How Military Buyback Could Be The Key To A Bigger, Better Retirement For Federal Employees

Key Takeaways:

1. Military buyback is a powerful tool that allows federal employees to increase their civilian retirement benefits by crediting military service toward their federal retirement.

2. Understanding eligibility, costs, and timelines for military buyback can significantly impact your overall retirement income and financial security.

Unlocking the Power of Military Buyback

Military buyback is an opportunity you don’t want to miss if you’ve served in the military and now work in the federal government. By buying back your military service time, you can add those years to your federal civilian service, increasing your annuity and potentially shaving years off your retirement timeline. But how does it work, and what steps do you need to take to benefit from this program?

Let’s break it down so you can take full advantage of what military buyback offers.

What Is Military Buyback?

Military buyback allows federal employees under the Federal Employees Retirement System (FERS) or Civil Service Retirement System (CSRS) to pay a deposit to credit their active-duty military service toward their civilian retirement. These credited years count as if you’d worked in a civilian capacity, which means:

• You increase the total years of service used to calculate your retirement annuity.

• You potentially qualify for retirement earlier.

Without buyback, your military service doesn’t automatically count toward your civilian retirement unless you retired from the military due to disability or served during a specific timeframe. By making a buyback deposit, you ensure that your time in uniform helps boost your financial future.

Who Qualifies for Military Buyback?

Most federal employees with active-duty military service qualify for military buyback. This includes individuals who:

• Served in the armed forces on active duty.

• Received an honorable discharge.

• Did not retire from the military with regular military retirement pay (disability retirees can still qualify).

If you’re currently receiving military retirement pay, you may still be eligible, but you would have to waive your military pension to use the buyback program. It’s a critical decision that requires careful consideration of your total benefits.

How Does Military Buyback Impact Your Retirement?

The primary advantage of military buyback is its impact on your civilian retirement annuity. Here’s what you stand to gain:

1. Higher Monthly Annuity: Your annuity is calculated based on your “High-3” average salary and total years of service. Buying back military time adds to your total years of service, which directly increases your annuity amount.

2. Faster Retirement Eligibility: Adding military years to your civilian service can help you meet the eligibility requirements for retirement earlier, such as the 30 years of service needed under FERS.

3. Greater Financial Security: A larger annuity means greater financial stability during retirement, allowing you to enjoy your post-federal career with less financial stress.

How Much Does Military Buyback Cost?

The cost of military buyback depends on several factors, including your military earnings, the interest applied, and how soon you apply for buyback. Generally, the earlier you start the process, the less you’ll pay. Here’s why:

• Base Cost: This is typically a percentage of your military earnings (3% for FERS employees and higher for CSRS employees).

• Interest: If you delay, interest accrues on your deposit. The interest starts accruing after your second year of federal civilian employment.

Acting quickly can save you thousands in interest payments, so it’s wise to begin the process as soon as possible after joining the federal workforce.

Steps to Complete Your Military Buyback

To take advantage of military buyback, follow these steps:

1. Obtain Your Military Earnings Statement

You’ll need to request your military earnings statement (DFAS Form 2279) from the Defense Finance and Accounting Service (DFAS). This document details your military pay, which is used to calculate your buyback cost.

2. Complete the Application Package

Fill out the necessary forms, including:

• SF 2803 or SF 3108: Depending on whether you’re under CSRS or FERS.

• RI 20-97: To request your military earnings.

Submit these forms to your agency’s human resources office.

3. Pay the Deposit

Once your agency calculates the buyback cost, you can make the deposit in a lump sum or installments. Keep in mind that paying in full as early as possible minimizes interest.

4. Verify the Deposit

Ensure the deposit is correctly recorded in your retirement records. Your human resources office can confirm that the buyback is complete and reflected in your service computation date.

When Should You Start?

Timing is everything with military buyback. The earlier you start, the less interest you’ll pay. Ideally, you should begin the process as soon as you enter federal civilian employment. Even if you’re close to retirement, it’s worth exploring the benefits of buyback, as the increased annuity may still outweigh the cost.

Key Considerations Before You Buy Back

Military buyback isn’t a one-size-fits-all decision. Here are some critical factors to weigh:

1. Cost vs. Benefit: Calculate whether the increase in your annuity justifies the cost of buyback, especially if interest has accrued.

2. Waiving Military Retirement Pay: If you’re receiving military retirement pay, understand the implications of waiving it to credit your military time.

3. Tax Implications: Military buyback payments are made with after-tax dollars, but the added annuity is taxable income during retirement.

4. Future Plans: If you’re planning to leave federal service before retirement eligibility, buying back time may not provide a significant advantage.

Common Myths About Military Buyback

Let’s debunk some common misconceptions:

• Myth 1: You lose your military pension if you buy back time. Not true unless you’re required to waive it.

• Myth 2: It’s only worth it for long-term federal employees. Even shorter-term employees can benefit if the added service years improve their annuity.

• Myth 3: It’s too complicated. While the process has several steps, it’s straightforward with the right guidance.

Maximizing Your Federal Retirement

Military buyback is just one piece of the puzzle. Combine it with other strategies to maximize your retirement benefits:

1. Max Out Your TSP Contributions: Take full advantage of the Thrift Savings Plan to build a robust retirement fund.

2. Understand Your FEHB Benefits: Coordinating Federal Employees Health Benefits (FEHB) with Medicare can save you money and provide comprehensive coverage.

3. Plan for Social Security: Ensure you’re aware of how Social Security benefits interact with your federal retirement.

The Value of Professional Guidance

Navigating military buyback and federal retirement options can be overwhelming. Consider consulting a retirement specialist or your agency’s benefits counselor to ensure you’re making the best decisions for your unique situation.

Make Your Retirement Vision a Reality

Military buyback is more than just a numbers game; it’s a chance to secure a retirement that reflects your service and dedication. By taking the time to understand the process, calculating the costs, and acting early, you’re setting yourself up for a financially secure future. Don’t wait to make the most of this valuable benefit—start today.