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Military Retirement Pay: Pension Benefits & Eligibility

2021-10-03

Historically, one of the biggest perks that military servicemembers received was military pension benefits. However, in the not-so-distant past, the military pension was the only retirement benefit available and it was only earned by those who served in the military for at least 20 years. But in 2018, that changed as the military transitioned to the blended retirement system (BRS), which allows most military members to receive at least some retirement benefits even if they serve for shorter terms. 

The Blended Retirement System

In 2018, the government addressed the limitations of the military pension eligibility criteria to provide retirement benefits to servicemembers who served less than 20 years. Under the old system servicemembers were eligible to receive a military retirement (the defined annuity) based on their in-service pay after 20 years of active-duty service, plus an additional 2.5% of active-duty pay for every additional year of service.

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The 2018 Blended Retirement System (BRS) combines the 20-year military retirement (the defined annuity) with a defined contribution plan, known as the Thrift Saving Plan (TSP) enabling those who serve less than 20 years  to benefit from a tax deferred  retirement savings plan which is portable when you leave the military.  

Another change is, rather than multiplying years of service by 2.5%, it’s now multiplied by 2%, so for those who serve 20 years and earn the pension benefit, their retired pay is less than it would have been under the old system. However, there are some new benefits to the program that counterbalance that reduction.

As a way to encourage retention, the DoD will offer a career continuation pay to those enrolled in the BRS who stays in the military for at least 8 years and must agree to serve a minimum of 3 additional years.

For BRS  participants  who retire with at least 20 years of service will receive regular monthly retired pay  installments and can choose a partial lump sum payment. Members taking this lump sum  agree to a reduction in their monthly pension benefit until they reach Social Security full retirement age, which is typically 67. At that time, their full retirement beneficiat is restored to the amount they would have been paid if they had not taken the lump sum. This option pays out less in the long run, but some retirees prefer to be able to take the lump sum and spend or invest as they wish. Retirees can choose either a 25% lump sum, then receive 75% until full retirement age, or a 50% lump sum and 50% until full retirement. The lump sum can be delivered as a one-time payment, or a smaller annual payment spread out over no more than four years.

The Thrift Savings Plan

Another big military retirement benefit involves the Thrift Savings Plan (TSP). Military members who are under the BRS are now automatically enrolled in TSP, which is one of the best tax-deferred retirement accounts available. The TSP works similarly to a 401(k) retirement plan, but with some extra bonuses. For Blended Retirement System servicemembers, the military pays a 1% matching contribution starting within 60 days of enrollment. The DOD will also match up to an additional 3% of contributions dollar-for-dollar, plus a 50% match for additional contributions between 3% and 5%, once the servicemember has two years of active duty. That means the military will match up to 5% of servicemembers’ pay in the program. For newly-enrolled servicemembers, the DOD’s default enrollment is to automatically elect a 5% contribution of their pre-taxed pay and apply it to the TSP unless the servicemember opts out.

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Disability Retirement Benefits

Servicemembers who are determined medically unfit for continued service with a DoD disability rating of at least 30% determined by their military service,  may be required to retire from the military before completing their full 20 years and may receive a separate set of benefits, based on the years of creditable service times 2.5% or 2.0% (based on whether the member is a participant of the legacy or Blended Retirement System prior to the disability). 

RelatedAre You Missing Out on Important VA Benefits?

VA disability benefits are separate from DOD disability benefits. While retired military can apply for VA disability benefits, they cannot have both VA disability and DOD disability benefits.