Key Takeaways
- Buying back your military service time can increase your retirement benefits and help you retire earlier than expected.
- Understanding the military buyback process ensures you make informed decisions that maximize your federal retirement.
What Is Military Buyback and Why Does It Matter?
If you served in the military and now work as a federal employee, you’ve got an opportunity that many people don’t know about: the military buyback program
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Why does this matter? It can mean retiring earlier, receiving a larger pension, and securing a more comfortable financial future. But to benefit from it, you need to understand how it works and decide if it’s the right move for you.
How the Military Buyback Program Works
The military buyback program allows you to “buy” your military service time and add it to your federal service years. The process involves making a payment—often referred to as a deposit—based on a percentage of your military base pay. This payment is calculated using specific formulas depending on your retirement system.
- FERS Employees: The deposit is typically 3% of your military base pay.
- CSRS Employees: The deposit is usually 7% of your military base pay.
Once you’ve made the payment, your military service years are credited toward your federal retirement, potentially boosting your pension and reducing your time to retirement eligibility.
Key Benefits of Military Buyback
1. Boost Your Retirement Annuity
When your military service years are credited, they increase your length of service for calculating your federal pension. Since your pension is based on your years of service and your high-three average salary, adding extra years can significantly increase your retirement income.
2. Retire Earlier
Adding your military time to your federal service years can help you meet retirement eligibility sooner. For example, if you’re nearing the Minimum Retirement Age (MRA) but fall short of the required years of service, buying back your military time could bridge that gap.
3. Save on Healthcare Costs
Retiring earlier doesn’t just mean leaving the workforce sooner—it can also give you earlier access to benefits like Federal Employees Health Benefits (FEHB) in retirement. Combining FEHB with Medicare at age 65 can save you thousands annually on healthcare costs.
When Should You Consider Military Buyback?
The earlier you start the buyback process, the better. Interest accrues on unpaid military deposits, so delaying your decision can make the process more expensive.
You have three main timeframes to consider:
- Immediately After Entering Federal Service: You have a grace period of up to three years without interest charges. This is the best time to act.
- Mid-Career: If you missed the initial window, you can still buy back your time later, though you’ll pay more due to accrued interest.
- Near Retirement: It’s possible to buy back military time just before retirement, but the cost might outweigh the benefits at this stage.
The Step-by-Step Buyback Process
Step 1: Obtain Your Military Service Records
The first step is to gather your DD-214 or other official military service records. These documents are essential for verifying your service dates and base pay.
Step 2: Request an Earnings Statement
Next, contact the Defense Finance and Accounting Service (DFAS) or the appropriate agency to obtain an estimated earnings statement. This document outlines your military base pay, which is used to calculate your deposit amount.
Step 3: Calculate Your Deposit
Your federal HR department can help calculate the deposit required to buy back your military time. The deposit includes the base percentage (3% or 7%) and any applicable interest.
Step 4: Make the Payment
Submit your payment through payroll deductions or a lump sum. Once the deposit is fully paid, your military service years are officially credited toward your federal retirement.
Step 5: Verify Your Service Credit
After completing the payment, verify that your service credit is accurately reflected in your records. This ensures your retirement benefits are calculated correctly.
Factors to Consider Before Buying Back Military Time
1. Affordability
Buying back military time requires an upfront financial commitment. If you’re unable to pay the deposit in full, consider payroll deductions to spread the cost over time.
2. Interest Accrual
If you’re past the three-year grace period, accrued interest can significantly increase the cost of your buyback. It’s essential to calculate whether the long-term benefits outweigh the additional expense.
3. Retirement System Differences
FERS and CSRS have distinct rules and formulas for calculating retirement benefits. Understanding how your system impacts your pension can help you make a more informed decision.
Common Myths About Military Buyback
Myth 1: It’s Only for Recent Veterans
Military buyback is available to anyone with active-duty service, regardless of when they served. Even if your military career ended decades ago, you can still take advantage of the program.
Myth 2: It’s Too Expensive to Be Worth It
While the upfront cost can seem high, the long-term financial benefits—like a larger pension and earlier retirement—often outweigh the expense.
Myth 3: The Process Is Too Complicated
The buyback process involves several steps, but with the help of your federal HR office and some careful planning, it’s entirely manageable.
Planning for a Wealthier Retirement
Military buyback isn’t just about retiring earlier; it’s also about retiring wealthier. By increasing your pension and reducing the number of working years needed to achieve your retirement goals, you’re setting yourself up for financial success.
To make the most of this opportunity:
- Start the buyback process as early as possible to minimize interest costs.
- Work closely with your HR department to ensure your records are accurate and up to date.
- Regularly review your retirement plan to assess how military buyback fits into your broader financial goals.
Wrapping Up Your Military Buyback Options
If you’re a federal employee with prior military service, the military buyback program offers a unique chance to enhance your retirement. By understanding the program’s benefits, costs, and timelines, you can make informed decisions that set you on the path to a more secure and prosperous future.
