There is more to know about High-3 than "50% at 20 years." Several factors combine to determine each member's retirement amount and how it increases during retirement.
Each year of service is worth 2.5% toward the retirement multiplier. Hence, 2.5% x 20 years = 50% and 2.5% x 30 years = 75%. The longer an individual stays on active duty the higher the multiplier and the higher the retirement pay, up to the maximum of 75 percent.
This multiplier is applied against the average basic pay for the highest 36 months of the individual's career. This typically, though not always, equals the average basic pay for the final three years of service. Also, remember only basic pay is used in retirement calculations in all retirement system options. Allowances and special pays do not affect retired pay.
Cost of Living Adjustments (COLA) are given annually based on the increase in the Consumer Price Index (CPI), a measure of inflation. Under the High-3 System, the annual COLA is equal to CPI. This is a different index than the one used for active duty annual pay raises which is based upon average civilian wage increases. Thus, retirement pay COLAs and annual active duty pay raises will differ.
The CSB/REDUX option is a "package deal." Even though it results in reduced retired pay, it may be preferable to the High-3 retirement because it includes a $30,000 Career Status Bonus (CSB) at the 15th year of active duty service. The CSB provides current cash for investing, major purchases, or setting up a business after retirement and the REDUX portion determines retirement income (the longer one's career, the higher that income).
REDUX System Details
Both the multiplier calculation and annual cost of living adjustments differ from the High-3 system. Also, REDUX has a catch-up increase at age 62 that brings the REDUX retired pay back to the same amount paid under the High-3 System. REDUX is the only military retirement system with this feature.
Each of the first 20 years of service is worth 2.0% toward the retirement multiplier. But each year after the 20th is worth 3.5%. Hence, 2.0% x 20 years = 40%. But a 30 year career is computed by 2.0% times the first 20 years plus 3.5% for the 10 years beyond 20, resulting in 75%. This means that the retirement multiplier for a 30-year career is the same for both REDUX and High-3. The table below summarizes the initial multiplier at various years of service under High-3 and REDUX.
Under REDUX, the longer an individual stays on active duty the closer the multiplier is to what it would have been under High-3 up to the 30-year point where the multipliers are equal.
In precisely the same way as High-3, this multiplier is applied against the average basic pay for the highest 36 months of the individual's basic pay. This typically, though not always, equals the average basic pay for the final three years of service.
Cost of Living Adjustments (COLAs) for retired pay are given annually based on the increase in the Consumer Price Index (CPI), a measure of inflation. Under REDUX, the COLA is equal to CPI minus 1%.
A feature unique to REDUX is a re-computation of retirement pay at age 62. Two adjustments are made. The first adjusts the multiplier to what it would have been under High-3. For example, a 20-year retiree's new multiplier would become 50%, a 24-year retiree's multiplier would become 60% but a 30-year retiree's would remain 75%. This new multiplier is applied against the individual's original average basic pay for his or her highest 36 months. Then the second adjustment is done. Full CPI for every retirement year is applied to this amount to compute a new base retirement salary. At age 62, the REDUX and High-3 retirement salaries are equal. But, REDUX COLAs for later years will again be set at CPI minus 1%.
The $30,000 Career Status Bonus
Those members who elect the CSB/REDUX retirement system at their 15th year receive a $30,000 Career Status Bonus. To receive this bonus, the member must agree to complete a twenty-year active duty career with length-of-service retired pay under the 1986 Military Retirement Reform Act -- 1986 MRRA or REDUX. Continuation beyon twenty years is possible, subject to Service personnel management actions. However, the member's commitment with the CSB is only to the 20-year point. The entire $30,000 bonus, or first installment payment for those electing a multi-year payment option, is paid shortly after the member makes the CSB/REDUX election and commits to the 20-years-of-service obligation. This installment option was recently authorized by the NDAA FY2002; details will be forthcoming. (Exact mechanics should be provided by your Service near the point you have 14 1/2 years of service.)
If the member doesn't complete the obligation of the twenty-year career, the member must repay a pro-rated share of the bonus.
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