Should I Buy Back Military Time?

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By on August 27, 2019 in Retirement with 0 Comments

Pink piggy bank sitting on top of stacks of cash

For those that served in the military, we thank you for your service. If you decided to move into civilian service after serving you have most likely heard about the opportunity to “buy back” your military time. According to OPM, “As a general rule, military service in the Armed Forces of the United States is creditable for retirement purposes if it was active service terminated under honorable conditions, and performed prior to your separation from civilian service for retirement.”

Although you may have heard about buying back military time, the details and benefits may be a little unclear. So here is a brief explanation as to why you should consider acting soon to buy back your military time.

FERS annuity calculation

The FERS Annuity calculation is relatively straightforward. For every your of creditable service you get 1% (this varies for age 62 with 20 years and Special Provision) towards your retirement annuity calculation. That percentage is then applied to your High-3 Salary. 

Assuming a $100,000 high-3, 28 years of service will generate a gross annuity of $28,000 / yr.

$100,000 x 1% x 28 = $28,000 / yr

How much does it cost?

If you want your military time to count toward a FERS annuity, then you need to make a Military Service Credit Deposit to buy into the annuity.

First, you will need to get your pay info for each year of your military service. If you can’t locate that info you can request it from your branch of the military with your DD-214.

Your Military Service Credit Deposit amount is based on a percentage of your pay as shown in the table below. Keep in mind, there is only a two year grace period to make the deposit before interest begins to accrue.

Service Deposit Due
Through 12/31/98 3% of military basic pay
1/1/99 – 12/31/99 3.25% of military basic pay
1/1/00 – 12/31/00 3.4% of military basic pay
1/1/01 to present 3% of military basic pay

Who should buy back their military time?

I can’t say everyone should as I’m sure there are a few rare cases where it may not make sense. However, after consulting with thousands of federal employees about retirement I have yet to come across one veteran that would not benefit greatly from buying back their military time.

How long does it take to break even?

This is the big question. How long will it take me to make back what I have to pay to buy back my years of service?

Again, everyone’s scenario is different, but here is an example showing a breakeven calculation. You can run the same calculation using your info and I think you’ll find that it doesn’t take long for you to recoup the cost to buy back your years.

Break-even Calculation Example: 

  • Military Time: 8 years, 6 months
  • Deposit without Interest: $3,200
  • Interest: $2,500
  • Deposit including interest: $5,700

Breakeven Calculation

  • 8.5 years x 1% = 8.5%
  • 8.5% x High 3 $100,000 = $8,500
  • $8,500 Increase in Annual FERS Annuity
  • $5,700 / $8,500 = 0.67 Years 
  • 8 Months to Breakeven

In the example given, the cost of buying back military time would be recouped in just 8 months!

The Cost of Not Buying Back Military Time, Over Time – excluding COLA

(using the example given)

  • 10 Years: $85,000
  • 15 Years: $127,500
  • 20 Years: $170,000
  • 25 Years: $212,500
  • 30 Years: $255,000

Of course, depending on your deposit, interest and current salary your breakeven will be different. If you have waited several years, your interest portion could be more than the original deposit owed, but don’t let that be discouraged.

In most cases buying back military time will make financial sense and have a breakeven of just a few years or less.

Survivor Benefit

Additionally, if you elect a survivor annuity for your spouse buying back military time will increase his or her lifetime survivor annuity. 

Added Bonus

Everyone has a different situation, however there is an added benefit to buying back military service time. It may allow you to reach retirement eligibility earlier.

For example, Mary is 60 with 17 years of civilian service and wants to retire, however she would need 20 years to do so without penalty. If she happened to be a veteran she could make a military credit service deposit to buy those years back and if those years put her over 20 years of total creditable she can retire on an unreduced annuity at age 60.

Next Steps

If you’re ready to take the next steps to buy back your military time to increase your lifetime payments from your FERS annuity you will want to begin by completing an Estimated Earnings During Military Service request form, RI 20-97. Be sure to include your Certificate of Release or Discharge from Active Duty, DD 214 then submit it to your branches military finance center.

Want to discuss how much more your FERS annuity will be as a result of buying back your military time schedule a quick 15 minute call with an advisor or visit Federal Retirement Services.

© 2019 Neal Thompson. All rights reserved. This article may not be reproduced without express written consent from Neal Thompson.

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About the Author

Neal Thompson is the founder of Federal Retirement Services and is recognized as one of the premier retirement planning advisors for federal employees. He has conducted countless retirement training workshops to help federal workers covered by CSRS or FERS get the most out of their retirement.

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