Nearly a quarter of all federal employees are military veterans. Many of these veterans ended their uniform service with enough years to qualify for a military pension, while many others separated and went on to pursue careers in civilian service. In these cases, there is an option to buy back their military service time and have it count towards their civilian retirement. This lets them not only keep their existing military benefits but also boost their civilian benefits as well. One such individual, we will refer to him as John, came to us looking for ways that he could be better prepared for his upcoming retirement.
The Scenario
John came to us for help with his retirement process, primarily wanting a better idea of what to expect with his monthly income as a retiree. As we learned more about his history, John told us he had spent 3 years in active service with the Army in the late 80’s before starting his civilian career with the Post Office in 1996. Our very next question for John was whether he had gone through the process of buying his time back. He had not but was interested to see if it would still be worth it for him to do at such a late stage in his career.
To see the true value of adding John’s 3 years of Army service to his civilian pension, let us walk through all the math that will inform this decision:
- He is planning on retiring in July of this year with just over 30 years of civilian service
- His High-3 average salary will be $78,640
Using these figures, we can project his pension with and without his military time factored in:
(No time bought back shown above)
(Time bought back shown above)
We were able to see that John stood to collect $195 more per month for the rest of his life by buying back the time.
The next step was for John to submit form RI 20-97. Once that had been processed, we learned that his total career military earnings were $28,321.35 and that it would cost $2,117 to buy back the service time. With all this information in hand, the next consideration was to do a little more math and see just how long it would take John to profit from this purchase.
The Breakeven Point
The way to determine the point at which John would break even from his initial investment and begin coming out ahead from the $195 of additional monthly income was fairly simple: we simply need to calculate how many months it would take to eclipse the initial $2,117 cost:
This shows that John will have fully broken even within 11 months of receiving his pension. Everything after that will be pure profit, which, if we look at a 30-year retirement, is worth tens of thousands of dollars.
$195 * 12mo = $2,340 per year
$2,340 * 30yrs = $70,200 additional lifetime earnings
John was ecstatic to see just how much additional income he stood to gain over the course of his retirement and just how quickly it would be to recoup his initial investment. Eager to move forward with the rest of the buyback process, we then assisted John in completing SF 3108 before submitting it to the USPS Shared Services Center. For other agencies, the form would need to be submitted to either a supervisor or HR representative.
The Right Time to Buy Your Time Back
As the saying goes, “The best time to plant a tree is 20 years ago. The second best time is now.” This is also true for buying back your service time. When you begin a civilian career, there is a 2-year grace period before the amount owed to buy back the time begins accruing interest at a compounding rate. This interest is applied each year, starting with the first year after the grace period, on what is known as your Interest Accrual Date (IAD).
While we can see just how much John was able to profit from paying the $2,117 amount, this was the cost after interest had accrued for nearly 30 years. Had he gone through this process when he first started with the Post Office, he would have only needed to pay $894 to make this purchase.
It should also be said that the buyback process can be relatively lengthy, typically lasting at least 3 to 6 months. You also must be employed to start and finish the process, so anyone that is trying to get this done prior to retirement should plan appropriately so that there is ample time for everything to process ahead of a planned retirement date.
Meeting Qualifications
Using military time to increase a civilian pension is just one of the benefits of buying the time back. There are potentially two additional bonuses that it may provide:
- Qualifying sooner for a full retirement
- Qualifying for a pension boost that you otherwise would not have (click here to use our free FERS annuity calculator)
In either instance, you are still required to have at least 5 years of civilian service to qualify. For example, this means that someone with 5 years of civilian service could buy back 15 years of military time to potentially meet eligibility requirements, while someone with only 3 years of civilian service would need to work at least another 2 years, regardless of how much military time was bought back.
Things To Consider
There are many factors that should be considered when determining whether or not to buy military service time back. Things such as which branch you served with, if your time was active-duty or as a reservist, or if you are already collecting a pension for your time served. For additional information, one of our founders, and former Air Force Captain, Wayne Brown wrote an article published in 2024 that goes into greater detail on the buyback process and what types of service may qualify. For those interested in going through the same process we took John through, we recommended scheduling an appointment with an expert consultant that can help you with each step and answer any questions about the process.
The figures used in this article are based on an individual case study and are for illustrative purposes only. Your results will vary depending on factors such as your years of active-duty military service, your earnings during that time, and how long you wait to initiate the buyback process. Interest accrual over time can significantly affect the total cost of buying back your service. Break-even timelines and long-term financial outcomes are unique to each individual’s situation. This article is not intended as financial or retirement planning advice. We strongly encourage anyone considering military buyback to consult with a qualified retirement planning professional before making this decision.
