The National Defense Authorization Act for Fiscal Year 2007 lifted the cap for military retirement pay. Previously, retirement pay was limited to 75% of the base pay for 30 years of service. Anyone who served more than 30 years did not receive any additional retirement compensation. This changed for military members who retired after January 1, 2007 with over 30 years of service.
Military members who retire under the Final Pay or High 36 retirement system are eligible to retire when they reach 20 years of service. If they retire at that point, they will receive 50% of their base pay. For each additional year they serve, they will receive an additional 2.5% of their base pay. Previously, the limit was capped at 75% of the base pay, which is achieved when the member serves 30 years. There is no longer a limit, and people who serve more than 40 years can actually receive a pension in excess of their retirement base pay. However, there are limitations on who can serve in the military that long – it is generally only the highest ranks who are allowed to remain in service that long. This is because their knowledge and experience is considered so valuable.
Let’s take a look at some examples:
Under the old system, if you served 34 years, your retirement pay would have been capped at 75%. Under the new system, you would receive 85% of your base pay (4 years at 2.5% per year equals an additional 10% of your base pay).
If you served 42 years under the old system your retirement pay would have also been capped at 75%. Under the new retirement system, you would actually receive 105% of your base retirement pay (12 years at 2.5% per year equals an additional 30% of your base pay).
Disability pay is excluded: Military members who are retired due to a disability are excluded from this new pay system as the law caps disabled retirement pay at 75%.
The military retirement system can be very complex and I recommend meeting with your base personnel office if you have specific questions about your retirement plan and how it will be computed.