Understanding the Caps Lift on Military Retirement Pay

When the military tried to overhaul the retirement system in 1986 with REDUX, retention plummeted. In 1999 the DoD ended up restoring the previous retirement system. However, changes have been made to the military retirement system in the past, and other retirement changes may be in the planning.

MILITARY RETIREMENT: THE BEST DEAL AROUND

The military (active duty) retirement system is arguably the best retirement deal around. Unlike most retirement plans, the Armed Forces offer a pension with benefits that start the day you retire, no matter how old you are. As a veteran, you could start collecting a regular retirement pension as early as 37 years old.

It's also possible for your military pension to grow with a cost of living adjustment each year, something unheard of with other pension systems. And there are other variables and factors that determine exactly how much your pension will be today, as well as throughout all years of collecting your military pension.


MILITARY PAYMENT CAPS LIFTED

Over the past twenty five years, the government has made changes to the military retirement system. One of the more significant changes made by the National Defense Authorization Act for Fiscal Year 2007 was the lifting of the 75 percent cap used in the calculation of retired pay for members eligible for service retirements.

Anyone retiring after January 1, 2007 with more than 30 years of total active service will receive credit for service over 30 years.

For example, a member who served 32 years will receive 80 percent of their retired pay base and a member who has served 42 years will receive 105 percent of their retired pay base. In most cases, there is no longer a cap on the percentage multiplier used to determine military retired pay.

SOME MILITARY RETIREMENT LIFT-CAP EXCLUSIONS

There are two categories that have been excluded from the lifting of the military retirement percentage cap.

Military members retired by reason of disability

Military members retired due to disability are still capped at the 75 percent by law.

A member with 30 or more years of service must be retired based on service, not disability, in order to have the retired pay computed using a percentage greater then 75 percent.

Note: This applies only to those who retired after January 1, 2007 with over 30 years of service.

Army and Air Force enlisted servicemembers who have been cited for Extraordinary Heroism (EH).

The laws that provide the additional 10 percent of retired pay for extraordinary heroism for Army and Air Force members contains language that limits their computations to not exceed 75 percent.

The new law did not change that language. Therefore, if their computation includes the additional 10 percent for the EH, they are limited to 75 percent. If the member has over 30 years of service, DFAS can compute their pay ignoring the EH, and then exceed the 75 percent.