Should You Buy Back Military Time This Year? A Cost-Benefit Refresher
Of all the questions I get from federal employees with prior military service, this is the one people put off the longest, and it’s the one that costs them the most money when they wait.
Making a military deposit to buy back your active-duty time so it counts toward your FERS or CSRS retirement is one of the best financial decisions many veterans-turned-federal-employees can make. But the deposit isn’t free, and the cost rises the longer you wait.
If you have prior active-duty military service and haven’t made your deposit yet, this is worth revisiting today, not next year. I’ve had readers write to me in their final year before retirement asking about this for the first time, and while it’s usually still worth doing even then, the deposit amount by that point can be substantially larger than it would have been a decade earlier, simply because of accrued interest.
The Basic Mechanics
If you served on active duty and later became a civilian federal employee without a break in service that would otherwise disqualify the time, you generally have the option to make a deposit to have that military time counted as creditable civilian service for retirement purposes. Once bought back, that time counts toward both your retirement eligibility and your annuity computation, meaning more years of service and a bigger monthly check for the rest of your life.
Without the buyback, that military time simply doesn’t count toward your federal annuity computation at all, even though you may already be receiving a military retirement or VA disability compensation.
These are separate systems, and buying back your time doesn’t reduce your military retirement pay in most cases, though specific interactions with military retired pay may apply; verify with your HR office based on your individual situation.
In particular, if you’re receiving military retired pay, there are waiver requirements you’ll need to complete as part of the buyback process, so don’t assume the paperwork ends with simply writing a check.
Why the Cost Goes Up Every Year You Wait
The deposit amount is based on a percentage of your military basic pay during your service period, plus interest. Here’s the part that catches people off guard: interest starts accruing after a grace period, generally around your third year as a federal civilian employee if the deposit hasn’t been made, and it compounds annually after that. The longer you wait, the more expensive the buyback becomes, sometimes substantially so if you let it sit for a decade or more.
I’ve seen cases where an employee who could have made a deposit of a few thousand dollars early in their federal career ended up owing several times that amount after waiting fifteen or twenty years, simply because of compounding interest. The service time being purchased doesn’t change, but the price tag absolutely does, and it only moves in one direction.
Running the Cost-Benefit
The calculation isn’t complicated, even if the numbers take some digging to gather. You need:
- Your total military basic pay for the period of active-duty service you’re buying back, which you can request from the appropriate military finance records office.
- The current interest accrued if you’re past your grace period, which your agency’s HR or payroll office can calculate for you.
Once you have the deposit amount, compare it against the increase to your projected annuity. Most federal employees find that the deposit pays for itself within a few years of retirement, and every year after that is pure additional annuity income for the rest of your life. For most people with several years of active-duty service, this isn’t a close call; it’s one of the higher-return financial moves available to a federal employee.
You can run an online estimate using our Military Buyback Calculator while waiting for the report from your military finance records office.
It’s also worth running the math with your specific High-3 salary in mind, since the added service years apply that same percentage multiplier to your existing salary calculation. The higher your projected High-3, the more each additional year of bought-back service is worth in your annuity, which is one more reason this decision tends to look even better the closer you are to your peak earning years.
What to Do This Week
If you haven’t started this process, request your military service records and your estimated deposit amount from your agency’s HR office. It can take weeks to several months to get the paperwork back, so starting now protects you from further interest accrual and gives you time to make the deposit before your numbers grow.
While you’re gathering paperwork, it’s also worth confirming whether you have any other prior federal service, temporary appointments, or non-deduction service periods that might also need a deposit to count fully toward retirement. Military buybacks tend to get the most attention, but they’re often not the only gap in an employee’s service record worth investigating.
The Bottom Line
A federal employee has exactly three years from their initial date of federal civilian hire to complete their military service buyback deposit before interest penalties begin to accrue.
If you have prior active-duty military time and haven’t bought it back, the buyback cost grows every year as interest accrues. Request your estimate now, run the simple cost-benefit math against your projected annuity increase using your own High-3 salary, and make the deposit while the numbers are still in your favor.
Most new federal employees with prior military service are focused on establishing their new careers and often don’t know about this exceptional benefit.
I was in that category many years ago and didn’t learn about the benefits of buying back my military time until I had been in federal service for 5 years. I paid the amount owed to buy back my service through biweekly automatic payroll deductions and paid it off in less than two years. This action added 4 years to my annuity calculation!
This is one of the rare places in federal retirement planning where the math is usually not close, and it’s one of the very few financial decisions in your career where waiting almost never works in your favor.
Check out the complete program details for additional information. There are many things to consider, especially for those who retired from active duty service and then entered federal service.
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Dennis V. Damp is an author, retired federal manager, business owner, career counselor and veteran. Damp is the author of 28 books, a recognized benefits expert, and a retired federal manager with 35 years’ service. Dennis has been a guest on hundreds of radio talk shows, CNN’s YOUR MONEY and the Lou Dobbs Cable TV shows, lectured at universities and colleges, produced Internet web sites and training videos, and has written hundreds of articles for national magazines and newspapers. His books have been featured in the Wall Street Journal, Washington Post, New York Times and U.S. News & World Report.
Dennis joined the Air Force in 1968 and spent over three years on active duty and an additional seven years with the Air National Guard. He was hired by the Department of Defense (DOD) after leaving active duty and transferred to the Federal Aviation Administration (FAA) in 1975. He spent the remainder of his career in various positions with the FAA. His last position was technical operations manager at the Pittsburgh International Airport’s air traffic control tower.
