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

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From time to time, the military offers servicemembers an option for early retirement through the Temporary Early Retirement Authority, or TERA. This program allows members to retire with a minimum of 15 years of active duty service instead of the traditional 20 years of service. This program is only available on a limited basis and…

From time to time, the military offers servicemembers an option for early retirement through the Temporary Early Retirement Authority, or TERA. This program allows members to retire with a minimum of 15 years of active duty service instead of the traditional 20 years of service. This program is only available on a limited basis and must be approved by the Secretary of each branch of service.

A Brief History of Early Military Retirement Programs

The military last went through a major drawdown 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 through Force Shaping and involuntary separations and ETS separations. One of the other tools the military used was early retirement under the TERA program, which was authorized during the end of the Cold War era, during the 1993-2001 fiscal years.

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 separation pay, the opportunity to get an early transition from active duty to the Guard or Reserves, a transition to another branch of the military, or even get an early out through Force Shaping or other measures.

The National Defense Authorization Act signed in 2011 reauthorized the military branches to offer the Temporary Early Retirement Authority program, beginning in 2011 and lasting through 2018. The law was recently extended through 2025.

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.

TERA Eligibility & How it Works

TERA allows servicemembers who meet certain criteria the opportunity to retire with only 15-19 years of service, a substantial reduction from the normal requirement of 20 years of good service.

However, this comes at a price, as your retirement pay will be lower under TERA than it would be under a traditional retirement. The calculations, which are set by law, require the early retiree to accept a reduction multiplier of 1% per year under 20 years served. We will provide some examples below.

TERA eligibility is authorized by law through FY 2025, however, it is not available to all servicemembers with 15-19 years of service. It is only available when authorized by the Secretary of your respective branch of service. This is usually used as a tool to help address situations in which certain career fields are overmanned and there is no easy way to reduce those numbers.

Calculating Early Military Retirement Pay

Military members who retire early will have their retirement pay reduced by a reduction multiplier. We’ll show you how to calculate retirement benefits under both the High-3 system or the Career Status Bonus (REDUX) retirement systems. Most servicemembers under the BRS shouldn’t be eligible for TERA quite yet, but the process would be the same, simply calculate your retirement pay as you normally would, then reduce it by the reduction multiplier or 1% per year under 20 years of service.

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).

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 years 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 the 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 your base multiplier wouldn’t necessarily be a round number, such as the 95% we used above. Here is an article which also discusses the value of an early military retirement.

Other Retirement Benefits Under TERA

To be clear, this is a full military retirement, complete with Tricare Prime and Tricare for Life, starting immediately, the same retirement pay COLA adjustments, base access, and access to the same benefits available to other military retirees, such as access to the Commissary, Base Exchange, MWR facilities, and more.

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 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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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. Heather says

    Hi Ryan,
    My husband did not make 04 seven years ago and was kicked out of the military with 17 years four months in the Navy. We were so close to retirement. He’s in the reserves as we speak it there a way to get an early retirement with his position? 17 years and 4 months active duty?

    Thanks

    • Ryan Guina says

      Hello Heather,

      No, there is not a way that I am aware of to get early retirement under these conditions. The TERA program is the primary means of early retirement and that can only be chosen when it is offered by the branch of service. If your husband transitioned directly into the Reserves, then it is likely that he already has 20 good years of military service which would make him eligible for a Reserve retirement. If that is the case, he can retire, but he would not be eligible to receive retirement pay or health care until age 60. He could also try to find an Active Guard Reserve (AGR) position, which is the Reserve equivalent of active duty service. If he serves as an AGR, he would be able to retire with an active duty retirement after he has 20 years of active duty service. His 17 years and 4 months would count toward that 20-year requirement, along with any additional active service time he has from his time in the Reserves (activations, deployments, certain training, etc.). I encourage him to speak with his personnel or retention office to see what career opportunities are available.

      I wish you and your family the best!

  2. Mark Strombeck says

    Hi Ryan,
    I am a medically retired USAF Pararescueman with 19 years, 2 months served prior to being retired. I get retirement benefits but no retirement pay, just my VA disability pay. That has been the case for the last 22 years and I feel that I should (and know many people that are) get my military retirement as well. If you somewhat agree, what would be the best and first steps for me to take?

    Thank you, Mark Strombeck

    • Ryan Guina says

      Hello Mark, this situation is based on how the laws are written. The only way to change this is to have the laws overturned or amended. This isn’t something I have personal experience with. However, there are many military lobbying groups and organizations that work to get laws passed through Congress. I would contact one of those organizations to see if they have this on their agenda, or if this is something they think has a chance of being overturned. This article explains more about the process and who you may be able to contact – how to be your own advocate for military and veterans benefits. I hope this points you in the right direction. I wish you the best, and thank you for your service.

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