I receive many emails from federal employees wondering how to get the absolute most out of their retirement. I believe that leaving your future to chance is a recipe for a stressful retirement. For federal employees who previously served in the armed forces, there is one financial tool that stands head and shoulders above the rest: the Military Service Deposit, commonly known as “Military Buyback”.
If you served honorably, buying back your military time is often an absolute no-brainer. I served four years in the U.S. Air Force and purchased my service time back early in my career. Making those biweekly payments was one of the best financial decisions I ever made because it directly added those four years to my federal annuity calculation.
Here is an in-depth look at what Military Buyback is, when it makes sense, and how to optimally structure it so you don’t leave money on the table.
What is Military Buyback?
Under current federal retirement policy, your active-duty military service is generally creditable toward your FERS or CSRS civilian retirement if it was terminated under honorable conditions. However, to receive this credit, you must make a deposit covering a small percentage of your military basic pay, plus any applicable interest.
Once paid, those military years are officially tacked onto your civilian career. This provides two massive benefits:
- It increases your pension: Your FERS annuity is calculated by multiplying your High-3 salary by your Years of Creditable Service and your pension multiplier (1% or 1.1%). Adding your military years directly increases your lifetime monthly payout.
- It gets you to the finish line faster: Adding military time to your civilian time can make you eligible to retire years earlier than you originally thought.
Consider this incredible true story: A federal employee was recently facing a Reduction in Force (RIF) and was placed on administrative leave, essentially waiting to lose his job. He did not have the required 25 years of service to qualify for a Voluntary Early Retirement Authority (VERA) offer.
However, he scrambled to buy back seven years of his military service. The moment the paperwork cleared, his official service time crossed the 25-year threshold. By the skin of his teeth, he became eligible to accept the VERA, allowing him to leave with a true, unreduced lifetime pension and retain his FEHB health insurance.
When Does It NOT Make Sense?
While buying back time is highly lucrative for most, it does not make sense for everyone. If you served a full 20-year military career and are currently receiving a military pension, you generally cannot “double-dip”. To buy back that time for your civilian pension, you would have to officially waive your military retired pay. About 80% of the time, keeping your military pension is the better financial deal.
The exceptions to this rule are activated Reservists or National Guard members, who can buy back their active-duty time and still collect their reserve retirement without waiving it. Additionally, military retirees with certain combat-incurred disabilities do not have to waive their retired pay.
How to Optimally Structure Your Buyback
To get the most out of your military buyback, you must structure the timing and payments correctly to avoid unnecessary penalties.
- Act Early to Avoid the Interest Trap: This is the most crucial step! If you complete your military buyback within your first three years of federal civilian service, no interest will be assessed. If you wait past that three-year grace period, interest begins accruing annually. Do not put this off; the longer you wait, the more expensive your deposit becomes.
- Choose the Best Payment Method: You don’t have to write a massive check all at once. The most painless way to optimally structure your buyback is to set up biweekly payroll deductions. Your total deposit and remaining balance will be reflected right on your Leave and Earnings Statement (LES). You can also make installment payments or pay via a lump sum through Pay.gov.
The Step-by-Step Paperwork Process
Navigating government paperwork can be frustrating, but doing it right the first time prevents massive processing delays at the Office of Personnel Management (OPM).
- Get Your Estimated Earnings: First, complete form RI 20-97 (Estimated Earnings During Military Service).
- Attach the Correct DD-214: You must submit your RI 20-97 to the Defense Finance and Accounting Service (DFAS) along with your DD-214. CAUTION: DFAS cannot accept the DD-214 Member-1 copy. You must use the Member-4, Service-2, Service-7, or Service-8 copy that shows your character of discharge.
- Apply to Make the Deposit: Once DFAS mails you your official estimated military earnings, take that computation to your agency’s Human Resources office. You will then complete SF 3108 (for FERS employees) or SF 2803 (for CSRS employees) to officially apply to make your service credit payment.
- Obtain the Golden Ticket (Your Paid-in-Full Letter): Once your payments are complete, you must ensure you receive a “Paid-in-Full” letter. If your payroll is serviced by DFAS, this will often be issued via myPay. You must ensure this Paid-in-Full letter makes it into your Electronic Official Personnel Folder (eOPF).
Before you walk out the door into retirement, sit down with your HR counselor to review your eOPF. Verify that your military service is fully documented and that your deposit is marked as paid in full so OPM can process your retirement smoothly. Review our comprehensive Military Deposit guide for additional information and guidance.
Take charge of your career and your retirement today. Please forward this article to the veterans in your organization so they don’t miss out on what they’ve rightfully earned!
Last 5 posts by Dennis Damp
Dennis V. Damp is an author, retired federal manager, business owner, career counselor and veteran. Damp is the author of 28 books, a recognized benefits expert, and a retired federal manager with 35 years’ service. Dennis has been a guest on hundreds of radio talk shows, CNN’s YOUR MONEY and the Lou Dobbs Cable TV shows, lectured at universities and colleges, produced Internet web sites and training videos, and has written hundreds of articles for national magazines and newspapers. His books have been featured in the Wall Street Journal, Washington Post, New York Times and U.S. News & World Report.
Dennis joined the Air Force in 1968 and spent over three years on active duty and an additional seven years with the Air National Guard. He was hired by the Department of Defense (DOD) after leaving active duty and transferred to the Federal Aviation Administration (FAA) in 1975. He spent the remainder of his career in various positions with the FAA. His last position was technical operations manager at the Pittsburgh International Airport’s air traffic control tower.
