If you are a federal civilian employee who has served in the military, you may be able to have your years of military service count toward your federal retirement through a military buyback. Understanding what’s involved in a military buyback and how it may enhance your federal pension can help you determine whether this choice is right for you.
Why Consider a Buyback?
With a military buyback, you actually “buy back” your military service time by making a payment to the applicable federal government retirement system, in order to have your military time count toward your federal retirement annuity/pension. Each year of creditable federal service increases the annuity/pension payment amount.
Though your buyback time will increase the number of years used to determine the value of your pension/annuity, it does not count toward the minimum time needed for retirement. And you must make the payment for military service before you stop working for the government. Also, if you’re already receiving your military retirement pay, you’d have to waive your military retirement, which may be of greater value than your federal civilian retirement.
What’s the Cost?
The cost to buy back your military service time depends on a number of factors, including:
- When your military service took place
- How much you were paid during each year of military service (your base pay)
- The amount of interest that accrued on your base military service buyback amount
- Whether you are a federal civilian employee under the Federal Employees Retirement System (FERS) or the Civil Service Retirement System (CSRS)
Generally, you multiply the amount you were paid during your military service by a percentage: 7% if you are a CSRS employee or 3% if you fall under FERS (different rates apply for service time from January 1, 1999, through December 31, 2000). If part of your retirement is computed under CSRS before transferring to FERS, a different calculation will apply. Interest is then added to this amount at an annual variable rate, which you usually receive through your agency’s human resources department. In calculating interest, you may be eligible for a two-year interest-free grace period beginning on the day you were hired under CSRS or FERS. Thus, interest won’t begin to accrue until the beginning of your third year as a federal civilian employee. Consult with your agency’s human resources department for more information about applicable interest rates. Also refer to the Office of Personnel Management, OPM.gov, for more information on calculating your buyback.
Example
Harry served four years as an enlisted member of the military and was honorably discharged. He has worked as a federal civilian employee under FERS for 22 years. Harry determines that his total base pay for his service time in the military was $38,000. His payment is $1,140 (3% x $38,000). After the two-year grace period, interest accrues and compounds annually. He figures out that the total amount owed is $2,268.36 including interest. Once Harry has an idea of the cost of the buyback, he can compare his retirement annuity/pension amount, including the cost of the added buyback years, to the pension amount without those added years. Then he can determine how long it will take for his increased pension amount to pay for the military buyback.
Presume Harry’s high-3 average salary is $80,000 and he has met minimum age and service requirements to qualify for full retirement. Based on his years of service (without adding military service time), his initial monthly pension is roughly $1,467. Now if he adds in four years of military service time, bringing his total service time to 26 years, his monthly pension amount increases to $1,733. This hypothetical example of mathematical principles is used for illustrative purposes only and does not represent the performance of any specific investment.
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