Key Takeaways:
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You can significantly increase your federal retirement benefits by buying back military service years, a move that many federal workers have found financially rewarding in 2024.
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Understanding the process, costs, and benefits of military buyback can help you decide if it’s the right choice for boosting your retirement payout.
Cashing in on Your Military Service: Why the Military Buyback Matters
For federal employees with prior military service, there’s a hidden gem in the retirement system that can dramatically increase the value of your retirement benefits: the military buyback option. If you’ve served in the military and now work in the federal government under FERS (Federal Employee Retirement System) or CSRS
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What Is the Military Buyback?
The military buyback is a program that allows federal employees to count their military service toward their civilian retirement, provided they buy back the time they spent in uniform. This option is available to federal workers under both FERS and CSRS. By making a one-time payment, based on a percentage of your military earnings, you can have your years of service added to your total civilian service time. This means a larger pension check when you retire from federal service.
The big question is: why are so many federal employees cashing in on this opportunity now? With increasing awareness and rising retirement costs, federal workers in 2024 are more interested than ever in maximizing their benefits.
The Financial Benefit of Buying Back Service Years
The most obvious reason to buy back your military service time is financial. By adding those years of service to your retirement calculations, you increase the number of years factored into your pension annuity. This can lead to a significantly higher monthly payout in retirement.
For instance, under FERS, your retirement annuity is calculated based on your high-3 salary (the highest average salary over three consecutive years) and the number of years you’ve worked. Each year of service typically adds 1% of your high-3 salary to your pension. So, if your high-3 salary is $100,000, one extra year of service means an additional $1,000 per year in retirement.
By buying back five years of military service, you could boost your pension by $5,000 annually. Over a 20-year retirement, that’s an additional $100,000 in your pocket.
How Much Does Military Buyback Cost?
While the benefits are clear, it’s important to understand the cost of buying back your military service time. The price you pay depends on your military earnings. Typically, you will owe 3% of your total military base pay during your service period, plus any applicable interest if you don’t buy back your service time within a set timeframe (usually within your first three years of federal employment).
For example, if you earned $200,000 during your military service, your buyback cost would start at around $6,000 (3% of $200,000). However, if you delay buying back your service, interest accrues on this amount, which can increase the cost significantly. The interest rates are set by the Treasury Department and can add up quickly if you postpone the buyback.
Many federal workers prefer to act quickly and buy back their time early in their civilian careers to avoid paying extra interest. In 2024, it’s more important than ever to make an informed decision, as retirement costs and interest rates continue to fluctuate.
The Process of Buying Back Military Service
The process of buying back military service involves several steps, but with proper planning, it’s manageable. Here’s a basic breakdown of what’s involved:
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Obtain Your Military Service Records: You’ll need your DD-214 form (or equivalent) to prove your dates of military service.
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Request a Military Earnings Statement: This statement will detail your earnings while in the military. You can obtain this through your branch of service or the Defense Finance and Accounting Service (DFAS).
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Calculate Your Buyback Cost: Your agency’s human resources or benefits office can help you determine how much you’ll need to pay to buy back your service time.
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Submit Your Payment: Once your payment is made (which can often be done in installments), your military service will be added to your total years of civilian service for retirement purposes.
It’s important to note that once you buy back your service time, the decision is final. There are no refunds or “undoing” the buyback, so it’s essential to make sure you’re ready to commit.
How Many Years of Service Can You Buy Back?
The good news is that most military service, regardless of duration, can be bought back for retirement purposes. Whether you served for just a few years or spent decades in uniform, you can buy back all your service time, provided it was active duty and not used toward military retirement. Federal workers who served in the National Guard or Reserves can also buy back certain periods of active duty service.
It’s also worth noting that the time you buy back is added to your civilian service at full value. So, if you buy back five years of military service, it’s as though you’ve worked an extra five years in your federal job, and it’s calculated the same way as civilian service in your pension.
Who Benefits the Most From Military Buyback?
Not all federal employees will benefit equally from buying back military service, so it’s important to consider your individual situation. Here are a few groups who tend to get the most value:
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Those With Short Civilian Careers: If you entered federal service later in life or don’t plan to work for the federal government for a full 20 or 30 years, buying back military time can help you reach the necessary years of service to qualify for a full pension.
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Employees Planning to Retire Early: By buying back military service, you might be able to reach eligibility for retirement sooner. This is especially important for employees considering early retirement under FERS, where having enough years of service can mean the difference between retiring with full benefits and receiving a reduced annuity.
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Workers Close to Retirement: If you’re nearing the end of your federal career, buying back military time can provide a final boost to your annuity, giving you a more comfortable retirement income.
Understanding the Timelines: When to Buy Back
When you should buy back your military service is just as important as whether you should. The ideal time to buy back your military time is within the first three years of entering federal service. If you buy back within this timeframe, you avoid paying interest on your buyback costs, which can save you thousands of dollars.
After those initial three years, interest begins to accrue, making the buyback more expensive. By 2024, many federal workers who delayed their buyback have had to pay much higher costs due to accumulated interest. This makes it essential to act quickly if you’re considering the buyback option.
If you’re already beyond that three-year window, it’s still worth exploring the buyback, as the potential increase in your pension often outweighs the cost, even with interest.
Common Questions About Military Buyback
Federal employees frequently have questions about military buyback, such as:
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Can I buy back time if I’m receiving military retirement? Generally, no. If you’re already drawing a military retirement pension, you cannot buy back the same service time to use for your federal pension. However, there are exceptions for certain disability retirements.
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Can I buy back National Guard or Reserve time? Yes, you can buy back active duty periods of service in the National Guard or Reserves, as long as that time isn’t already being counted toward a military retirement.
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Will my pension be taxed differently if I buy back military time? No. Your federal pension will be taxed the same way whether you include military time or not. The buyback simply increases your years of service for retirement calculation purposes.
Unlocking Your Military Buyback Potential for a Larger Pension
If you’ve served in the military and now work in the federal government, buying back your service time can be a game-changer for your retirement. The military buyback allows you to increase your years of service, boost your pension, and retire with more financial security. In 2024, more federal employees than ever are taking advantage of this option, and with good reason.
Whether you’re early in your federal career or close to retirement, the military buyback can provide significant financial benefits. It’s an opportunity worth exploring, especially with rising retirement costs and the uncertain future of federal benefits. By acting now, you can ensure that your years of service—both military and civilian—are working for you when you finally retire.
