Key Takeaways:
- Boost your pension by adding military service years to your civilian retirement through the buyback program.
- Early investment in military buyback can mean significant pension benefits in your retirement years.
Understanding Military Buyback: Unlocking Additional Retirement Benefits
If you’re a federal employee with prior military service, you may have the chance to increase your federal retirement benefits through a process known as military buyback. This program allows you to add your years of military service to your civilian federal retirement calculation, potentially increasing your monthly pension
- Also Read: Are You Eligible for the Federal Employee Retirement System (FERS)? Find Out Here
- Also Read: Why TSP Withdrawal Options Might Be More Flexible Than You Think for Federal Retirees
- Also Read: The Top Federal Employee Benefits You Should Be Tapping Into Right Now
What Is Military Buyback?
The military buyback program gives federal employees with prior military service the opportunity to “buy” their time served in the military and apply it to their civilian federal retirement under either the Federal Employees Retirement System (FERS) or Civil Service Retirement System (CSRS). In simple terms, your military service years count toward your federal pension, meaning a higher monthly payout when you eventually retire.
How Does It Work?
When you buy back your military time, you’ll need to make a deposit that equals a percentage of your military base pay during your time in service. This percentage differs between FERS and CSRS employees. Once paid, your military service years are added to your total federal service time, increasing your eligibility for pension benefits and potentially allowing you to retire earlier.
The Benefits of Buying Back Military Time
1. Increase Your Retirement Pay
Adding military years to your civilian retirement calculation can mean a substantial increase in your monthly pension. Since your federal pension is calculated based on your years of service and high-three salary (the average of your highest three consecutive years of basic pay), increasing your service years by buying back your military time can directly increase your payout.
2. Meet Retirement Eligibility Sooner
Federal employees have specific requirements for retirement eligibility under FERS and CSRS, such as meeting a certain age and years of service combination. Buying back military time can shorten the time it takes to reach the necessary years of service, potentially allowing you to retire earlier with full benefits. This can be particularly valuable if you’re nearing eligibility and looking for ways to speed up the process.
How Much Does Military Buyback Cost?
The cost of buying back your military time depends on several factors, including your base pay during your military service and whether you’re under FERS or CSRS. For FERS employees, the buyback cost is generally 3% of your military base pay for each year of service. For CSRS, the cost is typically higher, at 7%.
This amount is generally a worthwhile investment for those planning a long retirement, as it can be recouped over time through higher monthly pension payments. Importantly, if you make the deposit within three years of starting federal civilian service, you can avoid paying interest. Waiting beyond the three-year mark incurs additional interest, which grows the longer you delay.
Steps to Start the Military Buyback Process
Getting started with the military buyback process might sound intimidating, but it’s straightforward once you understand the steps. Here’s a basic roadmap to help you get started:
Step 1: Request Your Military Earnings Statement
The first step is to obtain a record of your earnings while in military service. This statement provides essential information on your base pay, which will be used to calculate the cost of your military buyback. You can request this from the Defense Finance and Accounting Service (DFAS) for Army, Navy, Air Force, or Marine Corps members or from your branch’s equivalent office.
Step 2: Complete the Buyback Application Forms
Next, you’ll need to complete the necessary forms to request a military buyback. The primary form is SF 2803 (for CSRS employees) or SF 3108 (for FERS employees). You will also submit a copy of your military service record (often referred to as DD Form 214) alongside your application.
Step 3: Review the Calculation
Your agency’s human resources office will provide a calculation based on your base pay and the applicable percentage rate. Take your time to review this cost and weigh it against the potential benefits to your retirement. Some choose to go ahead with the payment immediately, while others may want more time to evaluate how the buyback aligns with their overall retirement goals.
Step 4: Make the Payment
Once you’ve decided to proceed, you can arrange to pay the deposit either in a lump sum or installments, depending on what your budget allows. Many employees choose to pay in a lump sum to avoid interest charges, especially if they’re still within the initial three-year window. Remember, the sooner you complete the payment, the sooner your service credit will count toward your retirement calculation.
How Long Will It Take to See Benefits?
Once you’ve completed your payment, the buyback credit will apply toward your retirement service immediately. However, you may not see an impact on your benefits until you start drawing your pension. Remember, the real benefit of military buyback becomes apparent in your monthly pension amount over a long retirement. Each added year of service can be worth thousands over time, especially as your monthly benefits increase.
Common Questions About Military Buyback
Is Military Buyback Worth It?
For many federal employees, military buyback is a valuable option, especially if you’re in your first few years of federal employment and can avoid interest charges. The buyback deposit often pays off in just a few years of retirement, so if you’re planning a long retirement, this could be a wise investment.
Can I Use My Military Time Without Buying It Back?
Military service time can only count toward your federal retirement benefits if you buy it back. While military service can still count toward your TSP contributions, it doesn’t increase your years of service for pension purposes unless you pay the buyback cost.
Will Buying Back Military Time Affect My Military Retirement?
If you are already drawing a military retirement based on your years of active duty, you typically cannot receive both a military pension and credit for those same years toward a civilian retirement. However, some types of military retirement, such as those based on disability, may still qualify. Be sure to review your specific situation with HR to avoid any issues.
The Pros and Cons of Military Buyback
Pros
- Increases your monthly pension
- Shortens the time needed to qualify for full retirement
- Offers substantial long-term financial benefit
Cons
- Requires a financial commitment upfront
- May not be as beneficial if you’re close to retirement and only adding a few years
Making Military Buyback Work for You
Military buyback can be a powerful tool for federal employees with military service, potentially adding thousands to your retirement over time. Before deciding, calculate the cost and compare it to the estimated pension increase. If you’re early in your civilian career, the benefit of avoiding interest charges might make it even more compelling. And remember, if you have questions, your HR office is an excellent resource to help guide you through the details.
Ready to Take Advantage of Your Military Service?
The decision to buy back military time is a personal one, but for many federal employees, it offers a unique way to make the most of your public service. With each year bought back, your civilian retirement grows stronger, adding security to your post-career life.
