How a Military Deposit Affects Your Retirement

How does a military deposit affect your retirement, and should you buy back your military time?

It is extremely common for military veterans to work as federal employees after they leave military service. 

And the question that many of these veterans ask is if they should buy back their military time to count towards their civilian retirement? This is a great question and one that all military veterans should think about. 

Buying back prior military time can often make a huge difference in when and how you can retire from civilian federal service. And the longer veterans wait to buy back their time, the more it will cost to do so. 

Note: Before I get too deep into this topic I need to mention that this article will be focusing on FERS federal employees and not CSRS. 

Here is how it works.

What Type of Time Can I Buy Back?

There are 3 main types of military time that can be bought back. Active duty time, time in the reserves, and time at a military academy. But for those who spent time in the reserves, the only time that can be bought back is the portion that is considered active duty. 

Military Retirees

But what about those folks that retired from the military and are now drawing a military retirement? Another great question.

These individuals can still buy back their military time if they wish to. However, once they start drawing their civilian pension they can not continue receiving a military pension for the time that they bought back. Or in other words, they can’t double dip the same military time towards both retirements. 

The one exception to this rule is for reservists. They can often buy back their active duty reserve time while still being eligible to receive a reserve retirement. 

What it Costs

But just like most good things in life, there is a cost. And the cost will be based on your military base pay and when you served. The chart below shows the percentage of your basic pay that you’d have to pay to buy back your time during different years.

Dates of ServiceAmount of Deposit Due
Through 12/31/983% of military basic pay
01/01/99 through 12/31/993.25% of military basic pay
01/01/00 through 12/31/003.4% of military basic pay
01/01/01 to the present3% of military basic pay
Source: OPM.gov

For most years, it will be 3% for FERS employees.

For example, if your military base pay was $30,000 in 1995. It would cost the following to buy that year back:

$30,000 x 3%   = $900

So if you had 5 years of military service between 1990 and 1995 with a basic pay of $30,000 for all 5 years, the calculation would look like this.

5 x $30,000 x 3%  =  $4,500

But we are not out of the woods yet. Most federal employees will also have to pay interest on their deposit as well. The interest rate is different every year but as you can imagine, the longer you wait to buy back your military time, the more it is going to cost you. 

Note: Because the buy back amount is based on your basic pay while in the military, it can often be very attractive to buy back time that you spent in a military academy. Typically, you are paid very little during this time and consequently it is often very inexpensive to buy back.

How To Not Have To Pay Interest

The good news however is that if you buy back your military time early enough, you won’t be subject to interest at all. Basically, if you are able to buy back your time within the first 3 years of your civilian career then your deposit won’t be subject to interest. 

But if you are already deep into your federal employment, don’t despair. Most of the time it is still very much worth it to buy back your military time. 

Once you submit the proper forms to your agency, they will calculate your deposit amount (and interest if applicable). At that point you’ll be able to either pay it with a lump sum or with payroll deductions over time. If you pay it over time, your open balance will still be subject to interest until paid off. 

You’ll have to buy back your military time before you retire from civilian service to get credit. 

What It Gets You

Now that we know what it costs, the next question is what it gets you. 

There are two main benefits for buying back your time. The first is that you may be able to retire earlier from civilian service than you would have been able to without it. 

Buying back military time adds that time to your federal employee service record. For example, if you have 15 years of civilian service and you buy back 5 years of military service, that would allow you to retire as early as 60 years old with an immediate retirement. Without the military service, you would have to wait until at least 62. 

The next big advantage to buying back military time is what it does for your federal employee pension calculation. For those that are not familiar, here is the formula for your FERS Pension:

(Years of Creditable Service)   x  (Your High-3)  x  (Your Multiplier) 

For someone with 20 years of service, a high-3 of $100,000, and a multiplier of 1%. The calculation would be:

20  x  $100,000  x 1%   =  $20,000 Gross Annual Pension

But if this same federal employee bought back 5 years of military time, their pension calculation would then look like this:

25  x $100,000  x 1%  = $25,000 Gross Annual Pension

This means that this federal employee would receive $5,000 more (before taxes and reductions) every year from their FERS pension because they bought back their military time. 

Should I Buy Back My Military Time?

So now the real question is is it worth it to buy back your military time? In my experience, there are very few times when it is not worth it to buy it back (assuming you aren’t already drawing military retirement). 

A good way to approach it is to see how many years it would take in retirement to make back whatever amount you paid to buy back your time. 

For example, if you paid $5,000 to buy back your military time but that time added $2,500 to your pension, it would only take 2 years to have earned back everything that you paid for it. 

But with that being said, it is always worth running your own numbers to see if it makes sense for you.

About the Author

Dallen Haws is a Financial Advisor who is dedicated to helping federal employees live their best life and plan an incredible retirement. He hosts a podcast and YouTube channel all about federal benefits and retirement. You can learn more about him at Haws Federal Advisors.

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