Should you Buy Back your Military Time?
What is military buyback? If you served on active duty in the military and then become a federal civilian employee, that military time may count as time in service for calculating your FERS or CSRS pension. We’ll look at which military time can count, how much it will increase your federal employee pension, what it costs to buyback that military time, the impact of a buyback on your military pension, when to buyback, and some how-to’s to help you answer the question “is it worth it for me?”
What military service time counts? Your service has to have been on active duty. Periods of active duty while in the any of the military reserves, including your annual active duty training, count. However, National Guard active duty only counts if it was Title 10, section 233(d), or under a call by the president. Regular monthly training and call ups by the states do not count. Your service must have been honorable and performed before you separate from civil service. And a deposit has to be received before you retire (that’s the buyback).
How much will a military buyback increase your federal employee pension? First you need to qualify for a FERS or CSRS pension, which generally means you have to actually serve at least 5 years as a federal civilian. Then the military time you deposit, nicknamed a buyback, is added to the years you actually work as a civilian for calculating your FERS or CSRS pension benefit.
A FERS Example
Here’s a FERS example. The pension formula for FERS employees is the average of your High-3 salaries times your creditable service times your multiplier. If you have 24 years of federal civilian service, a high-3 pay of $110,000, and will retire before age 62, your pension would be $110,000 x 24 years x 1%. That’s $26,400 a year. The military time you buy back is added to your creditable service.
What happens if you were to buy back 6 years of military time? That’s the same $110,000, x 30 years (instead of 24). And because you now have 30 years of service (instead of 24) your multiplier is 1.1% giving you a FERS pension of $36,300. That’s $9,900 more every year in your FERS pension. Live 25 years in retirement and that’s almost $250,000 more FERS pension with the buyback.
Buying back military time may also help you to retire earlier. Regular FERS employees can retire without a reduction at your Minimum Retirement age with 30 years of service, at age 60 with 20 years of service, or age 62 with 5 years of service. Buying back military time could nudge you over one of those age hurdles. It might not make sense to retire as early, but it’s nice to have the option.
What is the cost? The reason depositing military time is nicknamed a buyback is because you must pay cash to have your military time credited to your federal service. Human Resources will calculate the exact amount for you. In general, for FERS employees it will cost about 3% of your total military base pay you are depositing. For example, if you deposit 3 military years and during each of those years you earned $30,000, $30,000, and $35,000. That’s $95,000 total of military base pay x 3% which is $2,850.
When can I buyback military time?
You can buyback any time after you start federal civilian service. But your buyback must be complete before you retire. You cannot retroactively buyback time after you retire as a fed. If you serve as a federal employee for longer than 3 years before buying your time back, you will also pay interest on that amount.
What about CSRS federal employees?
CSRS employees joined federal service before 1987. The multiplier for CSRS employees is about 7%. And the rules for CSRS employees are more complicated. If you are a CSRS employee that will not be eligible for Social Security, no deposit or buyback is required. You will get full credit for military service performed after 1956.
If you’re a CSRS employee that will be eligible for Social Security, the military time you buy back will count towards eligibility for retirement and computation of your pension. If you don’t buyback any time, your military time will only count towards eligibility for retirement. Unless you retire before you’re eligible for Social Security at 62, then your military time will count toward your pension computation just up until you reach 62.
All federal employees, did you serve long enough to qualify for a military pension? You can buyback all those years and add it to your federal retirement. No matter when you buyback, you can continue to receive your military pension while in still serving as a federal employee. BUT you must waive your active duty military pension when you begin your civilian pension. You can’t double dip. This often does not make financial sense.
How is your VA Disability pay affected by a buyback?
It isn’t. You will still receive your VA disability pay, including Combat-Related Special Compensation (CRSC) after buying back military time. And unlike a military pension, your federal civilian pension will not be reduced by your disability pay, regardless of your VA disability rating. This may tip the scales in favor of a buyback.
What about a military reserve pension that starts at age 60? You can receive that, whether you buyback military time or not. So, buying back active reserve time often does come out as a great deal, so be sure to run the numbers.
How do I get the exact cost of a buyback for me, and maybe do a buyback?
Stop by your federal civilian human resources department and ask for help. Here’s what you can expect:
Step 1, find your DD 214 the Report of Transfer or Discharge. That shows your military record and was given to you when you left military service. If you can’t find your DD214, you can request a copy from the National Personnel Records Center by filling out a Standard Form 180.
Step 2, complete a form RI 20-97 Estimated Earnings During Military Service and mail it along with a copy of your DD214 to your appropriate military finance center. The finance center should then send back your statement of estimated earnings.
Step 3, gather up your estimate of earnings, your DD214, go to your current Human Resources Office and fill out an SF 2803 Application to Make Deposit or Redeposit.
Step 4, HR will then compute the amount of your military deposit using the Military Deposit Worksheet, let you know the amount, and options for making payments.
Once you know the military deposit cost, you can compare your options and decide if you want to do a buyback, when and how to pay for it. You can payoff it all at once or in payments over time. Note you’ll owe interest on payments once you’ve had 3 years of federal service.
If your numbers are very close, remember your military pension gets a full Cost of Living Allowance (COLA) every year. But a FERS pension gets “COLA lite” which can be up to 1% less in high inflation years.
Let’s recap. Active duty military service and Title 10 reserve active duty can be deposited to increase you federal civilian time in service. This can increase your civilian pension and/or help you retire earlier. Depositing military time will cost you, thus it’s nicknamed a buyback. If you don’t pay for the buyback within the first 3 years of civilian service, you’ll also owe interest.
Putting it All Together
If you left military service before retirement, a military buyback is very likely a great deal.
If you are eligible for a Reserve retirement at age 60, you CAN receive both that and a civilian pension that includes a buyback. This will also likely be in your favor.
If you are receiving a regular active duty military pension you would have to forfeit that in almost all cases if you do a buyback (you can’t double dip). If your military pay was significantly less than your federal civilian pay is now and/or your military retired pay is being reduced by your VA disability it may be worthwhile to do a buy back.
Run the numbers. And remember, your application to buyback military time must be approved and paid BEFORE you retire from civilian service.
The right answer is unique to each military family. Working with a financial planner who understands your military benefits from firsthand experience can help you frame your decision within the context of your family’s financial plan.
The financial planners at the Military Financial Advisor Association can help you work through the various BuyBack scenarios so you can make the decision that best meets your family’s needs.