Key Takeaways:
- Buying back your military service time can significantly increase your retirement annuity under FERS or CSRS, making it a valuable option for federal employees with military service.
- You need to start the buyback process early, as it can take several months or even years to complete, depending on your individual circumstances.
Why Federal Employees with Military Service Should Pay Attention to Buyback Programs
- 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
But, like many great opportunities, it comes with a process. So, before you retire or even start thinking about it seriously, take some time to understand how the buyback system works and why it’s worth your attention. Trust me, your future self will thank you for doing this now rather than waiting until it’s too late.
What Exactly Is a Military Buyback?
Simply put, a military buyback is a program that lets federal employees who have served in the military “buy back” their military service time so it can be credited toward their civilian retirement. If you served in the military before becoming a federal employee, those years don’t automatically count toward your civilian retirement. This is where the buyback comes in.
By paying a certain amount (based on your military earnings and the retirement system you’re under), you can make your military years count toward your civilian retirement, whether you’re in the Federal Employees Retirement System (FERS) or the older Civil Service Retirement System (CSRS). It’s one of those rare instances where you can pay money to get something valuable in return—more years of creditable service means a higher pension.
How Does the Buyback Affect Your Retirement?
For federal employees under FERS, the annuity formula is relatively simple. Your pension is calculated by multiplying your years of creditable service by a percentage (usually 1% or 1.1% depending on your age and years of service) and then multiplying that by your “high-3” salary (the average of your highest three consecutive years of pay).
Let’s say you served in the military for 4 years and worked for the federal government for 26 years. Without a buyback, your retirement calculation is based only on the 26 years. But with a buyback, that jumps to 30 years, which can lead to a significant increase in your monthly annuity for the rest of your life.
For those under CSRS, the formula is even more generous, especially for the early years of service. The difference between buying back your military service time and not doing so can amount to hundreds of dollars a month—money you could be leaving on the table if you don’t take advantage of the buyback program.
The Timeline: How Long Does It Take?
One thing to keep in mind is that the military buyback process doesn’t happen overnight. It’s essential to start the process as soon as possible, ideally several years before your planned retirement. Here’s why:
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Paperwork takes time: You’ll need to gather military service records, request your earnings, and submit forms to the appropriate offices. It can take several months just to get these initial steps completed.
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Calculation and payment: After your paperwork is processed, your agency will calculate how much you owe based on your military earnings. The amount typically includes interest, so the longer you wait, the more you might pay.
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Finalizing the buyback: Once you’ve made the payment, it can take additional time to ensure your retirement file is updated with the correct service credit.
Because this process can stretch out for months (or even years, depending on circumstances), it’s not something you want to leave until the last minute. Aim to start the buyback process at least a couple of years before you plan to retire.
Who Is Eligible for a Military Buyback?
You may be wondering if you’re eligible for the military buyback program. Generally, you’re eligible if you served in active military duty and later became a federal civilian employee. It’s worth noting that only active duty military service can be bought back—time spent in the reserves doesn’t count unless it was active duty.
Also, to qualify for the buyback, you cannot have received military retired pay unless it’s due to a disability or combat-related injuries. This means if you’re already drawing a military pension, you might not be eligible for the buyback unless you’re in one of these specific categories. So, it’s essential to check your individual circumstances and make sure you meet the eligibility criteria before starting the buyback process.
How Much Does the Buyback Cost?
The cost of buying back your military service time varies depending on your military earnings during your service, how long you wait, and which retirement system you’re under. Typically, you’ll pay a percentage of your military base pay, plus interest if you delay starting the process.
For FERS employees, the buyback cost is usually 3% of your military earnings, while for CSRS employees, it’s 7%. However, if you don’t start the buyback process within a certain timeframe, interest begins to accumulate, which can increase your costs. The earlier you start, the better.
Is It Worth It?
This is the big question, right? After all, buying back military service time requires an upfront payment, and you want to be sure it’s a good investment. The short answer is: Yes, it’s usually worth it.
Think of it this way: for a one-time payment, you’re increasing your monthly pension for the rest of your life. Depending on how long you live, the increased annuity payments can far exceed the initial cost of the buyback. Not only that, but the extra service time may allow you to qualify for earlier retirement, which is a benefit in itself.
If you’re still unsure, many financial planners recommend running the numbers to see how much extra you’d receive each month from your buyback. Then, compare that to how long it would take for the increased pension to pay off the initial cost. In most cases, it’s a winning proposition.
Plan Ahead for a Better Retirement
As you approach retirement, every decision you make counts. A military buyback is one of those choices that can have a lasting impact on your financial well-being during your retirement years. If you’re eligible and can afford the buyback cost, it’s usually worth pursuing, especially if you start the process early enough to avoid hefty interest charges.
Remember, this isn’t something you want to leave until the last minute. Start gathering your records now, check your eligibility, and submit the necessary paperwork so that you can retire knowing you’ve done everything possible to maximize your benefits.
Your Future Self Will Thank You
When you retire, you want to enjoy your well-earned free time without worrying about whether you left money on the table. A military buyback could be one of the best financial moves you make as a federal employee with military service. With a bit of planning and effort now, you can enjoy the rewards of a larger annuity for the rest of your life.
