Military veterans make up a significant portion of the federal workforce, and many carry something valuable into civilian service: years of active-duty time that may be added to their federal retirement. The opportunity is known as the military service deposit, though most employees simply call it the military buyback.
For some veterans, completing the buyback can add thousands of dollars in lifetime pension income. The challenge is that many do not look into it until they are close to retirement, and by then the timeline can become a problem.
How the Military Buyback Works
Federal employees under FERS can make a deposit to receive retirement credit for qualifying active-duty military service. Once purchased, that time is added to your civilian years of service for pension purposes. In effect, the buyback increases your total creditable service and can raise the value of your FERS annuity.
Generally speaking, the service must have been active duty, completed before civilian retirement, and separated under honorable conditions to qualify.
What Does It Cost?
For most FERS employees, the deposit equals 3% of military basic pay earned during the period being purchased. Only basic pay counts. Housing allowances, subsistence allowances, and other special pay are excluded.
There are a few exceptions:
- Military service performed in 1999 uses a 3.25% rate
- Service performed in 2000 uses a 3.4% rate
- Most other periods use the standard 3% calculation
Federal employees typically have about three years from entering civilian service to complete the deposit without interest. After that point, interest begins accruing and compounds annually.
Why So Many Veterans Choose to Do It
The math can be surprisingly favorable. Using a simplified example, an employee with a $100,000 High-3 salary who buys back four years of military service could increase their pension by approximately $4,000 annually under the standard FERS formula.
That increase is not a one-time payment. It becomes part of the pension calculation and continues throughout retirement. Survivor benefits tied to the annuity may increase as well.
One Major Limitation
Veterans already receiving military retired pay need to look more carefully. In many situations, the same period of service cannot be counted toward both military retirement pay and a civilian FERS pension.
There are exceptions, particularly for some reserve retirements and certain disability-based retirements, but many employees would need to waive military retired pay to receive civilian credit for that same service period. Because the rules vary, this is an area worth reviewing before making assumptions.
The Deadline That Matters
Unlike some retirement decisions, this one cannot be fixed after the fact. The military deposit must be completed before retirement. Employees who wait until their final months often discover they have run out of time to finish the process.
The buyback is handled through your agency payroll office, and employees serviced by DFAS can usually begin the process directly through their payroll system.
For veterans working in federal civilian service, reviewing the buyback early can make a meaningful difference in retirement income and help avoid missing an opportunity that disappears once retirement begins.
A Federal Retirement Consultant (FRC®) can help estimate the cost of a military deposit and show how additional service credit may affect your future pension.
