The REDUX retirement plan and Career Status Bonus (CSB) retirement system were discontinued on January 1, 2018, with the rollout of the new Blended Retirement System (BRS). Every military member who joined the service on or after January 1, 2018, was automatically enrolled in the BRS. Though REDUX Military Retirement is no longer an option, we have left this article live to serve as a reference for members who are currently benefiting from the plans.
What is the CSB/REDUX Retirement System?
The CSB/REDUX Retirement System was created by the Military Reform Act of 1986 and applied to all military members who joined on or after August 1, 1986, up until January 1, 2003. The system was designed to save the government money when paying out military retirement pensions to the ever-growing number of military retirees.
Service members who joined the military after August 1, 1986, and before January 1, 2003, were eligible to choose from one of two retirement plan options:
- The High 36 retirement system (also called High-3)
- The CSB/REDUX retirement option allowed eligible military members to receive a $30,000 Career Status Bonus when they achieved 15 years of service.
Both of these options were built from the same base: the average of the member’s highest 36 months of basic pay. However, each plan had its own wrinkles. Military members who elected to receive the CSB through REDUX also received a reduced pension and lower annual Cost of Living Adjustment (COLA) in retirement.
Through High-3, retired pay COLAs are given annually based on the increase in the Consumer Price Index (CPI), a measure of inflation. Under REDUX, the COLA is equal to CPI minus 1%.
To counter the reduced pension pay gap between the two retirement systems, retirees under REDUX receive an adjustment at age 62 to bring their retirement pay up to the level it would have been under the High-3 retirement system. However, after that adjustment, the COLA remains at CPI minus 1%, and the gap begins to widen once again. Throughout a lifetime, the difference can easily reach hundreds of thousands of dollars, and for higher-ranking individuals, the difference can reach well into the million-dollar range.
The High-3 Average Retirement System
To see how REDUX military retirement differs, let’s compare it to the High-3 system. The High-3 Average Retirement System pays an average basic pay for the highest 36 months of the individual’s career. This system does not come with a cash bonus, but base retirement pay and COLA accrue more quickly than under the CSB/REDUX plan.
COLA are given annually based on the increase in the Consumer Price Index (CPI); under the High-3, the annual COLA is equal to the CPI.
Note: The High-3 retirement option is also no longer an option for service members who entered service on or after January 1, 2018. However, like REDUX/CSB, if you enrolled in the plan prior to January 1, 2018, you still receive these benefits.
Which Military Retirement Plan is Better – CSB/REDUX or High-3?
Here is what a military pension looks like under the High-3 Average Retirement System in comparison to CSB/REDUX:
| High-3 | CSB/REDUX | |
|---|---|---|
| Bonus | No bonus | $30,000 lump sum at 15-year-of-service mark |
| Retirement Rate | 50% at 20 years + 2.5% for each additional year served | 40% at 20 years + 3.5% for each additional year served |
| Maximum Rate | 75% at 30 years of service* | 75% at 30 years of service* |
| COLA | COLA = CPI | COLA = CPI – 1% |
Service members who opted in receive the same percentage of their final pay with both High-3 and REDUX retirement plans.
However, you would have needed to serve 30 years under REDUX to receive the same total amount as you would have received if you retired under High-3. This is due to the fact that the CSB/REDUX plan includes a 1% penalty for every year under 30 years served.
For example, a retiree who opted into High-3 and served 20 years would receive 50% (20 years x 2.5%) of the average of basic pay for the highest 36 months of the individual’s career with an increase in 2.5% each additional year served.
On the other hand, the same retiree who opted into CSB/REDUX and served 20 years would receive 40% ((20 years x 2.5%)—(1% x 10 years)) of the average basic pay for the highest 36 months of the individual’s career, with an increase of 3.5% each additional year served.
The COLA percentage makes all the difference. On the surface, it appears that REDUX may come out ahead when a military member stays for 30 years since they would receive 75% of their base pay and the $30,000 Career Retention Bonus. But it still fails to consider the decreased COLA, which is 1% lower. Think of it as settling for a 1% lower pay raise each year while your peers automatically receive a larger raise.
Since raises are cumulative, it doesn’t take long for the raises to exceed the difference in the Career Retention Bonus (especially when you consider taxes). Note there is a one-time adjustment at age 62 to bring the cost of living in line with the non-REDUX option, but the rate remains at CPI-1%, and the gap again widens.
Note: Both plans have a maximum threshold of 75% at 30 years of service. However, some military members may be eligible to retire at 100% base pay after 40 years of service, depending on high year tenure status, military needs, and other factors.
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Was the REDUX Retirement Plan a Good Option if You Invested the Bonus?
This was a popular question when the REDUX retirement plan was still an option, and one I will answer with another question: Can you beat the stock market?
I don’t mean, “can you find a winning stock and turn a few hundred dollars?” Anyone can get lucky. I am asking if you can consistently beat the stock market year in and year out for decades. Can you take that $30,000 bonus, deduct taxes (leaving you with just over $24,000 or so, depending on your tax bracket), and turn it into hundreds of thousands of dollars?
That is assuming you remain in the military for 30 years and max out your pension at 75%. If you retire at 20 years and receive a 40% pension, you will potentially need to turn the Career Retention Bonus into millions of dollars to make up the difference in lost earnings between the High-3 retirement plan and the REDUX option.
Taxes are Bigger Than You Think
Keep in mind when making these calculations that taxes are an important consideration. Unless you received the lump sum payment of $30,000 in a tax-free zone, you would have needed to pay taxes on the $30,000 income you received, which leaves you with much less than $30,000 to begin your investments.
In virtually every case, you would need to greatly exceed market returns to beat the difference between the REDUX and High-3 retirement systems. Then, you need to consider the taxes that would be assessed on your investment earnings since you won’t be able to shelter the entire $30,000 in retirement accounts.
Why Did the Government Offer REDUX Retirement?
The reason REDUX was offered is simple: It saved the government millions of dollars every year in reduced pension payments, and since military pensions often last decades, the potential government savings each year can top hundreds of millions of dollars. If this wasn’t a good option for the government, they wouldn’t have offered it in the first place.
When was REDUX a good idea? There were limited circumstances when it made sense to take REDUX, but in most cases, the math never worked.
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charlotte says
The one time Catch up at the age of 62 is what exactly? You are caught up to the 50 Percent rate?
Then the COLA each year is still the same -1%, is this correct?
And the Percentage is it based off of the year you retired? I retired in 2014 so the retirement would be based off of the base pay table for that year correct??