Key Takeaways
- Understanding how your military service impacts your federal retirement is key to maximizing your benefits.
- Deciding whether to buy back military time can significantly affect your pension and retirement timeline.
The Importance of Military Service in Federal Employee Retirement
- Also Read: FEHB Coverage in Retirement—Here’s What Federal Employees Need to Know to Stay Covered
- Also Read: Thinking About Dropping FEGLI in Retirement? Here’s Why You Might Want to Think Twice
- Also Read: CSRS Isn’t Dead Yet—How Federal Employees with This Plan Can Still Retire with a Big Paycheck
The goal here is to make sense of this, so you can plan ahead and retire with confidence. Let’s dig into the key aspects that every federal employee with military service needs to consider before they retire.
What Is Military Buyback and Should You Do It?
One of the first things you’ll hear about as a federal employee with military service is the option to “buy back” your military time. But what does that mean?
Military buyback refers to a process where you can pay a certain amount of money to have your active-duty military service counted towards your civilian federal retirement. This can be incredibly beneficial because it increases your total service credit, which in turn increases your pension. Federal pensions are based on the length of your service, so the more years you have, the higher your pension will be.
How Much Does It Cost?
While we can’t give exact numbers, the cost to buy back military time depends on factors like your military earnings and how long ago you served. Typically, you’ll need to pay a percentage of your total military base pay, plus interest if you’re further along in your federal career. The longer you wait, the more expensive it gets due to accumulated interest. For those who recently entered the federal workforce or who are still early in their career, this is something to jump on as soon as possible to save money.
Is It Worth It?
In most cases, buying back military time is a smart move, but it’s not always a one-size-fits-all decision. You’ll want to run the numbers carefully. Think about your financial situation now and in retirement, how long you plan to stay in your federal job, and your overall career goals. For example, if you’re planning to leave the federal workforce soon, it might not make sense to buy back several years of military time if it doesn’t significantly increase your retirement benefit.
It’s also worth noting that buying back your military time doesn’t affect your eligibility for other military benefits, like healthcare from the VA or your military retirement pay if you served 20 years or more in the armed forces.
How Does Military Service Impact Your Federal Retirement Pension?
Once you’ve decided whether or not to buy back your military time, the next step is understanding how it impacts your pension. Your federal pension is calculated based on your years of service and your highest three years of earnings, known as your “high-3.” Every year of service counts, so if you buy back military time, those years will be added to your total years of federal service.
This can be especially important if you’re aiming to retire early or with a higher pension. For example, with 20 or 30 years of service, your pension could be significantly larger. And since military service time is often active-duty time, which tends to happen earlier in life, buying it back could help you reach the minimum years of service for retirement eligibility much sooner.
Should You Consider Other Retirement Plans Alongside Your Federal Pension?
Your federal retirement pension is just one piece of the puzzle. Most federal employees, including those with military service, have access to the Thrift Savings Plan (TSP), which functions similarly to a 401(k) in the private sector. The TSP allows you to save additional money for retirement in a tax-advantaged way, and it offers a matching contribution from the government up to a certain percentage.
For military veterans, it’s important to remember that you also have access to other savings options like a military pension if you served for 20 or more years. While the federal retirement pension and TSP are both great tools for retirement savings, having military benefits as well can make your financial future even more secure.
Think of it this way: your federal pension is a guaranteed income source, while your TSP and military retirement pay (if applicable) give you more flexibility and room for growth in retirement. The key is balancing these different income sources to maximize your retirement readiness.
How Soon Should You Start Planning for Retirement?
Planning for retirement as a federal employee with military service is a long-term process. The earlier you start, the more options you have when it comes to buying back military time, increasing your service credit, and maximizing your pension.
Most experts recommend starting to think about retirement at least 10 years in advance, but there’s no harm in looking ahead even earlier—especially if you have military service. As mentioned earlier, buying back military time becomes more expensive as you wait, so acting early can save you a lot of money in interest payments. Plus, starting early gives you a better sense of how much you need to save in your TSP or other retirement accounts.
What Happens If You Don’t Buy Back Your Military Time?
If you decide not to buy back your military service, you can still retire with your federal pension, but those years of military service won’t count toward your federal retirement credit. This means that your pension may be smaller, and it could take you longer to reach eligibility for retirement benefits.
However, if you’re eligible for military retirement benefits, you can still receive those separately. Many federal employees with military service choose to keep their military retirement benefits and not buy back their time, especially if they served for 20 years or more. It all depends on what makes the most financial sense for your situation.
Things You Can’t Overlook Before Retiring
Before you officially retire, there are a few key things to check off your list:
- Review Your Service History – Make sure your military service records are accurate and complete. Missing information can delay your retirement processing.
- Evaluate Your Pension Options – Decide if you want to take a full pension or if you’d prefer to choose a reduced pension with survivor benefits.
- Coordinate Your Benefits – If you’re receiving military retirement benefits, understand how these work alongside your federal pension.
- Health Insurance – Don’t forget to plan for your healthcare coverage in retirement. As a federal employee, you may have access to the Federal Employees Health Benefits (FEHB) program, but you need to know how that interacts with military benefits or Medicare.
Ready for Retirement?
Retiring as a federal employee with military service requires careful planning and decision-making. The choices you make about buying back military time, maximizing your federal pension, and managing other retirement accounts will all impact your future financial security. By understanding your options and acting early, you can set yourself up for a comfortable and well-deserved retirement.
