How to Calculate, Cost, and Maximize Your Federal Retirement

If you’re a federal employee with prior military service, the Military Buyback Program can be one of the smartest financial decisions you’ll ever make. It allows you to “buy back” your active-duty military time and credit it toward your federal civilian retirement, often leading to higher annuity payments and earlier retirement eligibility.

In this guide, we’ll cover the three essential aspects of military buyback:

1. How to calculate your eligible military service time

1. How to determine the cost to buy back your time
2. The estimated long-term benefits of completing the buyback

Whether you’re new to federal service or nearing retirement, understanding the military buyback process can help you make a confident and strategic retirement decision.

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What Is Military Buyback?

Military Buyback, also called military service credit deposit, is a program offered by the Office of Personnel Management (OPM) that allows federal employees to apply their active-duty military time toward their FERS (Federal Employees Retirement System) or CSRS (Civil Service Retirement System) retirement.

This program is not automatic. You must apply, provide documentation, and pay a deposit based on your past military earnings. Once completed, this additional time is added to your credible service for retirement purposes—potentially boosting your pension by thousands of dollars per year.

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A. How to Calculate Eligible Military Service Time

Before you can buy back your military time, you need to calculate exactly how much of it is eligible.

1. Determine What Counts

• Only active-duty military service can be credited.
• Reserve time only counts if it was active duty under federal orders (Title 10 or Title 32).
• You must have received an honorable discharge.

2. Request Your Service Record

You’ll need to get a certified statement of service or DD Form 214, showing your start and end dates of active-duty service. Most agencies also require a Military Earnings Statement, which you can request from DFAS (Defense Finance and Accounting Service).

3. Convert Time into Creditable Years

Your total eligible active-duty time is usually measured in years and months and can be added to your federal service time once the deposit is made. For example:

• 4 years of active-duty time = 4 years added to your retirement service time.
• That time counts the same as federal civilian service once paid.

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B. How to Determine the Cost to Buy Back Military Time

Now let’s look at what it costs to turn those military years into federal service years.

1. Formula for Military Buyback Deposit

Under FERS, the cost is typically 3% of your total military base pay earned during your active-duty service.

For CSRS, it’s 7%.

Buyback Cost = 3% x Total Military Base Pay

Base pay does not include housing, food, or special allowances — only the basic pay amount you earned.

You can obtain your base pay history by submitting a request to DFAS for your Estimated Earnings During Military Service. Once you have your earnings, apply the formula.

Example:

• Base pay during 4 years of service = $100,000
• Buyback cost = 3% × $100,000 = $3,000

2. Interest Considerations

You have three years from your federal hire date to pay this deposit interest-free. After that, interest accrues annually, and it compounds over time.

If you miss the interest-free window, expect the cost to increase by several hundred to several thousand dollars, depending on how long you wait.

Pro Tip: Always check with your agency’s HR or shared services office to confirm your specific interest amount and payment options.

3. How to Pay

You can typically pay:

• In full via personal check or money order
• Through payroll deductions
• In installments (as long as it’s fully paid before retirement)

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C. 

What Is the Estimated Benefit of Military Buyback?

The financial benefit of military buyback often far outweighs the upfront cost, especially for those who complete it early in their federal career.

1. Boost Your Retirement Pension

Your federal pension is calculated as:

FERS Pension = 1% × High-3 Salary × Years of Creditable Service

If you retire at age 62 or older with at least 20 years, the multiplier increases to 1.1%.

Let’s break this down with a real example:

• High-3 salary: $85,000
• Federal service: 26 years (includes 4 years of military time)
• Pension: 1% × $85,000 × 26 = $22,100/year

Without the buyback, your pension would be:

• 1% × $85,000 × 22 = $18,700/year

That’s a $3,400/year increase — for life.

Over a 30-year retirement, that’s $102,000 in additional pension, not including Cost-of-Living Adjustments (COLAs).

2. Retire Sooner

Buying back your time may help you reach eligibility sooner under these federal retirement rules:

• MRA + 30 (Minimum Retirement Age plus 30 years of service)
• Age 60 with 20 years of service
• Age 62 with 5 years

If military time pushes you over one of these thresholds, you may be able to retire years earlier while collecting full benefits.

3. Increase Other Benefits

Buying back your time can also increase:

• Survivor annuities for spouses
• Disability retirement calculations
• Thrift Savings Plan (TSP) agency contributions (if still working)

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Is Military Buyback Worth It?

In almost every scenario, yes — especially if:

• You’re early in your federal career and can avoid interest
• You plan to work long enough to vest in FERS (5 years minimum)
• You’re retiring with at least 10–20 years of total service

Even if you’re mid-career or approaching retirement, the ROI is still strong.

Exception: If you’re receiving a military pension, you typically must waive it to receive full FERS credit. In this case, compare the value of your military pension vs. increased FERS annuity before deciding.

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Final Thoughts: A Lifetime of Returns for a One-Time Investment

Military Buyback is a powerful retirement strategy that can boost your pension, accelerate retirement eligibility, and enhance survivor benefits. And with a relatively low upfront cost—especially within the interest-free window—it’s often a no-brainer for those who qualify.