Military Retirement Planning: From Active Duty to Financial Freedom

Military retirement is unlike anything in the civilian world. A guaranteed pension for life, healthcare coverage that extends into your 80s, and tax-free disability compensation — the benefits are significant, but only if you understand how to maximize them. Whether you're a fresh E-3 mapping out a 20-year career or a senior Staff Sergeant five years from retirement, proper planning makes the difference between a comfortable retirement and a wealthy one.

Let's break down everything you need to know about military retirement planning.

Understanding Your Retirement System

The first step is knowing which retirement system applies to you. There are two: the Legacy High-3 system and the Blended Retirement System (BRS).

Legacy High-3 (Pre-2018 Service Members)

If you entered service before January 1, 2018, you're likely under the Legacy system unless you opted into BRS during the 2018 window. Legacy is straightforward:

• 20 years = 50% of your highest 36 months of base pay
• Each additional year = 2.5% more
• Maximum at 30 years = 75%

The catch? It's all or nothing. Separate at 19 years, and you receive zero pension. This system rewards those who commit to a full career but offers nothing to the 80%+ who separate earlier.

Blended Retirement System (BRS)

Service members who joined after January 1, 2018, are automatically enrolled in BRS. It's a different approach:

• Reduced pension: 40% of High-3 at 20 years (vs. 50%)
• TSP matching: Government matches up to 5% of base pay
• Continuation pay: Mid-career bonus at 8-12 years
• Portability: TSP matching is yours even if you don't reach 20

For a deep dive into which system builds more wealth, check out our BRS vs Legacy comparison.

Calculating Your Military Pension

Understanding your projected pension helps you plan everything else. Here's how to run the numbers:

The Pension Formula

Monthly Pension = High-3 Average × Multiplier

For Legacy:

• 20 years: 50% multiplier
• 24 years: 60% multiplier
• 30 years: 75% multiplier

For BRS:

• 20 years: 40% multiplier
• 24 years: 48% multiplier
• 30 years: 60% multiplier

Real Numbers Example

Let's say you're an E-7 with 20 years, retiring with a High-3 average of $5,800/month:

• Legacy pension: $5,800 × 50% = $2,900/month ($34,800/year)
• BRS pension: $5,800 × 40% = $2,320/month ($27,840/year)

That pension is inflation-adjusted through annual COLA increases and paid for life. Over 40 years of retirement, even the "smaller" BRS pension adds up to over $1.1 million in lifetime payments.

Want to see exactly where you'll stand at retirement? Nova can help you project your retirement income across all sources — pension, TSP, VA disability, and civilian earnings — so you can plan with precision.

Combining Your Pension with TSP and VA Benefits

Your pension is just one piece of the retirement puzzle. The real power comes from stacking multiple income streams.

TSP: Your Wealth Accelerator

The Thrift Savings Plan should be the cornerstone of your retirement savings. For BRS members, contributing at least 5% captures the full government match — free money you can't afford to leave on the table.

But here's the real play: maximize contributions whenever possible. The 2026 limit is $23,500 per year. If you're deployed to a combat zone, you can contribute even more through the Combat Zone Tax Exclusion.

Learn how to optimize your contributions in our TSP optimization guide.

VA Disability: Tax-Free Income

VA disability compensation is the most underutilized wealth-building tool for veterans. It's:

• Tax-free — a 50% rating paying $1,100/month is worth $1,400+ in taxable income
• Inflation-adjusted — annual COLA increases
• Lifetime — payments continue regardless of employment

If you're retirement-eligible and have a disability rating, you may also qualify for Concurrent Retirement and Disability Pay (CRDP), which lets you receive both your full pension AND VA disability compensation without offset.

For service members planning to retire, file your VA claim 180-90 days before separation through the Benefits Delivery at Discharge (BDD) program. Don't wait years to file — document conditions while your service treatment records are fresh.

Explore how disability compensation impacts your wealth in our VA benefits and net worth guide.

Your Retirement Timeline: Planning by Career Stage

Different career points require different focus areas.

Years 1-8: Build the Foundation

• Enroll in TSP immediately (BRS members especially)
• Contribute at least 5% to capture full matching
• Build an emergency fund (3-6 months expenses)
• Avoid lifestyle inflation with each promotion

Years 8-14: Commit or Transition

This is decision time. Are you staying for 20? If yes:

• BRS members receive continuation pay — invest it, don't spend it
• Start researching your post-military career options
• Consider geographic preferences for retirement

If you're separating, your TSP goes with you. Don't cash it out — the taxes and penalties will devastate your savings.

Years 15-19: Final Approach

• Run your pension calculations with current pay scales
• Attend Transition Assistance Program (TAP) early
• File your VA disability claim through BDD
• Research SBP costs and benefits
• Understand TRICARE options

Year 20+: Execute

• Schedule your final out appointments
• Coordinate retirement ceremony and DD-214
• Set up myPay for retired pay
• Enroll in TRICARE Select or Prime (depending on location)

Survivor Benefit Plan (SBP): Protecting Your Family

SBP is military life insurance for your pension. If you die after retirement, your spouse receives 55% of your covered pension amount for life.

The Cost

SBP costs 6.5% of your covered base amount. For a $2,900/month pension with full coverage:

• Monthly cost: $188.50
• Spouse benefit: $1,595/month for life

The Decision

SBP is automatic at retirement — you must actively decline it (with spouse's written consent). Before declining, consider:

• Do you have substantial life insurance or assets that would replace this income?
• How long might your spouse outlive you?
• Is $188/month worth guaranteed $1,595/month lifetime payments?

Many retirees compare SBP to term life insurance costs. At older ages, SBP often wins on value.

TRICARE for Life: Healthcare in Retirement

Military healthcare benefits continue after retirement, though the structure changes based on your age.

Under Age 65

You'll use TRICARE Select or TRICARE Prime:

• Prime: HMO-style, requires PCM referrals, lower out-of-pocket
• Select: PPO-style, see any provider, higher flexibility

Annual enrollment fees and copays apply, but costs are dramatically lower than civilian insurance.

Age 65+: TRICARE for Life

Once you're Medicare-eligible, TRICARE for Life kicks in as a supplement to Medicare. Medicare pays first, TRICARE covers the rest. Your out-of-pocket healthcare costs in retirement can be nearly zero.

This benefit alone is worth tens of thousands of dollars annually compared to civilian retirees paying for Medicare supplemental insurance.

Putting It All Together: Your Retirement Income Stack

Here's what a well-planned military retirement can look like for an E-7 retiring at 42 with 20 years:

Income Source	Monthly Amount	Annual
Military Pension	$2,900	$34,800
VA Disability (50%)	$1,100	$13,200
TSP Withdrawals (4% rule)	$1,200	$14,400
Civilian Career	$5,000+	$60,000+
Total	$10,200+	$122,400+

And that pension, VA compensation, and TSP continue growing with COLA adjustments while you're still earning civilian income.

This is why tracking all your income sources matters. Nova lets you see your complete financial picture — active duty pay, pension projections, VA benefits, TSP growth, and civilian income — all in one dashboard. Start tracking your path to retirement and watch your net worth grow as you approach financial freedom.

Start Planning Today

Whether retirement is 20 years away or 20 months away, the fundamentals are the same: understand your pension system, maximize TSP contributions, claim your VA benefits, and protect your family with SBP.

The military offers one of the most comprehensive retirement packages available. Your job is to make sure you're positioned to capture every dollar of it.

Ready to map your retirement? Create your free Nova account and start tracking where you stand today. See your net worth grow, project your retirement income, and make decisions with confidence.

You earned these benefits. Now optimize them.