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Reserve Retirement: Time In Rank And High-Three Pay

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I’ve written many posts about military retirement, and the system is hugely complicated. (See the related links at the end of this post.)  Instead of trying to cover all of that in a humongous 20,000-word post, I’ve written a big-picture pillar post plus a bunch of shorter posts about specific reader questions.

Today’s post covers Reserve and National Guard retirements, and it explains “retired awaiting pay”. Here’s the reader question about a very confusing issue:

I know that a Reserve Component retirement is no longer based on your highest 36 months of pay, but on the grade that you’ve held for 36 months. If you have 20 qualifying years of service, get promoted, and transfer into the IRR before you’ve completed three years in grade, can your IRR time count towards those three years, even if you don’t earn 50 points per year?

Two concepts are mixed together here, and your retirement indeed still is based on your highest 36 months of pay.  However it’s a little more complicated than that.  First, the time served in the Individual Ready Reserve counts toward time in rank, even if you don’t earn enough points for a good year. Time in rank is only based on the promotion date (not the selection announcement!) and does not depend on drilling status or retirement credit. Points count toward the good years and the pension calculation but they aren’t related to time in rank.

However all servicemembers have to serve in a rank for at least six months to retire in that rank. The time in grade for O-4 and above is three years. In some cases (like a drawdown) federal law allows this to be waived by the service secretary to two years. Your personnel branch will let you know the likelihood of being approved to retire at a senior rank with only two years at that rank. Remember that this only determines the rank on your retirement certificate.

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Image of retirement savings piggy bank photo credit Jah7546 Pixabay | The-Military-Guide.com
Only the highest 36 months of pay.

Your retirement pay is determined by the “High Three” average of the 36 months of highest pay.  You may retire at a different rank than you held on active duty, or you might not have enough time in rank to retire at the higher rank you held on active duty, but the pay for that higher rank still counts toward the High Three average used to determine the amount of your pension.

That bears repeating: Reserve/Guard pensions are still based on the highest 36 months of pay. Here’s the really interesting part: it’s the pay tables in effect when the pension starts. When you “retire awaiting pay” (instead of separating or being discharged*) then the time until the pension starts is counted for service longevity as though you’ve been on active duty the entire time. It not only includes the 36 months before your pension starts (at age 60 for most gray area retirees) but it’s also at the longevity as if you’d been on active duty.

If you’re 45 years old in 2015 and retire awaiting pay (gray area, not discharged) then your pension will start at age 60 in 2030. (If you deployed to a combat zone for at least 90 days in a fiscal year after 28 January 2008 then your pension will start three months earlier.) When DFAS determines your highest 36 months of pay, they’ll include all the military pay tables between 2016 and 2030 as well as the rest of your service. (This gives your Reserve pension a little protection against inflation.) For almost all Reserve retirees starting their pension in 2030, the highest 36 months of pay will be in those pay tables of 2027, 2028, 2029, and 2030.

Not only will your High-Three pension be calculated from the pay tables in effect when your pension starts, but (because you’re “retired awaiting pay”) it’ll be determined from the longevity in your retirement rank as though you’ve been on active duty the entire time. If you retired awaiting pay as an E-7>20 in 2015 then your High Three calculation would include the E-7>35 column of the pay tables. E-7 pay tops out at >26 in the 2015 pay tables, but that could be different by 2030. Although you retired as E-7>20, your pension is calculated on at least E-7>26 pay. The difference is even bigger for an O-6, where pay tops out at >30.

This means that as soon as you reach time in rank (whether you’re drilling or in the IRR), you can retire awaiting pay (gray area) at that rank. Your longevity will continue to accrue, and you don’t have to hang around in the IRR waiting to go >24 or some other pay boost.

If you’re wondering why DoD is being so nice to gray area retirees, it’s because “retired awaiting pay” means being subject to mobilization until the pension starts. That only happens during a total mobilization (like WWII), but DoD is willing to compensate servicemembers for that availability.

* The only way to avoid the remote possibility of mobilization during the “gray area” years is to retire as “discharged” or “separated”, which means that your pension is frozen at the date you retire. The pension still starts at age 60, but it does not use the pay tables in effect at age 60 and your retirement rank does not accrue longevity. In my two decades of service (and another decade of writing about military finances) I’ve only seen one person who was discharged into retirement.

[Silver piggy bank photo:  Jah7546 from Pixabay through IdPinThat.com]

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Related articles:
Calculating A Reserve Retirement
Military Reserve retirement points and “good years”
Options For National Guard And Reserve Retirement
Military Retirement From The Individual Ready Reserve
Retiring From The Individual Ready Reserve Or National Guard
National Guard and Reserve retirement at the maximum pay
Military Reserve and National Guard Retirement Calculators
Reserve Retirement Eligibility
Military Retirement With Reserve Enlisted And Officer Service

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