How to Calculate Army Retirement Pay

Those who serve 20 years or longer in the U.S. Army are eligible for retirement. In some cases, soldiers may retire earlier. One common form of early retirement from the Army comes when a soldier has been granted a medical discharge. Calculating Army retirement pay is simple if you know the factors involved.

Factors Used to Calculate Army Retirement Pay

Army retirement pay is based on a soldier's time in service, his base pay and whether he opted into the REDUX program -- a re-enlistment incentive that offers soldiers a significant bonus in exchange for reducing their retirement benefits by 1 percent for each year under 30 they have served. Soldiers who entered military service on or after Sept. 8, 1980 (the vast majority of those still in service) use the average base pay from their highest 36 months of pay. This will usually be the soldier's final three years unless she has lost rank. Soldiers who enlisted prior to that date use their final month's base pay. The percentage of an eligible soldier's base pay that she will receive in retirement is 2.5 percent per year of service.

A soldier's high-36 or final pay only considers their base pay. Housing allowances, combat pay, hazardous duty pay and other forms of compensation are not factored into Army retirement.

Calculate Army Retirement

To calculate a soldier's retirement pay, follow these steps Note: if the soldier is using final pay to determine his retirement, skip steps one and two and use the soldier's final base pay):

  1. Determine the soldier's highest paid 36-month period.
  2. Calculate the soldier's high-36 by adding the soldier's base pay from those 36 months and divide by 36. This gives you the high-36 (sometimes also called high-3) base pay.
  3. Determine the percentage of the soldier's base pay to be received by multiplying the soldier's years in service by 2.5. If the soldier participated in the REDUX retirement plan, subtract 1 percent for each year less than 30 served.
  4. Multiply the high-36 (or final pay) by the percentage the soldier is to receive. The result is the soldier's monthly retirement pay.

Examples of Soldiers' Retirement Calculations

Sergeant First Class John Doe is retiring after 20 years in the airborne infantry. His base pay for his last two years of service has been $4,367.10. The year prior to that, he was still a staff sergeant, so he made $3,672.00. These are his highest paid years. To calculate his base pay, he multiplies $4,367.10 by 24 (the number of months he received that amount) and $3,672.00 by 12, then adds those results together and divides by 36, giving him a high-36 of $4,135.40. He then multiplies this by 50 percent (2.5 percent times 20 years) to determine that his retirement pay will be $2,067.70 per month.

Col. Jane Smith retires after 26 years in the Army Signal Corps. She has held her current rank for three years, so her base pay has remained at a constant $9,272.10 for her final 36 months. To determine her retirement pay, she simply needs to multiply $9,272.10 by 65 percent (26 years times 2.5 percent). Smith will receive $6,026.80 per month in retirement.

Pfc. Bill Jones is getting out after a rocky 24 year career as a mechanic in the Army. He held the rank of staff sergeant for three years (2012 through 2014) before losing rank, so he will use the base pay ($3,539.40) from those three years to calculate his retirement instead of his current base pay of $2,055.30. Multiplying $2,539.40 by 60 percent (24 years times 2.5 percent), he determines that his retirement pay will be $2,123.64.

Disability Retirement from the Army

Disability retirement from the Army works differently in that the multiplier is not based on years of service, but on the amount set by the Army at the time of retirement. This is often higher than 2.5 percent per year, especially when soldiers become disabled early in their careers, but it cannot be higher than 75 percent.

Cost of Living Allowances

Military retirees receive a yearly cost of living allowance raise to their retirement pa if the national consumer price index -- a number based on the average cost of common goods and services in the country -- goes up. The COLA awarded is equal to the percentage increase of the year's CPI.