Military Retirement: What the Rules Actually Mean

High-3 Average Pay

What counts toward your High-3?

High-3 is the average of your highest 36 consecutive months of basic pay. That's three years of pay, measured at the monthly level, and it can fall anywhere in your career. For most people who received regular promotions, it's the three years immediately before retirement. But that's not guaranteed.

Basic pay is your regular monthly pay at your pay grade and years-of-service step, as published in the DoD basic pay tables each year. It's the number on your Leave and Earnings Statement under "base pay."

What doesn't count:

• Basic Allowance for Housing (BAH): not basic pay
• Basic Allowance for Subsistence (BAS): not basic pay
• Flight pay, dive pay, jump pay, or other special pays
• Hazardous duty pay
• Reenlistment bonuses, selective reenlistment bonuses, or any lump-sum payments
• Overseas housing allowances

None of those flow into your retirement calculation, no matter how long you received them. This surprises a lot of people who spent years drawing flight pay or BAH at high-cost duty stations. The retirement check is built on basic pay alone.

The 36-month window matters when your pay history isn't a straight upward line. If you held a higher temporary grade and were later reduced, or if you had a stretch at a higher step earlier in your career, DFAS will find the three consecutive years that average the highest. Run your own LES history and calculate it if you're within five years of retirement; the number often surprises people.

Cost-of-Living Adjustments

How COLA works differently under each system

Under Legacy High-3, your annual cost-of-living adjustment tracks the full Consumer Price Index for Wage Earners and Clerical Workers (CPI-W), announced each December and effective January 1. If CPI-W is 4%, your retirement check goes up 4%.

BRS works the same way. A BRS retiree's 2.0% pension gets the full CPI-W COLA every year, exactly like Legacy High-3. The difference between the systems is the multiplier and the TSP money, not the COLA.

The CPI-W minus 1 point COLA you may have read about is REDUX. It applies only to members who entered after July 31, 1986 and accepted the Career Status Bonus. REDUX retirees get CPI minus 1 each year, a one-time catch-up to the full-CPI amount at 62, then CPI minus 1 again after that.

Here's what the REDUX haircut means. Retire at 42 with a $2,000 monthly pension and see 3% inflation for 20 years: full CPI takes the check to about $3,612, while CPI minus 1 takes it to about $2,972 by 62. The catch-up at 62 closes the gap for that year, but the 20 years of smaller checks don't come back.

Thrift Savings Plan

The TSP match under BRS: how it actually works

Under BRS, the government puts money into your TSP whether you contribute or not. Starting 60 days after you enter service, 1% of your basic pay goes into your TSP automatically. You don't have to do anything. That 1% vests after two years of service.

Once you've served 2 years (your 25th month) and you're contributing yourself, the match kicks in on top of the automatic 1%. Matching vests immediately. Both the match and the 1% stop when you complete 26 years of service. The structure:

• Your contribution of 1-3%: matched dollar for dollar by the government
• Your contribution of 4-5%: matched 50 cents per dollar by the government
• Your contribution above 5%: no match, but still goes in pre-tax

At 5% employee contribution, the government adds 1% auto plus 3% match plus 1% (50% of your 4th and 5th percent) for a total government contribution of 5%. Your 5% plus their 5% equals 10% of basic pay going into your TSP every month.

At 3% employee contribution, the government adds 1% auto plus 3% match for 4% total. You're getting a 133% return on your contribution before any investment growth.

At 0% employee contribution, you still get the 1% automatic. But you're leaving the matching on the table. For an E-5 making $3,300/month, that's $132 of free government money left behind every month once the match starts.

The TSP itself is one of the best retirement vehicles in existence. Expense ratios run around 0.06% on most funds, far below comparable commercial index funds. The C Fund (tracking the S&P 500) has averaged about 10.4% annually since its 1988 inception through 2023. Even the G Fund, which holds Treasury securities, never loses money and beats money market rates.

One thing the calculator above doesn't model: TSP loans. Taking a TSP loan to cover expenses looks painless in the moment but costs you the compounding on withdrawn principal. Avoid it unless there's no alternative.

VA Disability

How VA disability pay interacts with retirement pay

The default rule is harsh and counterintuitive: if you receive VA disability compensation, your military retirement pay is reduced by the same amount. This "VA waiver" has existed since the 1940s, based on the principle that you shouldn't receive two federal payments for the same service period.

Two programs largely eliminated this problem for qualifying retirees.

Concurrent Retirement and Disability Pay (CRDP) is the broader one. If you have 20 or more years of qualifying service and a VA disability rating of 50% or higher, DFAS pays you full retirement pay with no VA waiver reduction. You also receive your full VA compensation separately. Both in full, no offset. CRDP is paid automatically once you qualify; you don't apply for it separately.

Combat-Related Special Compensation (CRSC) is a different program for a narrower group: retirees with combat-related disabilities. The big draw is that CRSC payments are not subject to federal income tax, unlike regular retirement pay. For a retiree in a 22% tax bracket, tax-free CRSC can be worth more than taxable CRDP even if the nominal amounts are similar. You apply for CRSC through your branch of service, not through VA.

You can't receive both CRSC and CRDP at the same time. DFAS pays whichever is larger. In practice, CRDP is usually larger for higher-rated retirees, but the tax-free nature of CRSC changes the math. Run both numbers after tax before deciding.

Chapter 61 retirees (medically retired with less than 20 years) are in a different situation. Chapter 61 retirement pay is reduced by VA disability compensation unless the disability rating is 30% or higher, in which case the rules change. This is a complicated area that usually needs a VSO or attorney.

Survivor Benefit Plan

The Survivor Benefit Plan: what happens when you're gone

Military retirement pay stops when you die. Your spouse gets nothing from it unless you elected the Survivor Benefit Plan (SBP) at retirement. That's the basic fact most people understand but many underweight when they're 42 and feel fine.

SBP lets you elect that a surviving spouse receives up to 55% of your covered retirement pay for life. The cost is 6.5% of the covered base amount, paid monthly from your retirement check. You can cover less than your full retirement pay to lower the premium, but the 55% cap on the survivor's benefit is fixed.

Your spouse must consent in writing if you elect to reduce or eliminate SBP coverage. If they don't sign, the default at retirement is full SBP coverage for a spouse. The decision is largely irrevocable after the first year of retirement unless there's a qualifying life event (divorce, spouse death).

The SBP premium is paid with pre-tax dollars, which reduces the effective cost. A retiree in a 22% tax bracket paying $130/month in SBP premiums effectively pays about $101 after the tax benefit. Premiums stop once both things are true: you've paid 360 months of premiums and you've reached age 70 (10 U.S.C. 1452(j)). After that, coverage continues free.

Whether SBP makes sense depends on your spouse's other income, your life expectancy, whether you have life insurance, and the size of your TSP. There's no universal right answer. A financial planner who works with military retirees is worth consulting before you lock in that election at your retirement signing.

Ready to run the numbers?

The calculator handles Legacy and BRS side by side, including TSP projection with government matching and a 2026 basic pay reference table.