“20 Good Years”
The Basics of a Reserve Component Retirement
If you’re a traditional or individual reservist or a member of your state’s national guard, you’re consider a member of the reserve component with the potential to earn a military pension and other retirement benefits like those available to active duty servicemembers. The primary threshold for members of the reserve component to earn retirement benefits is serving at least twenty years of qualifying service, known as “20 good years.” (See this DFAS page for specific details on what qualifies as a good year.)
Throughout this blog we’ll refer to reservists and Guard service members as simply reserve members.
You’ve made it to “20 Good Years” now what?
One of your first decisions is if you want to continue to serve or not. Once you’ve successfully earned twenty qualifying years of service, you have the option to either continue serving with the opportunity to earn additional qualifying years of service, add to your retirement point total, and potentially promotions in rank as a member of the Ready Reserve. Or you can decide to stop serving or drilling with your unit while you wait to qualify for retired pay. In this case, if you have not yet reached your 60th birthday, you enter what is known as the gray area.
What do you mean Gray Area? The Department of Defense defines a Gray Area Retiree as a reserve member who has qualified for retired pay and completed their military service but who is not yet at the age where they can begin receiving their retired pay. This is an important designation when it comes to both your military pension and your access to benefits like Tricare, space available travel and the commissary which we will detail below. Let’s start with when you become eligible to receive your military pension and how that pay is calculated before we look at the reserve component survivor benefit and healthcare options.
How is retired pay calculated for a reservist? The specific calculation of your retired pay benefit depends on many factors including which retirement system you qualify for, either legacy or the blended retirement system, how many good years and service points you have earned, and what rank you have achieved. The DOD has a comprehensive tool to help you estimate your reserve component retired pay.
When does Retired Pay start? In most cases, reserve members’ retired pay begins at their 60th birthday; however, since 2008 reserve members have been permitted to reduce their retired pay age from 60 to as early as age 50, when they have completed sufficient qualifying service on active duty orders in support of contingency operations or qualifying national emergencies. Each 90 days of qualifying active duty service reduces their retired pay age by three months.
This earlier retired pay start date is known as a Reduced Retired Pay Age (RRPA). As an example, if a reserve member completed a qualifying 365 day active duty activation in support of contingency operations and successfully completed the verification of this active duty service with their service, they could reduce their retired pay age by four 3 month increments, reducing their retired pay age by 12 months or from age 60 to 59.
Importantly, a reserve member should verify any qualifying active duty orders with their personnel center well in advance of applying for their retired pay. In fact, reserve members can verify orders while they are still serving, and their orders and personnel documents are still readily available. Fair warning, each service component’s verification process differs and can require substantial lead time to ensure accuracy.
There are rare instances where a reserve member might continue to serve beyond their 60th birthday. In these cases, the retired pay age is delayed until they complete their service.
Is retired pay automatic? No. It’s also important to remember that reserve members need to apply for their retired pay using DD Form 2656. This application is made no earlier than 12 months and no later than 6 months prior to the retiree’s 60th birthday or RRPA, each service has their own specific instructions for applying for retirement pay.
What about the Reserve Component Survivor Benefit Plan?
In a previous post, I detailed the importance of an active duty servicemember’s Survivor Benefit Decision. While there are many similarities between the active duty and reserve component SBP, one of the key differences is when you make the decision, known as the SBP election, and when your survivors might be eligible to begin receiving the annuity.
What is the Survivor’s Benefit Plan? The most important fact to know about the amazing military pension you’ve earned during your 20+ years of service is that it ends at your death. The only way to ensure your spouse and/or your dependents continue to receive a portion of your retired pay is to sign up for the Survivor Benefit Plan.
In the event you pass away before your spouse or your dependent children, SBP continues to pay an inflation adjusted monthly benefit, known as an annuity payment, to your survivors. If you’re married and/or have dependent children, chances are they rely on your military pay or pension for a portion of their monthly living expenses.
If your family depends on your income, then your Reserve Component SPB decision is critical to your financial plan.
What is the Reserve Component Survivor Benefit Plan? The Reserve Component SPB is like the active duty SPB in that it pays an inflation adjusted annuity to your surviving beneficiaries if you have earned a military pension. Because a reserve member could qualify for a military pension at an age substantially earlier than they would be entitled to receive their reserve military pension, the key differences between the Reserve Component and Active Duty SBP center around this Gray Area gap.
When is the Reserve Component SBP Decision Made?
The first important difference between the active duty and reserve component SPB is when you make your decision. Because reserve component members might complete their military service years or even decades before they qualify to begin receiving their military pension, they are required to make their RCSBP election when they first become eligible for military retirement, when they reach “20 good years.”
The 20-Year Letter. When a reserve member reaches twenty years of qualified service and becomes eligible to retire, they received an official Notification of Eligibility (NOE), often referred to as the “20-year letter.” The window of opportunity to make an RCSBP decision begins upon receipt of this letter and lasts for 90 days. Failure to make an election within this 90-day timeframe results in a default election of an immediate annuity (Option C below) based on your full retirement pay. In other words, the default option is the maximum benefit, which is the only option available without notarized spousal consent.
Irrevocable Decision. It is important to remember that your RCSBP decision is an irrevocable election, making this one of the most important decisions you’ll make in your career. If you’re married and decide to decline RCSBP or accept less than the full RCSBP benefit, your spouse will need to sign off on that decision. The rationale behind requiring your spouse’s concurrence is he or she has the most to lose if you decline the RCSBP benefit.
What are the Three RCSBP Benefit Options? Because a reserve member’s retirement from the military and the date they begin receiving their military pension could be decades apart, the RCSBP decision offers three different options for when or if your dependent(s) would begin to receive the annuity in the event of your death.
What are the Election Options? When a reserve member makes their RCSBP decision, they must first decide if they will provide their beneficiary a survivor annuity and when that annuity might begin. The RCSBP election centers around three options:
Option A: Decline With Option A, a reserve member declines to make an election until reaching age 60 or their reduced retired pay age (RRPA). In this case, the reserve member declines to accept the Reserve Component SBP and delays their SBP decision until they apply to begin receiving their military retired pay. Because they have declined the RCSBP, if they die before reaching their retired pay age, their beneficiaries do not qualify to receive an annuity, ever.
Option B: Defer With Option B, a reserve member elects to defer the annuity until age 60 or their RRPA. In this option, if the member dies before reaching their retired pay age, their beneficiaries will begin receiving the annuity at what would have been their member’s 60th birthday or their RRPA. In this case, the dependents are protected by an annuity, but there is a delay in the start of the payments until the member’s retired pay age.
For example, if a reserve member (who did not reduce their retirement age) dies at age 51, their dependents would begin receiving the annuity when this member would have become eligible for retired pay at age 60.
Option C: Immediate With Option C, the member elects to begin RCSBP coverage immediately, even if they die before reaching age 60 or their RRPA. In this case, if a reserve member makes this election at age 43 and dies at age 45, their beneficiaries begin receiving the annuity payment immediately without waiting until age 60.
Spousal Concurrence. If a married reserve member selects Option A or Option B, their spouse is required to sign off on their decision prior to the end of the 90 day election window. Spousal consent is also required if the reserve member selects a base amount of less than the full retired pay. In both cases, the DD Form 2656-5, RCSBP Election Certificate, must be signed by the spouse and notarized.
Active Duty Retirement. If a reserve member eventually achieves a full active duty retirement after making their RCSBP decision, the RCSBP decision is invalidated. The member then qualifies under the active duty SBP rules and must make a new declaration when they retire from active duty. This is true whether the reserve member qualified for active duty retirement due to their length of service or for a medical disability.
What about Tricare?
Lifetime access to health insurance is one of the most substantial benefits of military retirement. Members of the Reserve Component can ensure continuity in healthcare coverage for their families throughout their transition through the gray area and into military retirement in three key age based phases.
Prior to Age 60. Once a reserve member enters the gray area, they have the option to access Tricare through the Retired Reservist Tricare program until reaching their 60th birthday. It is important to note that Tricare eligibility is based solely on a member’s 60th birthday without regard to a reduced retired pay age. The most noticeable difference between Tricare coverage for serving reservists and gray area retirees is the substantially higher monthly premium for coverage. As an example, the monthly premium for a single Tricare Retired Reservist in 2024 is $585/month compared to only $52/month for a drilling reservist enrolled in Tricare Reserve Select.
At Age 60. When a gray area retiree reaches age 60, they move to the Tricare Retired Select program with the substantially reduced premium available to active duty retirees.
At Age 65. Finally, when a retired reserve member turns 65, they qualify for Tricare for Life in combination with their Medicare benefit.
What about other military benefits?
Retired reserve members including gray area retirees have access to many of the same great benefits that active duty retirees enjoy including access to the commissary and exchanges and depending on local policies, MWR facilities like the base gym. Gray area retirees can take advantage of Space A travel on military aircraft, but they are limited to flights within the continental US and only the member may travel.
Concluding Thoughts
Earning a reserve component military pension and the healthcare benefits that come with can have a substantial positive impact on your financial plan and quality of life in retirement. Working with a financial planner who understands your military benefits from firsthand experience can help you frame your reserve retirement decisions within the context of your family’s financial plan.
If you’ve got questions about Reserve Retirements or other financial questions, consider setting up a meeting with one of the MFAA financial advisors.
The information provided in this blog is simply that, information. It is not intended to serve as an individual recommendation and should not be relied on as investment or tax advice.