Reserve Retirement: Time In Rank And High-Three Pay



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.

Image of retirement savings piggy bank photo credit Jah7546 Pixabay |

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]



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

WHAT I DO: I help you reach financial independence. For free.

I retired in 2002 after 20 years in the Navy’s submarine force. I wrote “The Military Guide to Financial Independence and Retirement” to share the stories of over 50 other financially independent servicemembers, veterans, and families. All of my writing revenue is donated to military-friendly charities.

  1. Reply
    Dave D October 12, 2017 at 2:55 PM

    Doug, excellent article! Question: what if a TPU (drilling Reservist) officer with 20+ years of service goes on active duty orders for one year then retires. In other words, the last 12 months of the final 36 months of pay is at the much higher active duty level. Is the active duty pay considered in the high-three calculations; or, is normal drilling TPU pay used?

    • Reply
      Doug Nordman October 14, 2017 at 3:14 PM

      Dave, you’ve asked a very logical question, but there’s a different rulebook.

      The military High Three pension averages the highest 36 months of the base pay scale, not the average of the amount of the pay you’ve earned. It just goes straight by the pay tables in effect for your type of pension, not by your total earnings. But you can see how this question rises from the military’s plagiarizing of the civilian high-three pension system.

      When you “retire awaiting pay” from the Reserves and National Guard, that base pay scale also includes the pay tables for the years up until your pension starts *and* at the longevity for your rank at the age your pension starts. In other words the Reserve/Guard pension starts at the pay tables in effect at the future date, just as if you’d been on active duty the entire time you were waiting for that first pension deposit. If you turn age 60 in 2026 (or three months earlier for the right mobilizations of at least 90 days), then your High Three pension will look at the highest pay scales during the years of 2023 – 2026 as well as all of the pay scales back until the year you joined the military. It’ll also be at the longevity for your rank, which (if you joined at age 18 and by the time you turn age 60) could be 42 years. For the vast majority of Reserve/Guard retirements, the pay scale is at the maximum longevity pay of that rank.

      If you go on a year of active duty then you’ll rack up 365 points (another 2.53% for your pension) and you’ll also have a year of additional pay, savings/investments, and active-duty benefits. But the only numbers that count for your High Three Reserve/Guard pension are the numbers on the pay tables.

  2. Reply
    Tom September 28, 2017 at 11:11 AM

    Very good article, two questions, One you mention “retire waiting for pay” Does that include mandatory separation (28 yrs). I will mandatory separate come 1 Oct 2017 (56 yrs of age), my retirement age has been reduced due to mobilizations etc to 58 1/2 (not necessarily to a combat zone as Vince mentioned).
    Two, Military TSP, I understand I can no longer put money into it, are there penalties for withdrawing (prior to 59 1/2) from this account even though this was a mandatory separation.
    thanks again for taking the time to write the articles, it is great information and helpful

    • Reply
      Doug Nordman October 2, 2017 at 1:23 AM

      Good questions, Tom!

      “Retired awaiting pay” is the status chosen by almost all retiring Reserve/Guard servicemembers. It means that they’re retired from Reserve/Guard duties (and waiting for the pension to start) yet have agreed to remain eligible for a total mobilization (which last occurred in WWII). In exchange for retired awaiting pay (instead of resigning or discharge) they’ll continue to accrue longevity in the pay tables as if they were on active duty, and their pension will be based on the pay tables in effect when they start drawing it.

      You’ll be in retired awaiting pay status, and then a few months before turning 58 years old you should receive the paperwork to start your pension deposits.

      The penalties for early withdrawal of 401(k) accounts (like the TSP) still apply. However there are several ways to tap your retirement accounts (penalty-free and possibly even tax-free) before age 59.5. This post has more details:

  3. Reply
    James April 2, 2016 at 8:44 AM

    If the retirement pay is calculated as if you’ve been active the entire “waiting” time, why do reservists bother to stay in past the 20 year mark? Just for job fulfillment, potential promotion, and the pay you receive from drilling?

    • Reply
      Doug Nordman April 3, 2016 at 11:48 AM

      Good points, James!

      Sometimes it’s blissful ignorance. In one unit a number of the senior members were waiting until they’d crossed the next big pay raise for their years of service (>22, >24, >26) without understanding that they would receive the credit anyway. Once they’d been trained on how “retired awaiting pay” and the pension are calculated, over a third of those members immediately applied for retirement.

      You’re right about the rest– they’re still feeling challenged & fulfilled, or collecting pay, or working on a promotion… perhaps all of the above. It’s not necessarily about the drills, either– if you can score orders to an overseas exercise for a few weeks (perhaps tacking on additional vacation time around it) that might help you meet all of those objectives.

  4. Reply
    peter gregory January 14, 2016 at 3:12 AM

    The Guard/Reserve remains the only class of Federal or governmental employees who when they “retire” from service await pay and benefits until a per-defined age, 60. Regardless of their biological age at retirement. Of course we choose to define such as retainer pay, grey area retires, or other descriptive terms for legal or explanatory purposes. The more philosophical question though, and applies equally to the active or full time component is what is the real and future value of military “retirement”? Does it fairly value the requirements and sacrifice of service? And what does the current and future changes to such imply about our nations commitment or obligations to its veterans?

    As a grandfather now I recall when each of my 3 kids at the age when they were prime for military recruitment ask me what I thought of a military career or should they seek such. My counsel was to look in other areas of professional careers. As the military draws 70% of its force from other military families, it really is the “family business” in may aspects. I do not regret my counsel one bit.

  5. Reply
    Doug Nordman January 7, 2016 at 4:05 PM

    Very good point, Vince, thanks for catching it.

    I also didn’t specifically break out National Guard mobilizations for disaster recovery operations. And, of course, the 2015 NDAA correction to the 2008 NDAA that allows mobilizations/deployments after 30 Sep 2014 be counted across fiscal years…

    These details are getting way too complicated. It’s probably time for me to write another separate wrapup post on early Reserve/Guard retirement.

  6. Reply
    Vince Stoneking January 7, 2016 at 11:44 AM

    Great article. One small quibble. It is not necessary to be deployed TO A COMBAT ZONE for the reduced retirement age. It is only required to be mobilized or deployed IN SUPPORT OF CONTINGENCY OPERATIONS, regardless of geographical location. Qualifying orders should reference SECTION 12301 (D) of title 10. (I think there may be other subsections, but I know that one counts).

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