For Feds who have served in the military, buying back service time may help increase retirement benefits under the Federal Employees Retirement System (FERS) or Civil Service Retirement System (CSRS). By paying a deposit, former service members can add their military service years to their civilian retirement calculations, potentially increasing annuity payments and accelerating retirement eligibility.
But is it worth the cost? Let’s take a look at how the process works, so you can make an informed decision about whether it might be right for you.
How Does Military Buyback Work?
Typically, the cost of military service buyback for federal retirement plans is 3% of the base pay earned during military service under FERS, and 7% under CSRS. If you pay the deposit within three years of federal employment, you will typically not owe interest. However, after the three years have passed, interest begins to accrue, making your buyback more expensive. The interest rate is variable and is set by the U.S. Treasury.
If you’re considering military buyback, keep in mind that paying off the deposit early can help minimize costs and maximize your retirement benefits. You must also pay the full deposit before retiring from Federal Civil Service.
Benefits of Buying Back Military Service for Federal Retirement
Increasing the years used to calculate your retirement annuity under FERS or CSRS results in a higher monthly payout. When you buy back military time, those years are added to your civilian service, directly increasing the total years of service that determine your retirement eligibility and benefit amount.
This means a larger percentage of your “high-3” average salary is applied in the annuity calculation, leading to a potentially higher pension. The addition can also help you meet the minimum service requirements for earlier retirement, allowing you to retire sooner with full benefits.
Maximizing your annuity payments through buyback may allow you to make smaller withdrawals from your TSP each month to cover expenses. This could allow your TSP funds to continue growing over time and possibly last longer throughout your retirement.
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Considerations Before Buying Back Military Service
When weighing whether military service buyback for federal retirement makes sense for you, it’s important to consider several key factors. For many, the financial cost is a significant concern. While buying back time can increase retirement benefits, the required deposit and interest can be substantial. This makes it critical to calculate whether the long-term benefits outweigh the upfront cost. Also, consider how many years of military service you’d be adding and how that impacts your retirement goals.
Generally, military buyback is most beneficial for individuals who have a substantial number of military service years, as adding these years could greatly increase their benefits. It may also be a good option for Feds who plan to retire under FERS or CSRS and want to boost their monthly income without relying solely on TSP savings. Retired reservists may benefit as well, since they can maintain their military pension while adding time to their federal civilian retirement.
For those who are already close to retirement eligibility or have only a few years of military service to buy back, the financial gain may be minimal. Also, since military buyback payments are non-refundable, it’s critical to make sure this decision aligns with your overall retirement strategy before proceeding.
Steps to Take for a Military Buyback
To calculate federal retirement military buyback benefits, start by requesting Form RI 20-97, which provides your military earnings. Then, submit it to your agency along with your DD 214 (Certificate of Release or Discharge from Active Duty). The agency will then calculate your required deposit. Filing this form does not commit you to making the deposit payment, it is simply the first step in determining the amount you would owe.
With this information in hand, it’s time to decide whether a buyback makes financial sense. Compare the expected increase in your monthly annuity with the total buyback cost to determine how long it would take to recoup the investment through higher retirement payments. For many, this break-even point can help clarify if a buyback may be a smart move.
Because the decision can have a significant impact on your financial future, it’s wise to consult with a financial professional, such as a CERTIFIED FINANCIAL PLANNER™ practitioner, who is well-versed in federal retirement military buyback benefits. They can provide a detailed analysis of your situation and help you weigh the benefits and costs. A professional can also guide you through the paperwork and help ensure you meet the required deadlines.
Is Buying Back Military Service Right for You?
Buying back military has some clear potential benefits, including increasing your federal retirement annuity, helping you qualify for earlier retirement, and possibly providing greater financial security. However, due to the upfront costs and non-refundable payments, it’s not the right choice for every Fed.
To learn whether this might be a good fit for you, reach out to the team at Serving Those Who Serve at [email protected] for a personalized analysis.
The information has been obtained from sources considered reliable but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of Serving Those Who Serve writers and not necessarily those of RJFS or Raymond James. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Investing involves risk and you may incur a profit or loss regardless of strategy suggested. Every investor’s situation is unique and you should consider your investment goals, risk tolerance, and time horizon before making any investment or financial decision. Prior to making an investment decision, please consult with your financial advisor about your individual situation. While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of RJFS, we are not qualified to render advice on tax or legal matters. You should discuss tax or legal matters with the appropriate professional. **
