, with four plan names, a date that decides which one you are in, and a formula that changes with each. Underneath, it is simple: a percentage multiplier times a retired pay base. Once you know which plan you are in, which base it uses and how the multiplier grows, you can estimate your own retired pay on the back of an envelope.

I am on active duty in the Air Force, and this is the math every service member eventually runs. This guide follows the Department of Defense's own description of the plans on its Military Compensation and Financial Readiness site, listed at the end. Our military retirement pay calculator does the arithmetic for you, and it is tested against the multiplier table DoD publishes.

The formula: multiplier times base

In DoD's words, all of the regular and non-regular retirement plans determine initial monthly retired pay by applying a percentage multiplier to the retired pay base. Two things decide your number:

• The retired pay base, which is either your final basic pay or the average of your highest 36 months of basic pay.
• The multiplier, which grows with your years of service at a rate set by your plan.

Only basic pay counts. Allowances such as housing and food, and special and incentive pays, are not part of the base, which is why retired pay is usually well below the total compensation on a final Leave and Earnings Statement.

Which plan are you in?

The plan depends on your Date of Initial Entry to Military Service, known as DIEMS, and on choices you may have made along the way. DoD's criteria:

DIEMS trips people up, because it is often earlier than the day you think you joined. DoD gives examples: for a service academy graduate with no prior service it is the day they reported to the academy, not graduation; starting an ROTC scholarship sets it, not commissioning; for the delayed entry program it is the day you entered that program; and if you served, left and came back, it is the start of your first period of service. DIEMS is fixed and does not change. DoD also points out that it is not the same as your Pay Entry Base Date, and that it decides only which base method applies, not how your creditable years are counted.

The BRS opt-in was open to members who, on December 31, 2017, had fewer than 12 years of active service, or fewer than 4,320 retirement points in a Reserve Component. That window has closed; anyone entering since January 1, 2018 is in BRS automatically.

The retired pay base

Under Final Pay, the base is your final basic pay. Under the other three plans it is the High-36 average: the highest 36 months of basic pay, divided by 36. DoD notes that this is generally your last three years of service, which is why it is also called High-3. Because basic pay rises with promotions and longevity raises, the High-36 average is usually a little below your final month's basic pay.

The multiplier, plan by plan

Final Pay and High-36: 2.5% a year

Each year of service is worth 2.5%. Twenty years gives a 50% multiplier, thirty gives 75%, and forty gives 100%. DoD's own table continues to 102.5% at 41 years.

BRS: 2.0% a year, plus the TSP

The Blended Retirement System pays a smaller defined benefit, 2.0% times years of service times the High-36 average, so twenty years gives 40% and thirty gives 60%. In exchange it adds a defined contribution: the government puts 1% of basic pay into your Thrift Savings Plan after 60 days of service, and matches up to another 4% from your third year (after your second year of service) through your 26th. BRS also includes continuation pay, a one-time mid-career incentive for agreeing to serve longer, and a lump sum option at retirement, described below.

REDUX: a $30,000 bonus that costs later

REDUX paired a $30,000 Career Status Bonus at the 15th year of service, with an obligation to serve through 20, with a smaller multiplier. Before age 62 the multiplier is 2.5% a year minus one percentage point for each year short of 30, so twenty years gives 40% instead of 50%. At 62 it is restored to the full High-36 multiplier. Eligibility to elect the bonus ended on December 31, 2017.

The numbers side by side

DoD's multiplier table, for a few common career lengths:

To see what that means in dollars, take a High-36 average of $6,000 a month and 20 years of service. Under High-36 that is 50%, or $3,000 a month. Under BRS it is 40%, or $2,400 a month, with the difference meant to be made up by the government's TSP contributions over the career. Under REDUX it is $2,400 until 62 and $3,000 after, before cost-of-living adjustments. The calculator runs the same comparison with your numbers, including months of service.

The BRS lump sum option

At retirement, eligible BRS members can take a discounted, upfront payment of either 25% or 50% of their estimated retired pay, in exchange for reduced monthly retired pay until they reach full Social Security retirement age. DoD publishes the discount rate used for it each year, and the payment is discounted precisely because you receive it early. Whether it makes sense depends on what you would do with the money and on how much the reduced monthly pay matters to your budget in the years before your Social Security full retirement age. DoD offers a course on the option, and it is worth taking before you decide.

Cost-of-living adjustments

Military retired pay is protected from inflation by a yearly cost-of-living adjustment based on the Consumer Price Index for Urban Wage Earners. Under Final Pay, High-36, BRS and disability retirement, the COLA equals the yearly increase in that index. REDUX is the exception: its COLA is normally one percentage point less (but never below zero), with a one-time readjustment at 62 to restore what it would have been under High-36, after which the smaller COLA resumes. Over a long retirement, that one point a year is the real cost of the REDUX bonus.

Disability retirement

A member found medically unfit for continued service with a DoD disability rating of at least 30% can receive disability retirement. The retired pay base is figured under Final Pay, High-36 or BRS as usual, but the multiplier is the higher of the disability percentage the service assigns or years of service times the plan's rate (2.5% for the legacy plans, 2.0% for BRS). Either way, the law limits the multiplier to 75%. VA disability compensation is a separate benefit, and the rules for receiving both are their own topic.

Reserve and Guard retirement

Reserve Component members earn retirement through points and qualifying years rather than active years, and their retired pay usually begins later than an active-duty retirement. DoD publishes a Reserve Component Retirement Guide that explains point accumulation, the 20-qualifying-year requirement and the "gray area" between leaving service and the start of retired pay. Our calculator covers the active-duty formula; Reserve members should use DoD's guide and calculators.

After the math: what comes out of the check

Retired pay is the gross figure. Several things can come out of it or change what you keep:

• Survivor Benefit Plan premiums, if you elect coverage: up to 6.5% of the covered amount for spouse coverage. The SBP calculator shows yours.
• State income tax, which depends entirely on where you live. Most states do not tax military retired pay, but some tax part of it; see the guide to which states tax military retirement pay.

And retired pay does not reduce your Social Security. The Social Security Administration says you can get both, generally without a reduction; the guide to Social Security and military service explains how your service earns credits.

A checklist

1. Confirm your DIEMS and your plan with your personnel records; do not assume it from the day you shipped out or commissioned.
2. Estimate your High-36 average from the basic pay you expect in your last three years.
3. Run the multiplier for the career lengths you are weighing; each extra year adds 2.5 points (2.0 under BRS).
4. If you are in BRS, make sure your own TSP contributions are high enough to receive the full government match, and look at the lump sum option before retirement.
5. Decide on the Survivor Benefit Plan with your spouse before the retirement paperwork, not during it.
6. Check your state's tax treatment of retired pay before you choose where to live.

DoD's own High-36, Final Pay, REDUX and BRS calculators, and your service's retirement office, give the official figures. Use this guide to understand them.