Retiring from the military means decisions no civilian pension ever asks you to make.
Why does a military pension need planning at all?
A lot of people assume the pension does the work. You serve, you retire, the check shows up. Compared with what most private-sector workers face, that's a remarkable position to be in.
But the check is only one piece, and the years right before separation are full of choices that are easy to make by default and very hard to reverse later.
I've sat across from people who did twenty years, did everything right, and then made a retirement election in a week because the paperwork had a deadline on it. The election wasn't wrong. It just wasn't examined.
That's the part worth slowing down for.
Which retirement system are you actually in?
This is the first question, and a surprising number of people are not certain of the answer.
Under the legacy system, monthly retired pay is calculated using a 2.5 percent multiplier for each year of service, applied to the average of the highest 36 months of basic pay.¹ Twenty years of service produces 50 percent of that High-3 average.
Under the Blended Retirement System, the Department of Defense adjusted that years-of-service multiplier from 2.5 percent to 2.0 percent.¹ Twenty years produces 40 percent instead of 50.
The trade is that BRS added a funded savings component the legacy system never had. It is not simply a smaller pension. It is a smaller pension plus an account with your name on it.
If you opted in rather than being automatically enrolled, there's one detail worth knowing. The Department is explicit that you don't get split multipliers. Four years under legacy and sixteen under BRS means all twenty years are calculated at 2.0 percent.¹
Knowing which column you are in changes almost everything downstream.
What is the TSP actually doing for you?
Under BRS, the Department contributes an automatic 1 percent of basic pay, and matches your own contributions up to an additional 4 percent after two years of service. Contribute 5 percent and the maximum government contribution is 5 percent, for 10 percent total going in.¹
I want to be direct about this one. Contributing less than 5 percent means leaving government money behind. Not underperforming. Leaving it.
For 2026, the IRS elective deferral limit is $24,500 across traditional and Roth contributions combined.² That's your own money. The government match sits on top of it.
The other thing worth watching is how the money is invested. A Lifecycle fund moves conservative as the target date approaches, which is sensible for most people and occasionally wrong for a specific person. Someone retiring from service at 42 with a pension already covering the fixed expenses is in a different position than the glide path assumes.
That's a conversation, not a rule.
Should you take the lump sum?
BRS includes an option most people have never had to think about. At retirement you can elect to receive 25 percent or 50 percent of the discounted present value of your future retired pay as an upfront payment, in exchange for a reduced monthly check until full Social Security retirement age, which for most people is 67.³
Take 25 percent and the monthly retired pay drops to 75 percent of full value. Take 50 percent and it drops to half. The monthly amount reverts to the full figure at full Social Security age.³
Two things get overlooked.
The lump sum is discounted to present value using a Department of Defense discount rate published each June.³ The discount rate does the heavy lifting in whether this is a reasonable trade, and it is set by the Department, not by you.
And the payment is generally taxed as ordinary income in the year it's received, which can land a large amount into a single tax year. Your tax advisor is the right person to run that number. My job is to make sure the question gets asked before the election is made, not after.
The election has to be made no less than 90 days before retirement.³ That's not a lot of runway for a decision this size.
What is the Survivor Benefit Plan really buying?
SBP pays a surviving beneficiary 55 percent of the elected base amount.⁴ Coverage is provided at no cost while you're in active service. Once retired, a monthly deduction comes out of retired pay, and that cost can be no more than 6.5 percent of gross retired pay.⁴
You can also elect a base amount lower than full retired pay, which lowers both the premium and the benefit proportionally.⁴
Here's why this one deserves real attention. Retired pay stops at death. If a household has built its monthly budget around that check, and there's no SBP and no other replacement, the survivor's income can change dramatically in a single month.
People often compare the SBP premium against a life insurance quote and stop there. That comparison is incomplete. SBP is inflation-adjusted and paid for life, and it does not require anyone to stay insurable. A policy is a fixed face amount with its own conditions. They are different instruments, and the right answer depends on the rest of the balance sheet.
Sometimes it's SBP. Sometimes it's coverage outside of it. Sometimes it's both at a reduced base amount. It depends on what the survivor would actually need and what else is already there.
What about the years between retiring and Social Security?
This is the piece that gets the least attention and causes the most stress.
Retiring from service in your forties means potentially twenty years before Social Security enters the picture, and a pension that was never designed to cover everything by itself. Many people take a second career. Many people move into federal civilian service. Some do neither.
Those are very different tax pictures, and the sequencing matters. When the pension, a second income, TSP withdrawals and eventually Social Security all start stacking is a planning question with real dollars attached to it.
Deciding it one piece at a time, as each one comes up, is how people end up surprised. Looking at it as a whole is what retirement income planning is for.
Why does this matter here?
Our office is in Marlton, which puts Joint Base McGuire-Dix-Lakehurst close enough that a fair number of the households we talk with have a service connection of some kind. Active duty. Retired. Civilian employees on the installation. Reserve and Guard members balancing a military career against a civilian one.
That last group has its own complications, because Reserve retirement runs on a points system with different timing rules, and it interacts with a civilian retirement plan that was built on completely separate assumptions.
None of this is exotic. It's just specific. And specific is the part that generic retirement advice tends to miss.
Where should you start?
If you're inside five years of separation, three things are worth getting clear on before anything else.
Know which retirement system you're in and what the multiplier produces on your actual High-3. Know what you're contributing to the TSP and whether you're capturing the full match. And understand what the SBP election means for your household before the form is in front of you with a deadline attached.
Everything else can be worked through with time. Those three shape the rest.
Military retirement is one of the few remaining situations where a real pension is on the table. That's worth planning around carefully rather than letting the timeline make the choices for you.
If you want to walk through how these pieces fit together in your own situation, our advisors are happy to offer a complimentary second opinion with no obligation.
You can also read more about how we approach military retirement planning and financial planning more broadly.
This article is for educational purposes only and should not be considered individualized investment, tax or legal advice. Advisory, planning and brokerage services may differ in cost, scope, standard of care, compensation structure and conflicts of interest. Review your situation with a qualified financial professional before making decisions.
Investing involves risk, including the potential loss of principal. No investment strategy can assure a profit or protect against loss in periods of declining values. Past performance does not assure future results. Individual situations can vary, so the information presented here should only be considered in coordination with individual professional advice.
Sources
1. Department of Defense, Office of the Actuary, Frequently Asked Questions Regarding the Blended Retirement System.
2. Internal Revenue Service, "401(k) limit increases to $24,500 for 2026, IRA limit increases to $7,500," Notice 2025-67.
3. Office of Financial Readiness, Department of Defense, BRS Lump Sum Fact Sheet.
4. Defense Finance and Accounting Service, Survivor Benefit Plan costs and coverage.