Military Service Buyback for FERS
Cost, Pension Credit, and Whether It's Worth It
If you served in the military before becoming a federal employee, you may be able to "buy back" that time and have it count toward your FERS pension. For many veterans, this is one of the highest-return financial decisions available — but the math and deadlines matter.
What Is Military Buyback?
Under FERS, you can make a deposit to OPM equal to 3% of your active duty military base pay (for service after December 31, 1998). Once you complete the deposit, those military years are added to your FERS creditable service, increasing your pension.
How the Cost Is Calculated
The deposit is 3% of your military basic pay for each year of qualifying active duty. Interest accrues if you don't complete the deposit within the first two years of federal employment.
Example: 4 Years of Active Duty
- Military basic pay avg (E-4/E-5, 2000–2004): ~$20,000/year
- Total military pay over 4 years: $80,000
- Deposit amount: 3% × $80,000 = $2,400
Interest rates currently run 4–8% per year, compounding. The longer you wait after your first 2 years of federal service, the more expensive it becomes.
Interest Accrual: What Waiting Actually Costs
The FERS military deposit accrues interest starting 2 years after the date of your first FERS-covered appointment. OPM sets the interest rate annually — it has ranged from 4% to 8% over the past two decades, compounding annually. The practical effect is that a deposit that costs $2,400 in year 2 of your federal career can balloon to $5,000–$7,000 by year 20 if left unpaid.
| Years Since FERS Start | Est. Deposit (Base $2,400) | Interest Added |
|---|---|---|
| Year 1–2 (interest-free window) | $2,400 | $0 |
| Year 5 | ~$2,760 | ~$360 |
| Year 10 | ~$3,551 | ~$1,151 |
| Year 15 | ~$4,575 | ~$2,175 |
| Year 20 | ~$5,891 | ~$3,491 |
Estimates based on 5% average annual interest rate. OPM sets the actual rate each year.
The Pension Benefit You Gain
Pension Increase from 4-Year Buyback
- High-3 salary: $100,000
- Civilian service: 26 years
- Military buyback: 4 years → total creditable service: 30 years
- Without buyback: $100,000 × 26 × 1% = $26,000/yr ($2,167/mo)
- With buyback: $100,000 × 30 × 1% = $30,000/yr ($2,500/mo)
- Pension increase: +$333/month
At $333/month gain for a $2,400 deposit, this buyback pays for itself in less than 8 months of retirement. Over a 20-year retirement, that's $80,000 in additional pension income.
Breakeven Analysis: Is It Worth It?
| Mil. Years Bought | Est. Cost | Monthly Gain | Breakeven |
|---|---|---|---|
| 2 years | ~$1,200 | +$167/mo | 7 months |
| 4 years | ~$2,400 | +$333/mo | 7 months |
| 6 years | ~$3,600 | +$500/mo | 7 months |
| 8 years | ~$4,800 | +$667/mo | 7 months |
Estimates based on $100,000 High-3 and 1% multiplier. Actual cost depends on your military pay records.
How to Complete a Military Buyback
- 1Request your military earnings information from DFAS (Defense Finance and Accounting Service) using DD Form 2905 or by calling DFAS.
- 2Submit SF 3108 (Application to Make Deposit or Redeposit) to your agency payroll office or HR.
- 3Your agency will calculate the deposit amount, including any accrued interest.
- 4You can pay the deposit as a lump sum or through payroll deductions.
- 5OPM records are updated and your creditable service is adjusted.
Military Retirees: The Waiver Decision
If you are receiving a military retirement pension (from 20+ years of active duty), you face a more complex decision. To count that same service toward your FERS pension, you must waive your military retirement at the time you retire from federal service. OPM will terminate your military retirement pay, and the service will be credited to your FERS annuity instead.
This waiver is typically not beneficial unless your FERS pension at the higher High-3 would significantly exceed your military retirement. The math is rarely favorable for high-ranking military retirees with substantial pensions. However, for junior enlisted veterans with modest military retirement pay and high civilian salaries, running the numbers is worthwhile.
When Military Buyback Is NOT Worth It
- ✕You are already receiving a military retirement pension and do not want to waive it.
- ✕You plan to retire so soon that you cannot recoup the deposit cost.
- ✕The interest accrued over decades of delay makes the deposit amount very large relative to the pension gain.
- ✕You have fewer than 5 years of military service and the pension increase would be minimal.
Frequently Asked Questions About Military Buyback
Q: Does guard or reserve service count for military buyback?
A: Generally, no. Military buyback under FERS is limited to active duty military service. Most Guard and Reserve service does not qualify unless you were called to active duty (Title 10 orders). Full-time National Guard duty under Title 32 may qualify in some cases — confirm with your agency HR.
Q: What if I can't find my military pay records?
A: Contact DFAS (Defense Finance and Accounting Service) to request your military earnings history. If DFAS records are incomplete, you can supplement with military W-2s, LES statements, or by submitting a request through the National Personnel Records Center (NPRC) in St. Louis.
Q: Can I pay the buyback through payroll deductions?
A: Yes. Your agency HR can set up payroll deductions to spread the cost over time. However, interest continues to accrue on any unpaid balance. Paying as a lump sum early in your career stops the interest clock immediately.
Q: Does the military buyback affect my FERS Supplement eligibility?
A: Yes, in a positive way. The FERS Special Retirement Supplement is partially based on your Social Security-equivalent earnings. The buyback years are counted as creditable service for the supplement calculation. More years generally means a slightly larger supplement.
Q: Will buying back military service affect my survivor benefit election?
A: Not directly — the survivor benefit is based on your total FERS annuity at retirement, which will be higher after a buyback. A higher annuity means a higher potential survivor benefit (though also higher premiums if you elect the full survivor benefit).
Q: I already retired. Can I still do a military buyback?
A: No. The military deposit must be made before you retire from federal service. Once you receive your first FERS annuity payment, the opportunity to make a military deposit is permanently closed.
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For educational purposes only. Consult your agency HR, DFAS, or OPM for your actual deposit amount and eligibility.