Is an Early Military Retirement a Good Option? A Look at TERA

The military last went through a draw down in the 1990’s, following the Cold War and the first Gulf War. During that time, the military contracted in many ways, including the retirement of weapons systems, base closures, and the mass attrition of personnel. Following a decade of relative peace, the world was rocked by the terror attacks of September 11th, which brought us into the War on Terror. Instead of decreasing in size, our military increased its numbers, and even implemented measures to temporarily prevent some members from leaving the service. Many military members were unable to leave the service when they originally intended to, as several branches enacted stop-loss measures that kept servicemembers in uniform long past their initial separation date.

However, as the war slowed, the need to keep as many servicemembers in uniform decreased. In recent years, each military branch has used different methods to reduce their force size, including offering servicemembers the opportunity to get an early transition from active duty to the Guard or Reserves, transition to another branch of the military, or even get an early out through Force Shaping or other measures.

Now, the military is offering select servicemembers the opportunity to retire with only 15-19 years of service, a substantial reduction from the normal requirement of 20 years of good service. This program, called the Temporary Early Retirement Authority, or TERA, was last available to servicemembers during the end of the Cold War era, or during the 1993-2001 fiscal years.

The National Defense Authorization Act signed in 2011 reauthorized the branches to offer the Temporary Early Retirement Authority program to select members who meet certain criteria. (This law is currently set to be on the books until 2018). The time in service requirement, which is more than 15 years and less than 20 years, is set by law. The other criteria are set by each branch so they can determine how best to shape the quality of their force. Generally, this program is only available to servicemembers who are in overmanned career fields. You will need to check with your respective service to determine if you are eligible for early retirement under TERA.

Is Early Military Retirement a Good Decision?

There is no one-size-fits-all answer to this question, so let’s look at the how the program works so you can decide for yourself. First, let’s assume the military member is working toward a normal military retirement under the High-3 system, or the Career Status Bonus (REDUX) retirement system.

How to Calculate High-3 Retirement: This retirement plan gives the servicemember a pension based on their average basic pay for their highest 36 months of service. Under this plan, each year served is worth 2.5% toward an annual pension. For example, serving 20 years would result in a pension worth 50% of their average base pay. Each additional year served increases their base multiplier by 2.5%. So 30 years of service would be worth a 75% pension. Under this plan, the annual Cost of Living Adjustment (COLA), is based on the Consumer Price Index (CPI). More info.

How to Calculate REDUX Retirement: In 1986, the military began offering servicemembers their choice of the High-3 retirement system or the Career Status Bonus/REDUX retirement. With the CSB/REDUX plan, servicemember would receive a $30,000 cash bonus at their 15 year mark in return for accepting a reduced retirement multiplier and COLA rating. REDUX is calculated in a similar fashion as the High-3 retirement plan, with a few notable differences. Instead of using a 2.5% multiplier across the board, the REDUX plan uses a 2.0% multiplier for the first 20 years, then 3.5% for each additional year of service. In this example, a 20 year retirement would be worth 40% of base pay, while a 30 year retirement would equal 75%, the same multiplier as the High-3 system. However, there is one more catch: under the REDUX plan, the annual Cost of Living Adjustment (COLA), is based on the Consumer Price Index (CPI) minus 1%. Since the annual Cost of Living Adjustment is less, the pension grows more slowly over time. Read more in this article about deciding if REDUX is worth it.

How to Calculate TERA Retirement: The Temporary Early Retirement Authority retirement plan is based on the above retirement plans, but it is reduced by a Reduction Factor equaling -1% for each year under 20 years served. For example, 19 year served would be 99%, 18 years would be 98%, 17 years would be 97%, etc.*

Start with whichever retirement system you chose, the High-3 or REDUX, then apply the following formula:

Active duty pay x Percent Multiple x Reduction Factor (-1% for each year short of 20 years) = TERA Retired Pay

In this formula, your Active Duty Pay is the average of your highest 36 months of pay, the percent multiple is the multiple based on your retirement plan and number of years served, and the Reduction Factor is a percentage that further reduces your retirement because you didn’t serve the full 20 years. Here are two examples for someone who served 15 years:

  • High-3 Plan at 15 years: Average pay x (15 years x 2.5% * 95%) = 35.625%
  • REDUX Plan at 15 years: Average pay x (15 years x 2.0% * 95%) = 28.5%

As you can see, taking the TERA early retirement option results in a much smaller retirement benefit, especially under the CSB/REDUX option.

*Calculating more than 15 years of service, but less than 20 years: It gets a little more complicated if you want to calculate your retirement benefits if you served over 15, but less than 20 years. The military gives credit for months served, so you your base multiplier wouldn’t necessarily be a round number, such as the 95% we used above. Here is a pdf that explains in more detail, and an article which also discusses the value of an early military retirement.

Other Retirement Benefits

To be clear, this is a full military retirement, complete with TRICARE and TRICARE for Life, starting immediately, the same COLA adjustments, base access, and access to the same benefits available to other military retirees. There is no special decal on your military ID card, and no one will have to know if you don’t tell them. The biggest considerations include your final pension and your quality of life.

Is Early Military Retirement a Good Decision?

Now all you need to do is run the numbers and look at your future income potential and take into consideration quality of life issues. To be clear, there isn’t always an easy answer. If you are financially secure and are ready to move on to the next stage of your life, then an early retirement may be well worth it from a quality of life standpoint, even with the reduced pension. This may also be the case if you believe you have a high income potential after your military service. Many civilian jobs pay much better than a comparable military job, and the difference in the pension can be easily made up with the higher civilian salary.

On the other hand, if you aren’t financially secure right now and your income potential isn’t as high, then you may consider avoiding the early retirement option. This isn’t a decision to take lightly. Take your time, run the numbers, consider your quality of life if you stay or get out, do some soul searching, and speak with your spouse or significant other. This is a major decision and one you should spend some time on.

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Date published: July 9, 2013. Last updated: January 17, 2014.

Article by

Ryan Guina is the founder and editor of this site. He is a writer, small business owner, and entrepreneur. He served over 6 years on active duty in the USAF and is currently serving in the IL Air National Guard. He also writes about money management, small business, and career topics at Cash Money Life. You can also see his profile on Google.


  1. J Marie says

    Hello Ryan,

    Who is eligible for this type of retirement? Is this for recent soldiers from 2011 to present? Are these options available to soldiers who ended their careers at 15 years back in the 1990’s? You always provide such great information, no one is even “talking” about this yet! Thanks

    • says

      J Marie, As Doug from The Military Guide mentioned in his comment, this program is only open to current military members. I am not aware of any programs that would retroactively apply to those who have already separated from the service.

  2. J Cap says

    I have the same question as J Marie. I had 10:5+ AGR service and 4.5+ Reserve time. I have been in the inactive reserve since 1993. I will be turning 60 soon and they sent me retirement paperwork from St. Louis. Is this why?? Can I apply for retirement with less than 20 years??
    Thank you very much.

  3. says

    Great post, Ryan, and I appreciate the link!

    I volunteered for TERA three different times during the 1990s and was turned down every time. Back then I thought I’d have to get a civilian job, but in retrospect the money would have been enough to make it even without a bridge career. You’re right: the real assets are the retiree TRICARE and the other military benefits. Quality of life is just bonus.

    J Marie, I’ve never heard of TERA for those who have already separated. The enabling legislation (and each service’s program) has only applied to those who currently count against end strength. I wish it was retroactive, but I doubt that will ever happen.

    J Cap, you may have earned enough “good years” in the inactive Reserve to qualify for a Reserve retirement. Whether that’s 15 or 20, there’s only one way to verify it: fill out the paperwork and send it in. The process will give you a definite answer.

    For everyone currently on active duty or in the Reserves/Guard, I’d recommend keeping an eye on your service’s personnel websites and other service-wide announcements. The TERA program is authorized by Congress and all of the military branches have said that they’ll use it in the coming years, but they’ll offer it mainly to over-staffed specialties as a “force-shaping tool”.

    As Ryan says, the key is to prepare by thinking through the “What if?” questions now and discussing it with your spouse/family. Maybe you’d even want to find an old TERA announcement and draft your response. Don’t wait for the offer to pop up: start thinking about it now. Then when the message comes out you’ll be able to respond within 24 hours.

    When the news comes out you’ll read about it here or on my blog or on, too…

    • says

      Thanks for the comments, Doug. I like how you have covered this topic on other sites. There is much more to the decision than I gave. I focused on the numbers, but the real decision extends much further than the raw numbers. It’s important to make sure you are ready to leave the military way of life and that you have your plan for what you will do after you retire.

  4. lorne says

    Your TERA numbers are wrong. ALARACT 284/2012
    You loose 2.5% per year under 20, not 1%. Also, there is a reduction factor to lower even that by a partial percentage on top of the 2.5% less you already loose.
    Monthly $ x (months served / 12)x.025)x reduction factor listed in ALARACT.
    With no reduction factor=$3065

    • says

      lorne, we have the same numbers, using the High-3 retirement system. I have the following formula listed in the article (as taken from a DFAS site):

      Active duty pay x Percent Multiple x Reduction Factor (-1% for each year short of 20 years) = TERA Retired Pay

      In your case, we have the following numbers: Active Duty Pay = $7,000, Percent Multiple = (210 months / 12 months = .4375), and Reduction Factor can be (found here, which comes out to .9750 for 210 months of service.

      So we have $7,000 * .4375 * .9750 = $2,985.9375.

      DFAS rounds down for retirement pay, so the final number would be $2,985 per month.

      These calculations can be tricky, and the terminology may differ from branch to branch. It’s important to always double check your numbers and visit your personnel office or finance office for further information.

    • says

      In a way, it’s both. Your retirement pay is based on 2.5% per year served, with 20 years being the normal requirement (20 years * 2.5% = 50%). So each year under 20 is a reduction of 2.5%. But there is also a reduction factor added on to the calculation. This is the cost of getting out early. For each year you served, you get a credit of 2.5% of your base pay. But you have to multiply that by the reduction factor, which is -1% for every year under 20 you served.

      So if you served 15 years, you would multiply your base pay like this: 15 years * 2.5% = 37.5%. Then you add the reduction factor, which is 100-5, 95% (the 5 comes from subtracting 15 years out of a possible 20). The final number you come up with is 35.625%.

      Keep in mind this is a rough calculation. It’s a good idea to visit your personnel or finance office for an accurate calculation based on your specific situation.

  5. Adam says

    With MAJ selection rates plummeting, I am fearful I will be passed up for promotion a second time next March (2015). I will have 17 years in in June of 2015. As I understand TERA, this means I will get about 45% of my regular retirement if I then use TERA. But I notice that TERA says it is not automatic…Is this something anyone gets turned down for IF they are already facing involuntary seperation for being passed over twice?

    • The_Black_Knight says

      This is determined by your service and service branch. It most definitely is NOT AUTOMATIC, as this occurs every year after the the promotion boards, but requires an additional step. This the called for officers, the “Officer Retention Boards,” and is completely different than the QMP boards that are conducted with NCOs, because you are an officer designated by Congress under Title 10 conditions.

      If you are not “continued for service” under a retention board, your branch of service may offer you the option of TERA, IF the number of officers required for reduction and authorized by Congress in THAT FISCAL YEAR, has not already been exceeded and IF you do NOT PASS 18 years before the cutoff into sanctuary for 20 year retirement.
      If all things fail, you will receive a LARGE severance check and a honorable discharge.

  6. Joshua says

    If you had elected the CSB will that have to be paid back if you are going to do the 15 yrs instead. The reason I ask is I signed up for the $30,000 15 yr bonus to stay in until 20yrs. However I am considering TERA. What will happen in that case and what would the monthly pay for a 15 yr E6 be if the last 3 yrs were at E6 pay?

  7. The_Black_Knight says

    Some things to keep in mind for service members who may be offered TERA as an option as the military continues to decrease its numbers until 2018.
    I was an senior officer in the US Army who was non-promotable but retained for service into Title 10 requirements for sanctuary.

    TERA is NOT “automatic,” and will be determined by your service and service BRANCH. If you have “mistakes” in your OMPF, Human Resources are STILL “headhunting”, and will attempt to remove you via other means first, before you are qualified.

    I was offered TERA, and determined this was my best option at 19 years, at a time when the US Army was repeating history from the period of the First Gulf War.
    I saw no reason to continue, because I had already reached my goals and could not progress as a old “Mustang.”

    The benefits are MUCH greater than TERA itself, ID card, Tricare, or other benefits.


    Why is this important? VA Disability Compensation.

    If you receive a disability rating ABOVE 50% you WILL receive FULL COMPENSATION on top of retire pay via Current Retirement Disability Pay (CRDP). Less than 50% you will be provided the offset, unless you qualify for Combat Related Special Compensation (CRSC).

    Learn your benefits BEFORE YOU RETIRE. It may mean the difference of HUNDREDS of THOUSANDS of DOLLARS.

  8. T Mcguinness says

    I took The TERA retirement in mid 90’s they told me if I worked a Public service job my time would be recalculated is this correct?thanks

    • says

      T Mcguinness, This is a topic I’m not very familiar with. Here are a couple references that should help out: (1) Military Service Buyback Estimator (2) Military Credit & Buyback Options.

      I also recommend setting up a meeting with your HR department and requesting an official statement of your benefits and an official estimate of what it would cost to buy out your military time. This should help you better understand your benefits and whether or not buying back your military time would be a good option. I hope this points you in the right direction. Best of luck, and thanks for your service!

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