Is REDUX Retirement Worth it?

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I recently received a reader question regarding the CSB / REDUX Retirement System and whether or not it was worth it to take the cash and reduced retirement pay, or stick with the High 3 Retirement System. In almost every situation, the High 3 Retirement System results in a higher monthly pension for military retirees.…

I recently received a reader question regarding the CSB / REDUX Retirement System and whether or not it was worth it to take the cash and reduced retirement pay, or stick with the High 3 Retirement System. In almost every situation, the High 3 Retirement System results in a higher monthly pension for military retirees. But let’s break it down so you can learn how to make your own decision and decide whether you should choose the CSB / REDUX Retirement System or the High 3 Retirement System.

What is the CSB / REDUX Retirement System?

The CSB / REDUX Retirement System was created by the Military Reform Act of 1986, and applies to all military members who joined on or after August 1, 1986. The system was designed to save the government money when paying out military retirement pensions to the ever growing number of military retirees.

How REDUX works: The REDUX Retirement System pays out a $30,000 Career Status Bonus at the 15 year mark to military personnel who select the REDUX retirement plan. In addition to the $30,000 Career Status Bonus, military retirees will receive a reduced military pension compared to the High 3 retirement plan, and a lower annual Cost of Living Adjustment (COLA).

Cost of Living Adjustments (COLA) for retired pay 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%. Here are more details about the REDUX Retirement System.

REDUX Retirement system:

  • $30,000 Career Status Bonus.
  • 40% monthly retirement at 20 years, plus 3.5% per additional year.
  • *Maximum monthly retirement benefit 75% of base pay at 30 years.
  • COLA = CPI -1%.

*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.

The High 3 Average Retirement System

The high 3 Average retirement System pays an average basic pay for the highest 36 months of the individual’s career. The High-3 Average Retirement System does not come with a cash bonus, but base retirement pay and COLA accrue more quickly than under the REDUX plan.

Cost of Living Adjustments (COLA) are given annually based on the increase in the Consumer Price Index (CPI); under the High-3, the annual COLA is equal to CPI.

High 3 Average Retirement System:

  • 50% monthly retirement at 20 years, plus 2.5% per additional year.
  • *Maximum monthly retirement benefit 75% of base pay at 30 years.
  • COLA = CPI.

*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.

Which military retirement plan is better – REDUX or High 3?

It is possible to receive the same percentage of your final pay with both retirement plans, however, you would need to serve 30 years under REDUX to receive the same amount as you would receive if you retire under the High 3 retirement plan. Retirees under the REDUX plan will accrue lower COLA increases to their retirement pay, so even if the retiree completed 30 years and ended with the same base pay they would have had under the High-3 retirement system, a gap will steadily grow between the amount they receive under REDUX vs. what they would have had under High-3.

REDUX Adjustment at Age 62. To counter the 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, the COLA remains at CPI – 1, and the gap begins to widen once again. Over the course of a lifetime, the difference can easily reach into the hundreds of thousands of dollars, and for higher ranking individuals, the difference can reach well into the million dollar range.

Military Retirement Calculators

I recommend visiting the DoD Retirement Calculators for additional information:

When you compare the REDUX Retirement System to the High 3 retirement plan, you can see how the difference between the two plans can add up quickly. Unfortunately, the $30,000 bonus is sometimes enough money to entice many military members to mortgage their future pension.

Your situation may differ, so I encourage you to examine your situation, play with hte calculators, and speak with a professional advisor for more information.

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About Ryan Guina

Ryan Guina is the founder and editor of The Military Wallet. He is a writer, small business owner, and entrepreneur. He served over 6 years on active duty in the USAF and is a current member of the IL Air National Guard.

Ryan started The Military Wallet in 2007 after separating from active duty military service and has been writing about financial, small business, and military benefits topics since then. He also writes about personal finance and investing at Cash Money Life.

Ryan uses Personal Capital to track and manage his finances. Personal Capital is a free software program that allows him to track his net worth, balance his investment portfolio, track his income and expenses, and much more. You can open a free Personal Capital account here.

Featured In: Ryan's writing has been featured in the following publications: Forbes, Military.com, US News & World Report, Yahoo Finance, Reserve & National Guard Magazine (print and online editions), Military Influencer Magazine, Cash Money Life, The Military Guide, USAA, Go Banking Rates, and many other publications.

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  1. 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??

  2. Elove says

    If I was to take the REDUX, I know I will be taxed and receive 22,500…but when I come tax rolls around, will I be penalized/taxed again and/or will have to owe the IRS with just a basic income table as a reference???

  3. Peter says

    The key to the REDUX payment is to not spend it. 20-30k invested in the market gives you a nest egg at 60 y/o worth 3-500k$ with even low average market returns.
    Now if you buy a Harley with the REDUX money, well life is about choices.

  4. Tim Walton says

    Are they still doing this program? What I am gathering that the only way this works is if you invest all of it and don’t lose your shirt. Being a government employee there is no guarantee benefits will be there and using the stock market, no guarantee that it won’t crash. Slippery slope for sure.

  5. Mark says

    Also something to think about… If you take the redux and invest it (Roth, IRA or TSP) and god forbid something bad happens to you. You still have a hard investment that your family will control & recieve. I think you have to take all posibilities into account when your talking about long term investments and retirements. Thoughts?

  6. Andy says

    How long do you have to make a decission on the redux after your 15 year mark. I hit 15 year mark at the beginning of July but haven’t received an email regarding the redux.

  7. Marcus says

    Redux Taker: You make an excellent point.

    There are two major assumptions when arguing that the High 3 is superior to the Redux. 1. That the 30k is not invested in interest bearing account. 2. That the Govt will continue current Cola payments and structure.

    I did some quick math for an E7 and the two plans and came up with a difference of about $400 a month in pension money between two plans. Over a 20 year horizon, using the opportunity cost of the Redux amount (I used 22.5k for taxes), then the rate of return on the “investment” of not taking the lump sum, was a 7.25% annual return. So pretty good. Don’t get me wrong. But definitely beatable for a savvy investor and lower than historical index fund returns.

    So that is the metric, if you can beat about 7% in your investments, you can do better with the Redux.

    Now about the Cola adjustments. This is mainly speculation, but I think over time, as the National Debt continues to rise, and interest rates as well, the ability for the Govt. to pay off debt will be under pressure. I do not see it as unwise to predict that the Govt. will attempt to decrease their payments by not matching inflation. Debasement of currency has always been a way for govt. to repay their debts through central bank inflation. Suspension of Cola adjustments would be one way to do so. And is not an outlandish possibility. So in this scenario, purchasing power parity would diminish the future pension money, making the Redux also a better return with today’s money, invested.

    Tax Free: I think you have a good plan.

  8. TAX FREE REDUX TAKER says

    Took REDUX in a tax free zone, took 28K and invested in my IRA and two differnet mutual funds. I did not need the money so I have always recommneded that if you need it do not take it because it is not worth the loss in the end. But, if you dont need it and plan to stay in the military for 30 yrs it is a good option if you invest wisely. Plus I believe the calculators out there do not take into account the 15yrs of investment on your 30K (my 28K) prior to retirement. 30K of investment in 15yrs (plus) should bridge any gap even with moderate returns. I am at 24 yrs now….retiring in 6. Happy with my thought process….My 2cents.

  9. Aaron Robinson says

    If you hit the 20 year mark in the Army and joined the Army at age 18-20, you begin your, “retirement” at age 38-40. How many in the civilian world retire at 38-40? The REDUX is not a, “bad” decision taking that into consideration. Yes you would take a hit down the line, but eventually when you hit actual retirement age, “bam” your caught back up. Unless you plan on doing nothing, or getting a mediocre job after the military the REDUX may be a poor decision. Noone that I know of who ,”retired” from the military at after 20-22 years stopped working. It’s not as terrible as the press and everyone makes it out to be.

    • Ryan Guina says

      Aaron, the catchup at age 62 is a one time adjustment, then the COLA goes back to the old level of the Consumer Price Index – 1. Over the course of a retirement (especially a long retirement as you describe), electing to take the REDUX option will cost the retiree hundreds of thousands of dollars (or potentially in the 7 figures, depending on retirement rank). The only way to make up for that difference is to invest the Career Service Bonus and earn enough to bridge the gap. Unfortunately, most people don’t have the skill or discipline to invest in a manner that would beat the market and bridge the gap. Additionally, the stock markets aren’t predictable enough to recommend that course of action. With retirement, it’s almost always better to take the guaranteed money, then invest for greater returns with other investments, such as in your Thrift Savings Plan, IRA, or other investments.

  10. Joseph Grant III says

    How do you designate which choice you want to make? Do you contact DFAS or some other office? Please advise.

    • Ryan Guina says

      You should receive a notice from your personnel department stating your eligibility sometime around the 14 1/2 year mark. You will need to make your decision before you reach your 15 year anniversary. The decision is irrevocable, and becomes official on your 15 year mark, so make sure you are 100% certain when you make your decision.

      Best of luck, and thanks for your service.

  11. James says

    Ryan, Thx for the advice. My Dave Ramsey starter kit should be here by the end of the week. I have been terrible with my money all of my life. I always had the mind set that as long as all of my bills were paid then I was okay and saving wasn’t that important. I’m now in the process of trying to re-trian my brain so to speak to save more and spend less. I have spent some time on Dave’s website and listening to his archived audio shows this past week and I think I’m getting on the right path now.

  12. Rob says

    My wife and I owe approx. $20,000 in credit cards. Due to our monthly payout on these cards, I wouldn’t say were struggling, but we are living pay check to pay check. This is one thing we are tired of doing. I am an E-7 select Active Duty Air Force. Would you say the redux retirement option is a good one for us to consider? Please advise…Thank you.

    • Mike says

      Rob,

      I would follow the advice of Dave Ramsey and work towards paying these cards off. You did not mention other debt. Is the $20 grand the only debt you owe? I personally would not risk paying of those cards at once unless you and your wife are 100% sure that you will not accrue more debt. There are financial calculators out there that can help you work out how long it will take you to pay of your CC. Snowballing the debt worked for my wife and I. Look into it before you make a decision on the redux.

      • James says

        Mike,

        I’m at the point where I have been offered the REDUX. I’m in the same boat as Mike stated above. I just ordered the Dave Ramsey start up kit this weekend but I came here to see if anyone who took the REDUX had anything positive to say about it. I’m 95-5% against taking the money but am willing to listen to both sides. How was your overall experience with the Dave Ramsey program?

      • Ryan Guina says

        James, I have taken the Dave Ramsey program, and I would highly recommend it, especially if you take it with a group, such as at a local church or other organization. There is a lot o great information in there and following those steps can help you turn your financial life around. I can’t tell you whether or not to take REDUX,but I can say that in most situations, it isn’t worth it. I would try the Financial Peace University program, give it a few month, and see where you are at that time. You may find that you won’t need to take the REDUX option if you can change the way you think about and handle money.

  13. AF kid says

    If the $30K is invested properly starting as soon as you recieve the money until age 65, it will blow away any extra retirement money you get every month. Always take cash when offered and invest it properly in big blue chip dividend growth companies and you will live comfortably.

    • oa says

      AF Kid, can you please elaborate on your premise; you are the only one I saw that simplified the whole thing. Please take into account the tax hit you take in the beginning, staying in 24 years, and assume that you would invest the difference later on, once the payments equled outincluding the $30K plus growth. Looks like in the LONG run, it doesn’t make sense, unless you are real savvy and invest in dependable blue chip companies, which is never guaranteed. Let me know if I am missing anything. Just playing devil’s advocate.

    • Ryan Guina says

      Soldiergirl, I’m not sure. I recommend speaking with the people in your finance department. They will have the most up to date information. Best of luck, and thanks for your service!

  14. jan says

    I am thinking about taking REDUX since old navy is changing every time, next thing we know we don’t have anymore retirement, might as well take this while I can and invest on something else. when can you actually apply for this? I’m on my 14 yrs and 1 month.

    • Ryan Guina says

      Even if the government changes the military retirement system in the future, it is unlikely they will change it for people who are already receiving the benefits. Virtually all changes are made for future military members.

      I recommend using a military retirement calculator to determine the cost/benefit of taking the money early and seeing if you can make up for it by investing on your own, or with a financial advisor. Speaking with a financial advisor before making this decision is also highly recommended.

      Finally, if you still want to go through with it, contact your personnel department. They will be able to determine the exact date of eligibility for you.

  15. Heidi says

    I’m seeing new retirement options being thrown out there. The latest one is that they’ll reduce our retirement pay but enroll us in TSP plans based on our years of service. I have not seen anything discussing how this would affect the people that took or are about to take the REDUX option. Has anyone here seen/heard anything on this?

    • Ryan Guina says

      These discussions are preliminary at this point, and an overhaul of the military retirement system hasn’t been approved in any form. In many cases current military members and retirees are grandfathered in to the old system and these changes only affect new recruits and those who join after a certain date. Since we have o further information, the best we can do is recommend watching the news for changes to the retirement system.

  16. Larry says

    Ryan, Did you mean to use “REDUX Retirement System:” twice? That’s the header you use above both sets of bullets, for both REDUX and High 3. Shouldn’t the bold header in the High 3 section NOT be “REDUX Retirement System:?” Or am I missing something?

  17. bonnie says

    I never see the situation I am in addressed regarding REDUX. I will be 62 yrs. old the year I retire from active duty, with 20 years of service.(USPHS) I can take the 30K REDUX bonus in 3 payments of 10K each yr. that goes straight into my TSP for tax savings. Then at 62, my monthly payout is adjusted to be what is would have been with the high-3. All I lose is the -1% of the CPI. I can’t see that this is such a bad deal.

    CDR Bonnie Grant, RHIA, USPHS

    • Ryan Guina says

      Bonnie, I think your situation is relatively unique – the USPHS is fairly small compared to the other uniformed services. My recommendation would be to take your situation to a financial planner for some advice specific to your situation before deciding on the best course of action for your needs.

  18. Carlos says

    The look at CSB/redux is very simple yes the reality is that retirement will reach well into the hundreds of thousands over a LIFETIME but once you retire from the military sadly to say most your life is half over and not to mention it’s not like your saving retirement, you save now to retire come on 30 k is not enough to live off of it is an amount of money to set you up for success that is why it is given at 15 year mark. Take the 30 grand if you have the chance continue to save now for retirement when you retire get a job which is something you gonna have to do whether you take the 30 grand or not make E-7, E-8, or E-9 or make a high enough rank as an officer where you can do more than 25 years in the military and enjoy life it’s only one life LIVE IT.

    • Abdul says

      In 100% aggreance with you…. The redux is often times looked upon as a bad option, but in reality its a stepping stone to financial freedom. Hear me out… 15 years = 22.6k, if that money is invested properly, plus getting a second job and with any percentage of disibility, the remaining years of your life will be spent worry free, and financially stable. I think the negativity on the redux comes with the misconception that all who take it are broke and depend of the 30k as their whole life savings… there are Soldiers like me who actually plan to keep working in a different field for another 20 years making triple what I made in 20 years of active military service.. The Army has been good, but its not the only career I will have. I will retire in my late 30’s so I can very well do another 20 years as a government G-S Level employee 9 times out of 10 doubling what I made on active duty and grow the 22k into 220k 🙂 Knowledge is Power.

  19. TOM says

    I took the $30,000 at 15 years. I was taxed at the standard rate and ended up getting 22,500. I was initially told that I could get most of what was taxed back on my return. However, when I went to do my taxes I was told that it was not true. I would like to file an ammendment but I need more information. I know that it is not entirely tax exempt but I beleive I should have got some of it back. Does anyone know what the rules are?

    • Ryan Guina says

      Tom, I believe it is always taxed at the standard rate unless you have some other exemptions or if you received or signed the paperwork while in a tax free zone. If that is the case, then you might want to look into it more. Unfortunately, I’m not 100% certain on the details. Best of luck, and thanks for your service!

  20. Jason says

    Most individuals that I know that took the REDUX and spent the money right then. Some paid of fdebt and others actually create more. I invested all of it and will continue to leave that money alone. Even if you put that money in a basic saving account it is atleast making something back on it.

    • Jon says

      Did you invest it into TSP or another avenue? I thought about investing it into the TSP and I’m trying to find out if the $30,000 will be tax-exempt.

  21. Colleen says

    I can not get a straight answer on eligibility for redux. DIEMS is 12-17-1993 with 17 years service….although there was a short lapse in service. How does that work?

    • Ryan Guina says

      Colleen, I don’t have enough insight into the regs to answer your specific situation. I recommend sitting down with someone in your finance squadron. Someone there will know the answer, or at least know how to find it. Best of luck.

  22. Mike M. says

    After taxes the $30,000 actually dewindles down to $22,600. Not a smart move, to give up hundreds of thousands of dollars for.

  23. Battle Summerville says

    If a soldier does not apply for Redux during the normal 15 years of Active Duty, and they reach 19 years plus, are they still entitled to the CSB? thanks

  24. Brad says

    How much of the REDUX is taxable once you have made the decision to take it? If I am a deployed soldier is the REDUX tax exempt? How much should I really be expecting?

    • Ryan says

      Brad, based on what I have read, you can receive the REDUX payment tax free if you are in a deployed zone. However, making the decision in a deployed zone will not affect your retirement payments (they will remain taxable).

      Even if you receive the REDUX payment tax free, you still may not come out ahead in the long run I encourage you to use the REDUX calculator in the article, which sends you to a DoD page. The calculator will give you information on if/when you will break even in the long run, and even tell you how much the difference will make decades from now.

      In most cases, REDUX is a losing proposition.

  25. Stack says

    Does anyone know what rate of return on your 15 year payment would be needed to eliminate the gap between the two retirement options?

    • Ryan says

      Stack, I would think it depends on several factors, including how long past 20 years you serve, inflation rates, cost of living, etc. Check out this REDUX calculator from the DOD website. Hopefully, that will help you with your question.

  26. Daway says

    The High 3 Average Retirement System
    Are the contrubution to this retirement reported to the IRS and can the contributions be included in your yearly taxes.

    • Ryan says

      Daway, I’m not sure what you mean by “contributions” to the retirement. Do you mean the pay you receive as part of the your retirement compensation? If so, then yes, your retirement compensation is reported to the IRS and is taxable income. There may be a portion of your income that is not taxable if you are receiving disability compensation.

  27. robin says

    does the Redux expire….example, my husband was in reserves 16 yrs ago and he didn’t realize that those years counted toward his retirement, so now he is at the 16 yr mark already but no one has ever talked to him about Redux, is to late??

    • Ryan says

      Robin, The Reserves program may have different requirements for retirement. I suggest he contact the Reserves personnel department for more information.

  28. Rob Shuck says

    The underlying problem is that most young service members (officer and enlisted) are not given enough useful financial information at the start of their careers where it can do them the most benefit. In fact, retirement briefings occur at the end of one’s career when they should be given at the beginning. The young Soldier, Airman or Sailor would then realize that 1) a majority of them will NOT remain in the military long enough to get a retirement check, and 2) these are the best years of their lives in which to begin investing given the “magic” of compounding interest. Unfortunately, more than one person I know when presented with a choice of whether or not to take the $30K did not have enough information to make an informed decision.

  29. Hank says

    Great analysis of the REDUX plan, but I thought that you would have taken a stronger stand for or against it. While I’m not a big fan of it, if you knew at 15 years of service that you were going to stay in another 15 or 25 years (but who knows that?!?!), maybe it would be an okay deal. But, for most people, the REDUX plan will cost you retirement income in the long run.

    • Ryan says

      Hank, in almost every situation, the High 3 Retirement System results in a higher monthly pension for military retirees – the difference is easily in the hundreds of thousands of dollars in a lifetime, if not well into the millions.

      REDUX is almost never a better option – even with 40 years service (because the COLA adjustments are a huge factor). However, there may be a time when it makes sense to take the $30,000. The idea is for people to use these resources and tools to better understand their options and make an informed decision regarding the best military retirement plan for them.

      • Ryan Guina says

        For most people, no. They will be much better off avoiding it. The DoD has even admitted as much, and encourages people to use the calculator to determine which is better for their situation.

    • charlotte says

      I took the Redux thinking I could stay longer but was forced out right over my 20, any thoughts on how to make up the difference. Sad I couldn’t go back and fix the decision I made at the time.

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