Didn't Retire from Active Duty? You Can Still Use Your Service Toward a Pension

National Guard retirement ceremony.
(John Hughel/Washington Air National Guard)

Many Americans underestimate the value of a pension. A pension provides monthly income for life. Whether the monthly income is enough to live on or simply supplement other sources of income, the value the pension provides is undeniable. Pensions make it easier to budget your spending, avoid market risks and can help your savings last through retirement.

Unfortunately, earning a pension is not always easy. Fewer than 5% of public sector companies still offer pensions. Most pensions today are available to government sector employees. That's the bad news.

The good news is that your active duty military service puts you in a better position to earn a pension, even if you count yourself among the 83% (roughly five out of six) of active duty veterans who didn't remain on active duty long enough to retire from the military to earn military retirement pay.

And if you are lucky enough to count yourself among the 17% of military members who retire from active duty, you may be able to apply some of your military service toward a second pension.

Let's take a look at some of the ways you can use your military service toward a pension.

Continued Military Service in the Guard or Reserves

Your active duty service will apply directly toward retirement from the Reserve Component. Even though retired Guard members and Reservists don't receive their military retirement pay until age 60, their pensions and other retirement benefits are still plenty valuable.

Add in the facts that serving in the Guard or Reserves gives you the opportunity to continue your service, earn pay and benefits during your working years and expand your skills, and you can make a case that more veterans should take a longer look at joining the Guard or Reserves when they leave active duty.

If you want to take this to the next level, then consider coupling your service in the Reserve Component with joining a federal agency or another governmental agency. Members of the Guard and Reserves have the unique benefit of being able to apply their active duty military time toward a Reserve retirement as well as toward a civil service retirement.

Let's look at those opportunities in more detail.

Buy Military Service Credits with the Federal Civil Service

Active duty veterans can buy back their military service time when they join the federal civil service. Each year of active duty service you buy back counts toward one year of civil service time under the Federal Employee Retirement System (FERS).

Purchasing your military service credits will cost 3% of your active-duty base pay at the time you served, not your final pay grade, with the exception of military service during 1999-2000, which has a slightly higher buyback rate (more info).

This works in your favor, since you will be buying back service credits from the years in which your income was probably at its lowest, and receiving retirement benefits from the average of your three highest years of pay under the FERS system.

Applying your military service toward your civil service employment also provides other valuable benefits. To begin with, it counts toward your Service Computation Date for Leave, meaning you will accrue vacation days more quickly than if you joined the civil service without any previous military service.

Your military service may also earn you Veterans Preference Points, protect you during a Reduction in Force event, or possibly allow you to retire earlier. You can learn more about the benefits of serving in the civil service after leaving the military.

Military Service Credits for State and Local Careers

The federal government isn't the only organization that offers military service credits. In fact, they are common with many state, county and municipal jobs.

Some examples include state employees; certain county and city jobs; some teaching organizations and college careers; and first responder organizations, such as police departments, sheriff's offices or fire departments.

Opportunities vary by location, so it's not possible to provide a thorough list of jobs that offer military service credits. Be sure to inquire about applying your military service toward a new job if you are looking for any kind of government-funded career.

Some of these organizations may require you to purchase these credits, while some of them may simply offer some service credit. Some organizations may also place a cap on the number of years of service you can buy back toward your new pension.

In short, expect to do some leg work to track down the details to be able to understand the full impact of buying into a pension plan.

Can You Use Your Military Service to Earn More than One Pension?

That depends on the organization, but often, the answer is "yes." However, there is one big exception. Federal law allows active duty military veterans to buy back their active duty time from the FERS system and earn additional credits toward a FERS retirement. If you retire from the Guard or Reserves, you can even use this service toward both military retirement and a FERS retirement. That's a perk active duty retirees don't get -- federal law prohibits active duty retirees from using their active duty service time toward both active duty retirement and a FERS retirement.

However, many other non-federal agencies allow all military veterans to apply their military service toward their new pension plan, regardless of their military retirement status. Just keep in mind that some organizations either limit the number of years you can buy back or they require the member to serve a certain number of years in the civilian organization to be eligible for retirement.

It is very common for Guard and Reserve members to work toward multiple pensions -- their military pension and a second pension under the FERS system, or with another government agency.

With a little planning, you can set yourself up for a steady retirement.

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