Why Making Military Service Deposits May Be Worth the Hassle

One of the most difficult federal retirement policies to understand involves the personnel or ex-personnel from the military. That’s because a law passed by Congress in 1982 gave personnel the ability to make a deposit or contribution into their civilian retirement system for active military service as time added to a federal annuity, raising that annuity’s value.

This article only applies to those that service after 1956.

Those who make the contribution are due to receive credit for military service under both the Social Security system and the civilian retirement system. If payment for military service is made within two years from the date you first started working, no interest will be applied. If the deposit is not done within the two-year timeframe, interest will be added to your account one year after. This gives you a period of 3 years sans one day for an interest-fee period.

If you are under FERS, you can earn military service retirement credit if a military service deposit was paid. During years of active duty service prior to January 1, 1999, the contribution was equivalent to 3% of the base salary received during the military service. Keep in mind that this does not include allowance. The deposit is proportional to 3.25% for service during 1999, 3.4% during 2000, and after the deposit is equal to 3% of the base salary.

If you were first hired covered under CSRS as of October 1 in 1982, you could obtain post-1956 military service retirement credit only if you make a military service deposit. Before 1999, 7% of the basic military salary you earned for the military service is what the deposit required. The deposit required for service periods during 1999 is 7.25%; for 2000, the deposit is 7.4%, and after, the deposit is 7%.

If you were first hired under CSRS before October 1 in 1982, you have two options: (1) depositing for post-56 military service; or (2) earning service credit or getting your annuity recalculated at the age of 62 to remove post-1956 military service — a reduction in annuity known as “catch-62.”

This only happens if you are eligible for Social Security. If you do not have enough quarters to qualify for Social Security benefits, and if you do not have enough by the age of 62, there is no value of having a military service deposit.

If you are retired from the military and you work in federal civil service, you may be able to integrate both your military and civilian service annuities into just one. It typically involves a deposit for the military service into the civilian retirement system, and you have to waive your retirement pay from the military when your civilian annuity goes into effect.

There are two exceptions to the rule of waiving your military retirement pay. You do not have if it is awarded for a disability sustained in combat or by warfare, or if awarded for service in the reserve under Titles 10, Chapter 67.