Military Buyback Might Sound Smart, But It Doesn’t Always Pay Off Unless You Do the Math First

Key Takeaways

• Buying back your military service can increase your federal retirement annuity, but it’s not always the financially wise choice unless you’ve calculated the true long-term impact.

• The timing of your buyback payment, your years of federal civilian service, and your expected retirement date all affect whether a military buyback adds meaningful value to your pension.

Why Military Buyback Exists

If you served in the military and later took a civilian job with the federal government, you may be eligible to increase your retirement service credit by buying back your military time. The military buyback program under fers and CSRS allows you to make a one-time payment to have your active-duty military service count toward your civilian retirement pension.

The appeal is understandable: by increasing your years of service, you can increase your pension amount. But the decision to proceed with a buyback should not be automatic. What looks like a guaranteed benefit may not always work in your favor if you’re not careful with the math.

How Military Buyback Works in 2025

Here’s what the buyback process involves:

• Eligibility: Only active-duty service can be credited. Reserve service, unless on active-duty orders, doesn’t count.

• Payment Calculation: You must pay 3% of your basic military pay earned during the period of service, plus interest if you’re more than 3 years removed from your federal civilian hire date.

• Deadline: While there’s no absolute deadline, interest begins accruing three years after your civilian hire date. The longer you wait, the more you pay.

• Pension Increase: Each year of military service you buy back increases your FERS pension by 1% of your high-3 average salary.

For example, if your high-3 average is $90,000, then each year of bought-back military service adds $900 per year to your retirement income.

What You Gain by Buying Back Time

Military buyback can be an excellent way to boost your pension if you meet the right conditions. Here’s how it may help you:

• Reach Retirement Earlier: If you have 17 years of civilian service and buy back 3 years of military time, you can qualify for full retirement with 20 years.

• Increase Annuity Amount: A higher number of creditable years means a higher monthly pension.

• Avoid Retirement Penalties: Under the MRA+10 provision, those with fewer than 30 years of service face a pension reduction. Buying back time may help you meet the full service requirement.

But none of this happens in a vacuum. Every benefit must be compared with the actual cost and timing of the buyback.

What It Really Costs in 2025

The base cost of the buyback is 3% of your basic military earnings. Let’s say you earned $100,000 in base pay during your military years. That results in a $3,000 buyback.

However, interest begins to accrue three years after you start federal civilian service. So if you wait 10 years to make the payment, the interest could significantly increase your total cost — potentially doubling or tripling it.

• Interest Rates: These vary yearly. In recent years, interest rates ranged from 1.5% to over 4%, compounded annually.

• Payment Timeline: You can pay it in a lump sum or through payroll deductions. But until it’s fully paid off, the time doesn’t count toward your retirement credit.

Make sure you request an estimate early in your career so you know exactly what you’re dealing with. Agencies like DFAS and opm provide the official figures you’ll need.

When Buyback Might Not Make Sense

There are real scenarios in which buying back military time may not offer enough return on investment. Be especially cautious if:

• You’re close to the FERS minimum retirement age but have enough years of civilian service without the military time.

• You’re under a special retirement provision such as law enforcement or firefighter retirement, where military time may not count toward early retirement eligibility.

• You’re unlikely to remain in federal service long enough to retire under FERS or CSRS. If you leave before vesting (five years of civilian service), the buyback time offers no pension benefit.

• You already qualify for a military pension and do not want to waive it. Under current rules, you must waive your military pension if you want to receive FERS credit for that time.

In each of these cases, the upfront cost might not justify the incremental pension you would eventually receive.

The Military Pension Trade-Off

One of the most misunderstood aspects is the military pension waiver. If you’re already receiving a military retirement check based on 20 or more years of active-duty service, you generally cannot receive both a military pension and credit for that same time under FERS. To buy back the time, you must agree to waive your military retirement.

This is often a dealbreaker.

• Waiving a guaranteed monthly income for a slightly higher FERS pension may not be worth it, especially if your military pension includes annual COLAs and other long-term benefits.

• Combat or disability retirement pensions often have tax advantages that a FERS pension doesn’t.

There are exceptions for certain types of service-connected disability retirement, but in general, this is a serious decision that should not be made without professional financial advice.

Buyback and Early Retirement Eligibility

A common question is whether military buyback time can help you qualify for early retirement.

• Under FERS, military service credit does not count toward eligibility for law enforcement, firefighter, or air traffic controller early retirement.

• It can count toward your 30-year total for a regular immediate annuity or toward meeting the five-year vesting requirement.

This means that if you’re in a special category job, military buyback might increase your pension amount but will not help you retire earlier under your occupational rules.

Timing Your Payment to Avoid Interest

You can save thousands of dollars by timing your buyback payment correctly. The three-year grace period from your federal start date is the key window.

• Pay within 3 years: No interest is charged. This is the optimal time to make the buyback decision.

• Pay after 3 years: Interest compounds annually on the unpaid balance.

If you’re newly hired or early in your civilian federal career in 2025, get your estimate now. The sooner you start the process, the less it will cost.

How to Request an Estimate in 2025

The process remains fairly consistent:

1. Get your military pay records: Request DD 214 and your estimated earnings from your branch of service.

2. Submit to your agency’s HR or payroll office: They will calculate your buyback amount and forward to OPM or DFAS.

3. Receive a formal cost letter: This will include principal and interest due.

4. Decide on a payment method: Lump sum or installment through payroll deduction.

5. Request confirmation: Once paid in full, ensure it is reflected in your SF-50.

Documentation is crucial. Don’t assume the agency has updated your record automatically.

Questions to Ask Before You Commit

Before finalizing your decision, make sure you’re clear on the following:

• What is the total cost, with interest?

• How much will my pension increase annually if I buy back the time?

• How long will it take to break even?

• Will I stay in federal service long enough to benefit?

• Am I giving up a military pension to do this?

• Do I need this credit to reach retirement eligibility or increase my annuity?

Use these questions to develop a retirement projection with a licensed financial expert who understands both military and federal retirement systems.

A Smart Strategy, But Only When Backed by Numbers

Military buyback is not inherently good or bad. It’s a tool, and like all tools, its effectiveness depends on how and when you use it. Many employees overestimate the benefit because they hear success stories from coworkers or assume every year adds exponential value.

In 2025, with rising interest rates and tightening federal retirement budgets, it’s more important than ever to be clear about the financial trade-offs.

Think Through the Decision Before You Act

The smartest thing you can do is not rush into a military buyback just because it sounds like a benefit. Run the numbers. Consider your retirement timeline. Talk to your agency’s HR and seek help from a licensed professional listed on this website to create a strategy that works for your specific circumstances.