Those who served military time may pursue different careers after their service. A path many go through is work within the federal government, which provides numerous opportunities for them. One of the considerations to go this path is the military time buyback. It’s a way to accelerate one’s savings and prepare a steady stream of funds for retirement.
What is Military Buyback?
Federal employees who previously served in the military may opt to buy back military time. That means that for the time they were in the military, they can add funds that add towards their retirement. If they have not set up any form of military retirement, this option is open to them. Of course, getting into it depends on your circumstances and whether or not it makes sense in your situation.
If you opt for military buyback, it will increase the years in service used for pension or retirement calculation. In essence, you’ll likely receive more federal payouts when you retire.
It’s not as simple as an application. Going down this path means buying back the time used in the military and adding it to your future retirement/pension fund. The cost will depend on several factors:
- The length of your service and date.
- How much interest you accrued during that period.
- The payments you get in the service.
- Whether you are in FERS or CSRS.
The best thing to do is find out how much your salary was during military service. Keeping records makes this easier, though you can also send a request to your branch to get this information. You’ll gather the base pay during your service and multiply it. If you are FERS, use 3% as a multiplier, while CSRS uses 7%.
The number you arrive at will be your initial deposit plus interest. The interest rate will depend on the year you buy back your time. The longer you want to do this, the higher you’ll have to pay because interest accrues annually. The good news is that all this adds to your pension in the future.
The Application Process
While the computation can get confusing, the application process is straightforward. If you’d want to apply, you’ll need to complete an Estimate Earnings During Military Service form. Getting this means you’ll have to confirm you’ve served in active duty through a DD 214 document. You’ll send this to the finance center of your respective branch.
You’ll receive an estimate of your pay, and you’ll then complete the Form 3108 application. You’ll need this form to make service credit payments. Complete it, and submit the form to BEST which will go to DFAS. They will compute the costs to complete the buyback. Note that you may have an estimate based on the computation given earlier, but DFAS can add or reduce it depending on numerous factors.
Once you get the information on what you need to pay, you’ll deposit the amount. You’ll also request a letter confirming that you’ve paid in full. It will show that you have no more balance needed to pay to complete the buyback.
Remember that buying back military time makes the most sense if you want to complete your career in federal service. It assumes you’ll spend time working for the government until retirement. The years you served will add to the years you need to complete before retiring. For example, if you have five years of service, you only need to complete 20 years of work before retiring.
Many go through the buyback opportunity because it can increase one’s annuity payment during retirement. It’s not uncommon to see a 20% increase from what they should get, thanks to the buyback. Other reasons you’d want to pursue it are because:
- More benefits in your current job.
- The option to retire early and get full benefits.
- Faster vesting of your savings plan.
- Increase your leave accrual per pay.
When a federal employee retires, the consideration for their pension will be the high-three. The high-three is the average of the highest three consecutive years of service where they made the most money. If you earn an average of $70,000, you’ll get monthly payments of $21,00 for the rest of your life. If you live for another 30 years, that is around $756,000.
With another five years of service, it’s possible to get around a 20% increase or more. That would mean they would be earning $2520 a month instead. That’s a total of $907,200 if you live for another 30 years getting the payments. It’s an extra $151,200, which you can use for anything you need in your later years.
The objective here is to increase your pension, usually happening if you have more years working under the government. Converting your military time into years worked will become a multiplier. It’s the reason why many consider the buyback despite its initial cost.
The number can differ depending on the person, as some may get more than 20% while others less. It all depends on the computation and the estimate you’ll get. Consulting an expert would be one of the best ways to find out and get an overview of what you can get when you buy back military time.
The Grace Period
Most of those who buy back military time have to pay interest, but there is a grace period, freeing you from those fees. The timer begins when you begin working under FERS or CSRS. From there, you have a two-year period in which you can buy back the military time without any interest. Since interest accrues annually, you’ll be safe if you pay the deposit before your third anniversary.
Should I Pursue a Military Time Buy Back?
Not everyone is ready for a military buy back, and some may not be in a position to take advantage of its benefits. Each person is different, and you may want to weigh your options before pursuing. If you foresee a higher pension, adding years to service means you are increasing your eventual payouts after retirement.
You should also consider if you desire to retire early. Adding years to your service means you’ll become eligible for retirement earlier. If you’re near the retirement age, buying back will allow you to retire sooner than expected.
As for many of those who know about the buyback, many take them. There have been very few instances where it didn’t make sense. Using your military time to give you retirement benefits should be an opportunity.
If you are unsure if it is the step to take, consult with professionals. Do the calculations and double-check everything before finalizing your decision. Make sure it’s one that you don’t regret later on.
Buying Back Military Time Can Get Overwhelming
They created the buyback system to help those who’ve served in the military get more options for their retirement. While the goal was to make the process straightforward, it hardly is. As you progress with your federal career, you’ll have many things to consider, and it can be hard to deal with all the calculations. You’ll have to consider aspects like:
- Compounded interest means you’ll pay a higher amount over time.
- Payroll deductions that may affect current lifestyle.
- The impact of the buyback to your estimated lifetime pension.
Don’t rush the application process and take it a step at a time. You’ll need to check documents, contact multiple offices, and backtrack crucial information. You’ll have many forms to complete, and a mistake can set you back for months. Delays can happen, but you’ll receive benefits if you stay on track.
The good news is that you’re not alone in your predicament. Many others have trouble with the buyback process because they don’t have the information to help them move forward. Many experts and financial institutions have specialists that can help you with your concerns. Getting their help means that you can reduce the stress and hassle that often comes with these complicated processes.
Increasing your retirement payouts is always a positive thing. Yet, it must not outweigh any negatives that could come out of the process and application. Many online calculators are available, and you also have professionals to consult. The bottom line is that the option for using your military time for retirement is always there. Take some time to explore it.