Are you a current federal employee with military experience? If so, buying back your military time could significantly boost your retirement income. In this blog post, we’ll delve into the benefits, costs, and steps of the military buyback program to help you make an informed decision.
What Service Time Qualifies for the Buy-Back Program?
Any honorable active military time qualifies for the military buyback program. This includes full-time active duty in any armed service, active duty in the Reserves and National Guard, and time at any service academies. However, service terminated under dishonorable or neutral conditions is not eligible.
It’s also important to note that you generally cannot receive both military retirement pay and federal retirement pay for service time that covers the same period. An exception is made for military retirement pay stemming from a service-connected disability caused by war or combat, and retirement pay earned from the Reserves or National Guard.
If you transfer your military time to federal civilian time by making a deposit, your other military benefits won’t be impacted. You’ll keep your military ID card and continue to have access to TRICARE, the commissary, and other resources available to veterans.
Benefits of the Buyback Program
The buyback program offers two primary benefits:
- Early Retirement: Buying back military time can make you eligible for retirement at an earlier age.
- Increased Pension: It can significantly increase your monthly pension payments at retirement by adding to your total service time.
Let’s look at an example to illustrate this. Consider a federal employee who is 58 years old with 24 years of federal service and a high three average salary of $115,000. Based on his civilian service only, this employee would receive a gross annual pension of $27,600.
However, if this employee has six years of military service, buying back time will increase their total time served to 30 years, making them eligible for a full and immediate pension at age 58. The additional six years of service will also increase their pension amount to $34,500 per year.
Buying back military time in this scenario would allow the federal employee to retire with an immediate retirement two years earlier and receive an extra $6,900 in their annual pension payment. The benefits of buying back military time extend beyond just one year. Over the course of a 10, 20, or 30-year retirement, the additional income can add up significantly.
The Cost of Buying Back Military Time
Prior to separating from federal service, you’ll need to make a military service deposit to buy back the time. The cost is based on a percentage of your total basic pay earned during your military service time. The deposit amount is typically three percent of your basic pay, except for two years (1999 and 2000) where the deposit is different.
Some buyback payments may include interest which could make the deposit amount higher. Interest starts to accrue after the first two years of federal civilian service, but the interest is not applied until the day of your third work anniversary. The interest charge is a variable rate that generally changes from year to year and is compounded annually.
Steps to Buy Back Your Military Time
To buy back your military time, follow these steps:
- Obtain a copy of your DD 214, which displays your honorable discharge.
- Complete the RI 20-97 form to get an estimate of your earnings during military service.
- Submit SF 3108 to your agency’s HR office for application to make a service credit payment.
- Work with your HR office to finalize the deposit amount and make the payment through various accepted methods.
- After you fully pay off the deposit, request a paid-in-full letter from your HR office.
It’s important to be proactive in your planning, communication, and outreach to your branch of service and HR office throughout this process.
Is Buying Back Military Time Worth It?
In most cases, buying back military service time makes sense for federal employees. It can provide significant benefits in terms of earlier retirement eligibility and increased pension payments. However, if you’re already drawing military retirement pay, the buyback program may not be worth it.
If you’re a federal employee with military experience, assessing the increased pension income, cost, and payback period of the military buyback program is crucial in determining whether the program if right for you.
We hope you enjoyed this blog post about the militrary buyback program. If you have any questions or concerns about federal benefits or financial planning, connect with us. Here are a couple of ways that we can help:
- Book a free 45-minute consultation with a Fedway Financial Advisor.
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