Understanding How Military Retirement Works

If you’re considering retiring from the military, you may have started thinking about what comes next—how does military retirement work? The good news is you don’t have to figure it all out on your own. There are resources in place to help you set yourself up for a smooth and successful transition to civilian life. Here are some things you may want to consider as you plan your military retirement. 

Military retirement benefits overview

As a military retiree, you’ll have a great benefits package that can save you a ton of money over your lifetime. Here's a quick overview of what you can expect.

Health insurance

You have more choices for medical coverage than civilians. Besides finding options through your state or new employer, you can enroll in a VA plan and even get a gap policy to cover you during your shift to civilian life. 

If you have fewer than 20 years of service and plan to find another job, health insurance through your employer is often your best bet. But, you can find gap coverage through the Transitional Assistance Management Program and the Continued Health Care Benefit Program. If you don’t have access to a healthcare plan through work, review your options from the VA or your state’s Health Insurance Marketplace.

If you’re retiring with 20 years+ of service, you’ll have a choice of several plan options for yourself and eligible family members through TRICARE. You’ll need to enroll in one of these plans to keep your benefits. You can also enroll in dental and/or vision insurance, both of which require payment of a monthly premium.

Housing

You’re entitled to a government-paid move anywhere in the United States or to your home of record internationally. And, if you decide to buy a home in your new location, there are great VA home loans^{Footnote 1}  available to you. These loans offer many benefits you may not find with traditional mortgages. Some of these are flexible on credit and income requirements. They offer assistance during financial hardship. 

Since VA loans are backed by the federal government, you'll be more likely to find very attractive terms, such as no down payment and no Private Mortgage Insurance (PMI).

As a Top VA^{Footnote 2} lender, Navy Federal can help you navigate the VA loan benefits and great VA loan rates.

Note: One of the key factors many lenders consider when reviewing a loan application is whether the applicant has had stable and reliable income, typically for the 24 months prior to applying. If you have a 12–24-month employment history in a skilled position, a VA lender may still consider other factors such as your training and education.

Commissary and exchange

Even after you retire, you can continue to shop at military commissaries and exchanges. That can save you thousands over time. With tax-free shopping and substantial savings on groceries and other goods, you could save up to 30% or more! And, commissaries offer online shopping or curbside pickup through the CLICK2GO service. 

Veterans Administration (VA) benefits

You’ll be able to tap into even more post-military perks through the VA—like easier home buying with home loans described above, disability pay, if relevant, and furthering your education through the GI bill. The GI bill provides for: 

• tuition coverage
• housing allowances
• stipends for books and supplies

You’ll also have access to readjustment counseling and educational and career counseling for yourself and your family .

Want to start a business? You can take advantage of VA and Small Business Administration (SBA) benefits like loans, opportunities for federal contracts and resources to help you plan for and grow your business. 

Have a service-related disability? You may qualify for disability pay in addition to your retirement pay. 

Military retirement pay

There are 2 main systems for military retirement pay: the Blended Retirement System (BRS) and the High-36 System.

The Blended Retirement System (BRS) covers those who entered the service on or after Jan. 1, 2018, or who opted into the BRS. It combines a smaller monthly pension with a savings plan, similar to a 401(k), where the government matches your contributions. This system is designed for more flexibility and benefits for those who might not serve as many years.

The High-36 system covers those who entered the service between Sept. 8, 1980 and Dec. 31, 2017. It calculates retirement pay based on the average of your highest 36 months of base pay. If you served a long time and reached a higher rank, you’ll have a higher retirement pay.

See the US Department of Defense’s Military Compensation page  for more information.

How to prepare for military retirement

Once you’ve decided to retire, the Department of Defense (DoD) recommends you start prepping for it about 2 years before your target retirement date.

Separation requirements

According to the DoD's Military One Source, there are 4 things you must do prior to retirement to meet separation requirements: 

1. Schedule your initial and pre-separation counseling. These sessions must be completed a minimum of 365 days before your retirement date (but the DoD recommends starting 18-24 months ahead). You’ll complete a self-assessment, begin an Individual Transition Plan and learn about benefits, entitlements and resources.
2. Attend TAP workshops. Transition Assistance Program (TAP) workshops are mandatory and include information such as how to define and translate military skills when applying for civilian jobs, financial literacy and planning, and employment and benefits offered from the Department of Veterans Affairs (VA).
3. Schedule medical exams. You’ll need to complete a medical and dental exam a minimum of 90 days before your retirement date. (Make sure to get copies of your records.)
4. Schedule your final move. You can complete your final move up to 1 year following your retirement date. 

For more detailed suggestions for each step of your transition and advice on other things to consider, see Managing Your Transition Timeline (MYTT). You can also find service-specific tools and resources for Servicemembers and their families on the Transition Assistance Program (TAP) website.

Finding a job

If you plan to work after you leave the military, take time to consider the types of jobs that appeal to you. What skills honed during your military service would translate well to a civilian workplace?

Keep in mind, the sooner you begin your search, the better. Some things that may help include attending job fairs, visiting American Job Centers (AJC) and checking into Hiring Our Heroes’ resources and services. You can also use Military One Source up to a year after your transition.

Your retirement budget

This final step may just be the most important of all. Your budget in retirement may look quite a bit different from your Active Duty one, especially if you opt not to work after retiring. So, it’s critical to get a handle on how much income you can reasonably expect and compare that to how you’ll expect to spend it—both set expenses and optional ones.

How much income will you have?

First, find out what your monthly income will be. Your military retirement pay is likely to be very different from your current pay. In addition to your retirement income, factor in other types of non-disability pay based on the retirement system in which you’re participating, income from a job and investment income.  Of course, that number will be before federal and state taxes and other deductions, so you’ll need to subtract those amounts.

Note: Although your retirement pay will adjust periodically based on cost-of-living increases, you should start with the first year amount and adjust later, if needed.

What will your expenses be?

Once you know how much you have to work with, list out your monthly expenses, such as:

• housing and utilities (including cable and internet)
• food, clothing and transportation-related expenses
• health, auto and other insurances
• debt payments (e.g., alimony or child support, student or auto loans, credit card debt)
• savings
• subscriptions and entertainment
• other tax payments (e.g., property taxes or state/federal taxes you owe due to insufficient withholdings)

It may help to track your costs over the next few months as you prepare for military transition and retirement. If you’ll be moving, be sure to account for any moving-related costs, like new furniture, appliances, or repairs and upgrades you plan to make to your new home. You may not know the exact amounts of some bills, especially if they’ll be changing from your pre-retirement costs. So, plan to start with an estimate and continue to adjust as you live on your new budget.

We’re here to serve you

This transition is filled with exciting opportunities, and Navy Federal is here to help. We’ve conducted 2 studies: Best Cities After Service and Best Careers After Military Service to get you started. You can also learn more about smart planning for civilian life by reading our article, Transitioning From Military to Civilian Life.