Creditable service and buying back military time

Creditable service is the federal service that counts toward your FERS pension. It drives two things: when you become eligible to retire, and how large your annuity is. Most of it is the civilian time you’re working now, with retirement deductions taken from each paycheck.

Buying back military time is a choice with a clear opportunity cost. Opportunity cost is the value of the next-best use of the same money, and here the deposit dollars could sit in your Thrift Savings Plan (TSP) instead, growing for decades. The buyback is worth it only when the pension it adds is worth more than that lost growth. Naming the trade is the first step to deciding it.

Your post-1956 active-duty military service is different from civilian time, because it doesn’t count toward your FERS pension on its own. You have to pay a deposit, often called a military buyback, to fold those years into your record.

Unused sick leave is a third kind of credit. At retirement, it converts to extra service at 174 hours per month, but it only raises your annuity, not your eligibility date.

The FERS military deposit is 3% of the basic pay you earned on active duty, plus interest. Federal law sets the 3% rate for FERS employees, and it applies to the basic pay you received during your post-1956 service, not to your current federal salary.

Basic pay means your military base pay (the pay-table rate for your grade and years of service). It doesn’t include allowances like housing or subsistence, or special and bonus pay. Because most service members earn modest base pay early on, the deposit is often smaller than people expect.

Interest is added on top of the 3%, at a rate the government sets each year. That rate changes, so we don’t quote a figure here. Keep in mind that interest grows the longer you wait, which is why the two-year clock and the separation deadline matter.

Consider an illustrative example. Marcus served four years before joining a federal agency and earned about $90,000 in basic pay over that time. His base deposit is 3% of that, roughly $2,700, before any interest.

Buying back military time adds those years to your years of service, the figure your pension formula multiplies. The standard FERS formula is your High-3 salary times 1.0% times your years of service. More years means a larger pension, for life.

The added years can also help you reach retirement eligibility sooner. Since eligibility depends on combinations of age and years of service, folding in military years can move you across one of those thresholds earlier than your civilian time alone would.

Stay with the example. Marcus has an illustrative High-3 of $70,000, and buying back his four military years adds 1.0% times four, or 4%, of that High-3 to his annual pension. That’s about $2,800 more every year he’s retired.

Compare that to his roughly $2,700 deposit. A few thousand dollars now, paid once, buys nearly that much in extra pension every single year of retirement. Over a long retirement the lifetime total dwarfs the one-time cost, and that gap is the heart of the buyback decision.

One benefit the buyback doesn’t touch: the Special Retirement Supplement. That bridge payment to age 62 is prorated by your civilian FERS years only, so bought-back military years don’t raise it.

Timing changes the price. Interest on a FERS military deposit begins two years after you’re first employed under FERS. Pay within that window, and you owe only the base 3%, with no interest at all.

After the two-year mark, interest is added and compounds for as long as the balance is unpaid. The rate is set each year (so a colleague’s figure from a decade ago won’t match yours), and the longer you wait, the more the buyback costs. Early in your career is the cheapest time to pay.

There’s also a hard deadline. You must pay the deposit in full before the separation your retirement is based on. You can’t pay it after you retire, and an unpaid balance means the military years simply don’t count.

Two dates, then, matter most. The two-year mark sets when interest starts, and your retirement date sets the final cutoff. Acting inside the interest-free window gives you the lowest cost and the most time.

One rule surprises retired service members. You generally cannot receive FERS credit for military service while you draw military retired pay for that same service. To use the time in your FERS pension, you must waive the retired pay in writing.

Waiving retired pay is a real trade. You give up the military pension to fold those years into your FERS annuity instead. Whether that helps depends on the size of each, so it’s a calculation worth running carefully before you act.

Two exceptions let you keep the retired pay and still get FERS credit. The first is retired pay awarded for a service-connected disability tied to combat or caused by an instrument of war. The second is reserve retired pay under Chapter 1223 of Title 10.

In every case, you still must pay the deposit. Waiving retired pay alone doesn’t credit the service, since the deposit is the step that actually adds the years.

The buyback is an opportunity-cost decision. On one side sits the deposit, plus the growth those dollars would have earned in your TSP. On the other sits the extra pension the years buy, summed across your whole retirement.

Set the two sides next to each other. The deposit is a one-time cost, usually a few thousand dollars. The pension uplift repeats every year you’re retired, and a FERS pension can pay for decades.

The case is weaker in a few situations. The trade gets closer if you’d have to waive a large military pension, or if interest has grown the deposit. On the other hand, the method doesn’t change: compare the two sides in dollars, not feelings.

No one can hand you the answer, because it turns on your own numbers and your own retirement length. What this lesson can give you is the frame: weigh the lifetime pension boost against what the deposit costs you, including lost growth. Our free readiness score can help you see the pension side in context.

Buying back military time follows a clear path. You gather your records, request your earnings, apply through your agency, and pay before you separate. Starting early keeps the cost down and leaves room for payroll deductions to spread the payments.

You’ll work with a few standard forms, each with one job, listed below. Your agency’s HR or payroll office walks you through the paperwork, so you don’t do it alone.

Follow these steps in order:

Keep your receipts and confirm the service appears in your record. If you draw military retired pay, remember to waive it in writing where required, ideally well before your planned retirement date.

• Request your estimated military earnings with form RI 20-97, attaching a copy of your DD-214 (your discharge papers).
• Apply to make the deposit through your agency using form SF 3108; the election is recorded on form OPM 1515.
• Pay by payroll deduction or personal payment, finishing in full before the separation your retirement is based on.
• Waive military retired pay in writing if it applies, unless your pay falls under the disability or Chapter 1223 exceptions.

Buying back military time turns your active-duty years into creditable service for your FERS pension. The deposit is 3% of the basic pay you earned, plus interest. Pay it, and those years join your civilian time in the pension formula.

Timing drives the cost. Interest starts two years after you’re first employed under FERS, and the deposit must be paid in full before you separate, so acting early keeps it cheapest.

Treat the decision as an opportunity-cost trade. Weigh the lifetime pension boost against the deposit and the TSP growth those dollars would have earned. For many early-career feds, the one-time cost buys a pension increase that pays back many times over.

See how your service years shape your plan with our free readiness score. The next lesson covers pay, steps, and your future High-3, the salary average your pension is built on. To review how the three parts of your retirement fit together, revisit the three pillars of FERS.