How to Maximize Your Retirement and Benefits From the Military

Adjusting to civilian life after active duty is a journey filled with discovery and occasional challenges for retired service members of the Army, Navy, Marine Corps, Coast Guard and Air Force. Armed with knowledge on how best to make their retirement work, they can transition into, adapt to and thrive in the next phase of life with great success. Military retirement plans and benefits are designed to facilitate a fruitful retirement for those who have served our country.

In recent years, the military has enacted changes to its retirement plan to make military service more appealing to a younger generation accustomed to career flexibility and mobility. Traditionally, military retirement pay was created for service members who've served in active duty or the reserves for at least 20 years. The Blended Retirement System (BRS) was created for service members who don't reach that number but still want to leave the military with some benefits available.

If you first entered the military between September 8, 1980, and July 31, 1986, you are eligible for the High-3 Retirement System, also known as the High-36. Rather than your final monthly base pay, retirement pay for the High-3 is calculated using the average base pay for your three highest-paid years. You receive half of your average highest 36 months base pay if you retire with 20 years of service and 100% if you retire after 40 years.

Redux was an optional retirement plan for active duty service members who began their service after July 31, 1986, but before January 1, 2018. It's generally considered the least favorable retirement plan.

Under the REDUX system, at the 15-year mark, service members could elect to receive an immediate monetary bonus of $30,000.

For 20 years of service, you would be looking at 50% (2.5% x 20 years). Since 20 years is 10 years less than 30 years, your percentage multiplier would be 40% (1% x 10 years). You then multiply that number by your average of 36 months or 3 years of basic pay. Your basic pay is typically how much you are paid in your current rank.

After age 62, the benefit becomes 2.5% times the number of years of service times the average member’s highest 36 months of basic pay. It’s in favor of the longer serving military member, so the incentive is to remain on active duty longer before retiring.

Try using the Department of Defense’s (DoD) REDUX calculator if you need help calculating your benefits.

As of January 1, 2018, the new Blended Retirement System (BRS) took effect for eligible service members. The plan includes a smaller 20-year military retirement annuity, automatic and matching contributions to the Thrift Savings Plan (TSP), a mid-career continuation pay component and lump-sum distribution options at retirement.

The Blended Retirement System is calculated using a 2.0% multiplier for each year of service instead of a 2.5% multiplier, making a 20-year pension worth 40% of the retirement pay multiplier instead of 50%. Service members can estimate their retirement benefits under the BRS and compare the Legacy High-3 with the BRS.

On the surface, new service members may not receive as much retirement as they would have under the traditional system. Still, if the 401(k) element, the TSP, is managed correctly, there's the potential to make even more under the BRS.

Once service members retire, there aren't many options to maximize their military retirement pay because that amount is locked in based on service history. However, the TSP account is a portable retirement benefit. This means that when a service member leaves, they can have the TSP transfer part or all of their account into an IRA or another eligible employer plan (for example, the 401(k) account of a new employer) and continue to earn an annuity.

The Thrift Savings Plan (TSP) is offered to all military retirees under the Blended Retirement System (BRS) retirement plan. It's a federal government-sponsored retirement saving and investment plan that operates similarly to a 401(k) and offers the same kind of savings and tax benefits that many private companies provide for their employees.

Offered initially only for federal civilian employees, the TSP was extended as of October 9, 2001, to make the military more attractive to those who were thinking about entering the Army, Navy, Air Force, Marines or Coast Guard.

The TSP is for long-term retirement savings, and there are penalties for early withdrawals. Retirement income from a TSP account depends on the amount contributed to an account during your working years and the earnings on those contributions.

The money you contribute to your TSP is always yours. You own the Department of Defense contributions after you serve at least two years.

The following tips can help you maximize your Thrift Savings Plan contributions. The sooner you start, the better off you’ll be when it comes time to retire from the military.

Getting a head start is critical to making the most of any service member’s retirement - no matter if you’re with the Army, Navy, Air Force, Marines or Coast Guard. At a minimum, the transitioning process should start a year before your expiration of time-in-service (ETS) date, but many people start planning even before that.

All veterans receive coverage for most care and services, but only some will qualify for added benefits like dental care. The full list of covered benefits depends on your priority group, the advice of your VA primary care provider (your main doctor, nurse practitioner, or physician’s assistant) and the medical standards for treating any health conditions you may have.

• If you are a retired service member, both you and your family have access to Tricare, the military’s health care plan. If you have other forms of health care coverage (like a private health insurance plan, Medicare or Medicaid), you can use VA health care benefits along with these plans.
• Disability pay from the VA is also available for service-connected injuries.
• The Post-9/11 GI Bill helps you pay for school or job training if you’ve served on active duty after September 10, 2001.

Military members have access to other benefits, such as special types of checking and savings accounts within financial institutions, VA loans for purchasing a home or access to additional select credit lines to help start a business after separating from military service. Military members and their families also have several unique considerations when it comes to choosing auto insurance coverage.

It's also essential to go with the right life insurance, whether that's one of the government-sponsored programs or a private-sector policy. Before purchasing a plan, it's crucial that you assess your needs and compare life insurance policies to ensure you get the coverage you need at a price you can afford.