Military Retirement Planning: The Complete Guide

Planning for military retirement can feel overwhelming, but starting early and understanding your options makes it manageable. Here’s what you need to know:

• Retirement Systems: The U.S. military offers two main systems - Legacy High-3 and the Blended Retirement System (BRS). High-3 gives 2.5% of base pay per year of service, while BRS offers 2% plus TSP matching contributions.
• Eligibility: Active duty members qualify after 20 years of service. Reservists can retire after 20 years but start receiving pay at age 60.
• Thrift Savings Plan (TSP): A powerful savings tool with low fees and government matching (up to 5% under BRS). For 2025, the contribution limit is $23,500, with catch-up contributions for those over 50.
• Benefits Beyond Pay: Military pensions are adjusted annually for inflation, and VA benefits like healthcare, disability compensation, and home loans can significantly reduce costs.
• Transition Steps: Start planning at least a year before retirement. Schedule counseling, update records, and explore healthcare options like TRICARE.
• Post-Retirement Income: Use skills from service for second careers, side hustles, or consulting. Popular options include tutoring, real estate, or freelance work.

Quick Tip: Maximize retirement savings by contributing at least 5% to your TSP early in your career to leverage government matching.

Planning ahead ensures a secure and comfortable retirement. Let’s dive into the details.

Military Retirement Systems Explained

The U.S. military uses two main retirement systems to structure benefits. Knowing which system applies to you - and how it works - can help you make smarter financial decisions throughout your career. Below, we'll break down the service requirements and administrative details that determine your retirement eligibility.

Retirement Eligibility Requirements

For Active Duty Retirement, you need 20 years of qualifying service across any branch of the military. This includes active duty time that counts toward retirement benefits.

Qualifying service includes active duty, active duty for training, active duty for special work, temporary active duty, full-time National Guard duty, and Active Guard/Reserve time. Additionally, your discharge type must be Honorable, Under Honorable Conditions, or General to qualify for retirement benefits.

For Reserve and National Guard retirement, the rules are slightly different. Reservists qualify for retirement pay at age 60, provided they have completed 20 years of qualifying service. So, even if you finish your 20 years of service in your 40s, your retirement pay won’t begin until you turn 60.

Historically, only 19% of active duty service members and 14% of Guardsmen and reservists in the legacy system served long enough to earn retirement benefits. Each branch also enforces mandatory retirement ages, which vary by rank and position, ensuring leadership roles remain accessible and force readiness is maintained.

In addition to voluntary retirement, the military offers involuntary and medical retirements for those unable to complete their service due to disability or force reductions.

Now that eligibility is clear, let’s look at how retirement pay is calculated under the two systems.

How Military Retirement Pay is Calculated

Your retirement pay depends on whether you’re covered under the High-3 system or the Blended Retirement System (BRS). Each system calculates benefits differently, impacting your lifetime retirement income.

High-3 System Calculation

The High-3 system uses a 2.5% multiplier for each year of service. To calculate your retirement pay, multiply 2.5% by your years of service and the average of your highest 36 months of basic pay.

For example:

• With 20 years of service, your pension equals 50% of your highest 36-month basic pay average.
• With 40 years of service, your pension reaches 100% of the monthly pay average.

Blended Retirement System (BRS) Calculation

The BRS uses a 2% multiplier instead. Retirement pay under this system is calculated by multiplying 2% by your years of service and the average of your highest 36 months of basic pay. However, the BRS compensates for the lower multiplier with government contributions to your Thrift Savings Plan (TSP) account.

Unlike the High-3 system, where only those with 20 years of service qualify for retirement pay, the BRS allows service members who leave before 20 years to retain their TSP accounts. These members are vested in the government’s 1% automatic contribution and matching contributions after just two years of service.

Key Differences Between the Systems

One major difference is how each system treats those who don’t serve 20 years:

• Under the High-3 system, 81% of service members leave with no retirement benefit.
• Under the BRS, 85% of service members receive some retirement benefit.

Cost of Living Adjustments (COLA)

Both systems include COLA adjustments to protect your retirement pay from inflation.

How to Start Your Military Retirement Process

Planning ahead is crucial to ensure a smooth transition to retirement. Starting the process early helps you avoid unnecessary stress and delays.

Timeline Requirements

Begin the retirement process at least 365 days before your desired retirement date. Contact your installation’s Transition Assistance Program (TAP) office to kick things off.

Required Counseling

Schedule your Individualized Initial Counseling and Pre-Separation Counseling Brief as early as possible. TAP offices are often busy, so securing a spot in advance is essential. The Defense Finance and Accounting Service (DFAS) will also assist with financial questions and benefit calculations during this time.

Medical and Administrative Steps

• Schedule your final medical and dental exams at least 90 days before separation.
• Meet with your benefits office no later than 60 days before separation to review your transition to veteran benefits, including healthcare options.

Key Administrative Tasks

Before retiring, download all your personnel records. Once you separate, you’ll lose access to your electronic Official Personnel Folder (eOPF). Keeping these records is vital for VA disability claims and future job applications. Also, ensure your information in DEERS (Defense Enrollment Eligibility Reporting System) is up to date. This system determines your eligibility for continued health coverage.

Final Move Planning

You must complete your final military move within one year after active duty. Early planning will help you secure preferred moving dates and avoid peak periods.

How to Maximize Your Military Financial Benefits

When it comes to planning for retirement, military service offers unique financial tools that can significantly enhance your long-term security. By making the most of your Thrift Savings Plan (TSP), military pension, and VA benefits, you can create a more comfortable and secure retirement. Let’s dive into how you can take full advantage of these opportunities.

Thrift Savings Plan (TSP): A Key to Wealth Building

The TSP is a valuable tool for building wealth, yet many service members don’t fully utilize its benefits - especially the government matching contributions. How you approach the TSP depends on whether you're part of the Blended Retirement System (BRS) or the legacy High-3 system.

Smart Contribution Strategies

• If you're under the BRS, contribute at least 5% of your salary to take full advantage of the government matching contributions. That’s essentially free money added to your retirement savings.
• For those under the High-3 system, even though there’s no matching, the tax advantages of the TSP still make it a worthwhile investment.

In 2025, the TSP annual contribution limit is $23,500, with an additional $7,500 allowed for those aged 50 or older as catch-up contributions.

Choosing the Right Funds

Your investment choices within the TSP can have a big impact on your long-term returns. As of April 30, 2025, the average 10-year returns for TSP funds are as follows:

• C Fund: 10.96%
• S Fund: 8.81%
• I Fund: 5.16%
• F Fund: 1.60%
• G Fund: 2.59%

Early in your career, focus on growth-oriented funds like the C, S, and I Funds. As you move closer to retirement, shift toward more stable options like the G Fund or Lifecycle Funds to reduce risk and protect your savings from market fluctuations.

Balancing Taxes

Consider splitting your contributions between Traditional and Roth TSP accounts. Traditional contributions lower your taxable income now, while Roth contributions grow tax-free for retirement withdrawals. To maximize your savings, increase your contributions whenever you get a pay raise.

Making the Most of Your Military Pension

Your military pension serves as the foundation of your retirement income. Understanding how it’s calculated and exploring ways to maximize its value can make a big difference.

How Your Pension Is Calculated

• Under the Legacy High-3 system, you’ll receive 50% of your average highest three years of base pay after 20 years of service. Each additional year adds 2.5% to your pension.
• The BRS offers 2% per year of service, supplemented by TSP matching contributions.

For example:

• An E-7 with 20 years of service might earn $30,000–$35,000 annually under the High-3 system.
• An O-5 with 20 years could receive $60,000–$70,000 annually.
• With 30 years of service, an E-9 might see $45,000–$50,000 annually, while an O-6 could earn $90,000–$100,000.

Cost-of-Living Adjustments

Military pensions are adjusted annually for cost-of-living increases. In 2025, retirees saw a 2.5% increase in their monthly payments - a vital factor in maintaining purchasing power over time.

Additional Considerations

Lowering healthcare costs is another way to stretch your pension. Enrolling in TRICARE and utilizing VA healthcare can significantly reduce out-of-pocket expenses. Pairing these benefits with tax-advantaged accounts like Roth IRAs or Health Savings Accounts (HSAs) can further enhance your financial security.

Leveraging VA Benefits for Financial Security

VA benefits play a critical role in supplementing your retirement income and reducing expenses.

Disability Compensation

If you qualify for VA disability compensation, you’ll receive monthly, tax-free payments based on your disability rating. In 2025, these payments increased by 2.5%:

For higher ratings, a 100% rating without dependents brings an additional $93.45 per month, providing a reliable and lifelong income stream.

VA Pension Program

The VA pension offers financial support for veterans who meet income and net worth requirements. As of December 1, 2024, the net worth limit is $159,240. The Maximum Annual Pension Rate (MAPR) depends on your circumstances:

Healthcare and Home Loans

VA healthcare can significantly reduce your medical costs, while the VA home loan program allows veterans to purchase homes with no down payment or private mortgage insurance. These benefits can save you tens of thousands of dollars over time.

Tips for Maximizing VA Benefits

To make the most of your VA benefits, ensure all your paperwork is in order before transitioning to civilian life. You might also consider applying for life insurance before filing for a disability rating. For assistance, the VA can be reached at 800-827-1000, Monday through Friday, from 8 a.m. to 9 p.m. ET.

Building Additional Income and Wealth After Service

Retiring from the military gives you a reliable financial base, but finding ways to grow your income can significantly improve your financial stability and help you reach your wealth-building goals faster. The skills you gained during your service - like leadership, problem-solving, and technical expertise - can be a springboard for new income opportunities. Let’s dive into practical ways to turn your military experience into profitable ventures and smart investment strategies.

Side Hustles and Business Ideas for Military Retirees

Transitioning to civilian life isn’t just about adjusting; it’s also a chance to create new income streams. Many of the skills you developed during your service are in high demand, and some side hustles require little to no upfront investment.

Tapping Into Your Military Network

Your network of fellow service members, veterans, and military families can be an excellent resource. They can help you gain early clients and build trust without spending heavily on marketing.

"I received my first customer by doing market research and reaching out to a group of friends for feedback." – Judy Ta, business coach at Judy Ta LLC

By leveraging these connections, you can establish steady income streams that complement your retirement benefits.

High-Paying Side Hustles