Military Retirement Planning for Servicemembers & Veterans

Retiring from the military involves more than replacing a paycheck. It requires coordinating pension benefits, survivor protection, healthcare decisions, tax planning, and long-term investment strategy into a plan that supports the next stage of life.

AAFMAA Wealth Management & Trust (AWM&T) helps active servicemembers, Veterans, and surviving spouses plan military retirement with the precision the moment requires — from the first conversation five years out to the day the final paycheck clears.

When Should I Start Planning for Military Retirement?

The honest answer is five years out — and ideally earlier for officers retiring at or above O-5 or anyone with a complex household balance sheet. Each path in the timeline involves decisions that get harder or more expensive to change later.

5 years out. Build a retirement income projection. Decide whether to stay until 20, 22, or 30. Begin maxing the TSP if you haven’t been. Identify the state you intend to retire to.
2 years out. Run the SBP election scenarios. Confirm your VA disability filing strategy. Decide on TRICARE retiree options. Begin shopping for civilian roles if a second career is part of the plan.
1 year out. Finalize your retirement budget. Set the TSP withdrawal strategy. Update wills, beneficiaries, and powers of attorney. Lock in the destination state.
90 days out. Submit retirement paperwork. Finalize SBP. Confirm VA disability claim status. Prepare the household for the pay transition.

Not sure where your own timeline starts? Use our Retirement Calculator to model your retirement pay, savings, and income gap against your target retirement date.

What Will My Military Retirement Income Look Like?

Military retirement income usually arrives in four to five streams that hit on different schedules and are taxed differently. The core stack:

Military retired pay — paid monthly, adjusted for inflation via annual COLAs; generally subject to federal income tax, with some state exemptions.
VA disability compensation — begins once a claim is approved; generally exempt from both federal and state income tax.
Thrift Savings Plan (TSP) assets — available after separation; withdrawal timing and method significantly affect taxable income.
Social Security benefits — can begin as early as 62 or be delayed to 70, depending on strategy.
Civilian income — wages, self-employment, or equity comp that may supplement retirement income for those who keep working.

Pension Mechanics: BRS vs. Legacy

Legacy / High-3 (entered before Jan 1, 2018, or opted to stay): 2.5% × years × average of highest 36 months of basic pay. Twenty years yields 50% of High-3 pay.

Blended Retirement System / BRS (entered on/after Jan 1, 2018, or opted in): 2.0% × years × High-3 — twenty years yields 40% — but BRS adds TSP matching and a one-time Continuation Pay bonus.

Should I Elect the Survivor Benefit Plan (SBP)?

The SBP election made at retirement is, for most retirees, permanent. Declining SBP requires written spousal concurrence and cannot easily be reversed once retired.

What SBP does: it converts a portion of your retired pay into a lifetime annuity for your spouse (and optionally children) at 55% of the elected base amount. Premiums are 6.5% of the elected base, paid pre-tax from retirement pay, and the annuity is taxable to the survivor.

The three questions every retiree weighs:

Will the surviving spouse have sufficient income from other sources without SBP?
Is the spouse meaningfully younger or less healthy than the retiree?
Can a privately purchased life insurance policy replicate the protection more cheaply?

How Do VA Disability, Retired Pay, and TSP Coordinate?

These three income streams interact in ways that affect your total household cash flow and your taxable income.

VA disability and retired pay. With a VA rating of 50%+ and 20+ years of service, you generally receive both at full value under Concurrent Retirement and Disability Pay (CRDP). Below that threshold, the math differs and Combat-Related Special Compensation (CRSC) may apply.

TSP and retired pay. Retired pay arrives whether you touch the TSP or not. The question is whether to draw early (filling lower brackets), defer to age 73 (RMDs), or roll some/all out for a multi-account strategy.

Social Security timing. Filing at 62 vs. 67 vs. 70 changes lifetime benefit by roughly 75%. For households with substantial retired pay, deferring often makes sense.

For the mechanics of TSP rollover decisions and ongoing portfolio management, see our Investment Management page.

What About Healthcare — TRICARE, Medicare, and the Gap?

At Retirement — active-duty TRICARE ends. What replaces it?
You choose between TRICARE Prime and TRICARE Select as a retiree. The decision affects premiums, copays, and provider access — and interacts with where you retire, since Prime requires living within a Prime service area.

At Age 65 — Medicare eligibility arrives. What happens to TRICARE?
Medicare becomes primary and TRICARE For Life (TFL) becomes secondary at no additional cost. The transition is automatic for most, but you must enroll in Medicare Part B to keep TFL.

The Gap Years — between retirement and Medicare.
This is where households most often underestimate cost. If a spouse retires before Medicare eligibility, the premium math changes; if a child remains on coverage past 21, separate rules apply. Plan for the gap years alongside your pension and TSP, not after.

Where Should I Retire? State Taxes & Cost of Living

Where you retire affects your retirement pay net of state tax, your property-tax exposure, your TRICARE provider network, and your cost of living. The decision is rarely about one factor in isolation.

State tax on retirement pay. A large and growing majority of states fully exempt military retired pay; a smaller number tax it partially; a few still tax it fully. The list shifts as legislatures act — verify current treatment before locking in a destination.
TRICARE network access. Prime service areas vary; choosing TRICARE Select gives more flexibility for retirees in rural areas.
Cost of living, property tax, and proximity. The lowest-tax state isn’t always the best fit once you factor in property taxes, healthcare access, and proximity to family or VA medical facilities.

How AWM&T Helps Military Families Plan Retirement

A complete military retirement plan touches financial planning, investment management, and estate planning. AWM&T runs all three under one fiduciary roof, so the SBP election, the TSP withdrawal sequence, and the trust structure that holds the survivor’s assets are designed together rather than by three separate firms.

A typical engagement begins with a complimentary portfolio review or a planning conversation with a dedicated Relationship Manager. From there, the work splits across our three service lines as your situation requires.

Frequently Asked Questions About Military Retirement Planning

Active-duty servicemembers are typically eligible at 20 years of service, with the pension calculated under Legacy/High-3 or BRS depending on when you entered. Some specialty branches and reserve components follow different timelines.

No. Your TSP balance is yours whether you retire, separate, or transfer to civilian service. At separation you can leave it in the TSP, roll it into an IRA, or roll it into a new employer’s plan — each with trade-offs.

Often, yes. Under CRDP, retirees with a VA rating of 50%+ and 20+ years receive both at full value. Below that threshold, CRSC may apply. The mechanics differ by claim type.

If you entered active duty before Jan 1, 2018 and did not opt into BRS during the 2018 window, you are under Legacy/High-3. If you entered on/after that date, you are under BRS. Reserve and Guard rules follow the same dates with adjusted year-of-service calculations.

It depends on the state. A large and growing number fully exempt retired military pay; some exempt it partially; a few tax it fully. Verify current treatment for any state you’re considering — the list is subject to change.

For most BRS retirees, no. The lump-sum option trades 25% or 50% of monthly retirement pay value for a one-time payment, with full monthly payments resuming at 67. The implicit interest rate is generally unfavorable. We model the specific numbers for each household first.