Military Buyback Rules That Civilian Federal Employees Wish They Had Learned Years Earlier in Their Careers

Key Takeaways

• Military service credit deposits, commonly known as “buyback,” allow you to count prior active-duty time toward your civilian federal retirement under FERS or CSRS.

• The earlier you complete the buyback process, the less interest you pay and the more secure your retirement calculations become.

Why Military Service Credit Matters More Than You Realize

If you served on active duty before becoming a civilian federal employee, you have an opportunity to make that time count toward your retirement pension. This process is called a military service credit deposit, or simply buyback. By paying a deposit equal to a percentage of your military base pay plus accrued interest, you can add years of creditable service to your civilian retirement calculation.

Without this step, your military service is recognized for certain purposes, such as leave accrual and reduction in force, but it will not add to your pension unless you complete the buyback. For many, this can mean the difference between retiring earlier with a higher annuity or working additional years to make up the gap.

How the Buyback Deposit Works

The rules require you to pay a deposit of 3 percent of your total military base pay earned while on active duty if you are covered under FERS, or 7 percent if you are under CSRS. This deposit does not include allowances or special pays—only base pay is counted.

If you served prior to 1999, your percentage is slightly different, but the principle is the same: the deposit equals a fraction of base pay. Interest is charged if you delay payment, starting two years after your civilian hire date. The longer you wait, the more you pay in accumulated interest.

Timelines You Cannot Afford to Overlook

1. Two-Year Grace Period
   After you enter civilian service, you have a two-year window where no interest accrues on the buyback deposit. If you pay within this time, you only owe the base percentage of your past military pay.

2. Interest Compounding Annually
   Starting in the third year, interest is applied every year you delay. By year ten, the interest can rival the deposit itself. Acting early prevents compounding from eating into your retirement resources.

3. Retirement Application Cutoff
   You must complete the deposit before you retire. If you file for retirement and have not settled your deposit, your service time will not be credited toward your annuity.

The Impact on Your Retirement Annuity

Your retirement annuity under FERS is based on your high-3 average salary multiplied by your years of creditable service and a pension factor (generally 1 percent, or 1.1 percent if you retire at 62 with 20 or more years).

Adding four years of military service could increase your civilian pension by thousands of dollars annually. For example, a $100,000 high-3 salary with 26 years of civilian service equals an annuity of about $26,000 per year. Adding four years of bought-back service raises that to $30,000 per year. Over a 20-year retirement, that is $80,000 more income.

Counting Toward Early Retirement

Military service credit also helps you qualify for retirement sooner. Under FERS, you may retire with:

• 30 years at your minimum retirement age (MRA).

• 20 years at age 60.

• 5 years at age 62.

If you buy back military service, those years count toward the total. This can move you across the threshold to retire earlier than you expected.

Special Rules for Military Retirees

If you already receive a military retirement pension, the rules are different. To use your military service toward your civilian pension, you must waive your military retired pay. This is not required if your military retirement is based on reserve service or disability under certain provisions.

This decision is highly personal. Some choose to waive military retired pay if the civilian annuity increase offsets the loss. Others prefer to keep the two pensions separate. Either way, you cannot double-dip full credit for the same years without formally waiving retired military pay.

Steps to Start the Buyback Process

1. Request Your Earnings
   Contact the Defense Finance and Accounting Service (DFAS) to obtain a certified record of your military earnings (Form RI 20-97 or equivalent).

2. Submit to Your HR Office
   Provide the earnings record to your agency’s HR office or payroll provider, who will calculate your deposit.

3. Make Payments
   You can pay in full or through payroll deductions. Paying quickly avoids interest accrual.

4. Keep Records
   Always obtain a receipt of your completed deposit. Without it, proving your buyback later can be difficult.

Costs Versus Lifetime Value

While the upfront cost may seem high, the lifetime value of additional pension income is often far greater. For instance, even if your deposit equals $10,000, an annuity increase of $3,000 annually repays that cost within just over three years of retirement. After that, the increase is pure gain.

Common Missteps That Employees Regret

• Delaying too long. Waiting until the end of your career dramatically raises the cost due to years of compounded interest.

• Assuming military time counts automatically. Without making the deposit, it does not.

• Failing to get receipts. Documentation is critical to avoid disputes when your retirement application is processed.

• Not considering the waiver requirement. If you are a military retiree, you must weigh the impact of waiving retired pay before making a decision.

How Buyback Affects Social Security

Military service credits do not reduce your Social Security benefits. In fact, for service performed before 2002, additional wage credits were applied to Social Security, further strengthening your retirement position. This means you can collect Social Security, a civilian annuity including bought-back time, and possibly reserve military retirement, depending on your circumstances.

Planning Early in Your Career

The most successful buybacks happen early. Paying during your first two years ensures no interest is charged. Even if you cannot pay in full immediately, setting up deductions from your paycheck is far easier in your thirties or forties than scrambling in your fifties or sixties.

Buying back service also gives you clarity. You will know how many years you have toward retirement, which helps you plan career moves, transfers, or retirement timelines with confidence.

Rules That Changed Over Time

Military buyback rules have evolved. Before 1983, CSRS employees did not face mandatory Social Security coverage. After 1986, FERS rules introduced mandatory deposits with specified percentages. In 1999, deposit percentages stabilized at the current levels.

Today in 2025, the system is well defined, but older employees may still be covered by legacy provisions. Understanding the current rule set prevents relying on outdated advice.

Why This Matters for Law Enforcement and Special Provisions

Employees covered under special provisions, such as law enforcement officers, firefighters, and air traffic controllers, often reach retirement eligibility earlier. Buying back military service can accelerate eligibility even more, since these groups have mandatory retirement ages. Missing the buyback opportunity could force extra years of service before eligibility is reached.

The Role of a Licensed Agent in Your Planning

Military buyback interacts with other benefits like Thrift Savings Plan contributions, FEHB continuation, and Social Security. A licensed agent can help you project outcomes and weigh trade-offs. The decision is not only about cost but also about timing, overall retirement income, and family security.

Making the Most of Your Service Credit

Military buyback is not just a bureaucratic step. It is a financial tool that lets you turn past service into tangible retirement security. By paying attention to deadlines, interest, and documentation, you can avoid costly mistakes and fully benefit from both your military and civilian service.

If you have not yet taken action, review your records now. Even one extra year of creditable service can increase your pension significantly.

A Final Word Before You Decide

Your military service is already valuable, but completing a buyback ensures it adds to your civilian retirement in concrete terms. Acting early saves money, provides clarity, and can even allow you to retire years sooner.

If you feel uncertain about the process or whether the costs align with your long-term goals, speak with a licensed agent listed on this website for personalized advice.