Military Buyback for Federal Employees: How to Add Military Service to Your FERS Pension

What Is a Military Service Credit Deposit (Buyback)?

If you served in the military before joining federal civilian service, you may be sitting on one of the most powerful — and most overlooked — tools for boosting your FERS pension. It’s called a military service credit deposit, commonly known as a “military buyback.”

Here’s the short version: by making a deposit to OPM, you can add your years of active-duty military service to your FERS creditable service. That means a higher pension for the rest of your retirement — and in many cases, the math works out overwhelmingly in your favor.

At Fed Pilot’s free retirement workshops, military buyback is one of the topics that generates the most questions. Let’s walk through how it works, what it costs, and whether it makes sense for you.

How Military Buyback Works Under FERS

Under FERS, your pension is calculated with a straightforward formula:

High-3 Average Salary × Years of Creditable Service × 1% (or 1.1%)

The 1.1% multiplier applies if you retire at age 62 or later with at least 20 years of service. For everyone else, it’s 1%.

Every additional year of creditable service directly increases your pension. If your high-3 salary is $95,000, each additional year of service adds approximately $950 to $1,045 per year to your annuity — for life.

Military buyback lets you count your active-duty time as creditable service. If you served 4 years in the Army before becoming a GS employee, making the buyback deposit would add those 4 years to your FERS calculation. Using our example, that’s roughly $3,800 to $4,180 more per year in pension income — every year you’re retired.

What Does Military Buyback Cost?

The cost of a military buyback deposit is 3% of your military base pay for each period of service you want to credit. This is based on what you actually earned during active duty, not your current federal salary.

Here’s a simplified example:

If your total military base pay over 4 years of service was $120,000, your buyback deposit would be $3,600 (3% × $120,000). That $3,600 one-time payment would add approximately $3,800+ per year to your FERS pension. You’d recoup the cost in less than one year of retirement.

The Interest Clock Is Ticking

There’s an important deadline to be aware of: if you don’t complete your military buyback deposit within 3 years of your civilian hire date (for post-1956 military service), interest begins accruing on the unpaid balance. The interest rate is set by the Department of the Treasury and has historically ranged from about 1.5% to over 5%, compounding annually.

The longer you wait, the more expensive it gets. An employee who waits 15 years to make their deposit could see the total cost increase by 30% to 60% or more, depending on interest rates during that period.

If you’re within your first three years of federal service, this should be near the top of your financial to-do list.

Who Is Eligible for Military Buyback?

You may be eligible if you meet all of the following:

You served on active duty in the U.S. Armed Forces (Army, Navy, Air Force, Marines, Coast Guard, or Space Force). You received an honorable discharge or general discharge under honorable conditions. You are currently employed under FERS (or CSRS, though the rules differ). You are not receiving (or agree to waive) military retired pay. This last point is critical: if you’re receiving military retired pay, you generally cannot also receive credit for that same service under FERS — unless your military retirement is based on a disability or you meet certain reserve retirement conditions.

The Waiver Trap: Military Retired Pay vs. FERS Credit

This is where many veterans get confused. If you retired from the military with 20+ years of service and are receiving military retired pay, you face a choice:

You can keep your military retired pay as-is, but your military time won’t count toward your FERS pension. Or you can waive your military retired pay and deposit the buyback amount to receive FERS credit for those years.

For most people receiving a full military pension, keeping the military retired pay is the better financial decision. The military pension is typically more valuable than the incremental FERS benefit.

However, if your military service was shorter — say 4 to 8 years — and you’re not receiving military retired pay, the buyback is almost always worth it. The return on investment is exceptional.

How to Calculate Your Buyback Deposit

Here’s the step-by-step process:

Step 1: Get your military earnings record. Request your military pay records from the Defense Finance and Accounting Service (DFAS). You’ll need form RI 20-97 (Estimated Earnings During Military Service) or equivalent documentation showing your base pay for each period of service.

Step 2: Calculate 3% of your base pay. Add up all your military base pay and multiply by 0.03. This is your principal deposit amount.

Step 3: Add interest if applicable. If more than 3 years have passed since you were first hired in a FERS-covered position (for post-1956 service), interest has been accruing. Your agency’s HR or payroll office can provide the exact amount owed, including interest.

Step 4: Make the deposit. You can pay in a lump sum or through payroll deductions. Many employees find payroll deductions easier to manage — even $100 to $200 per pay period adds up and gets the deposit completed.

What Happens If You Don’t Complete the Deposit?

If you retire without completing your military buyback deposit, your military service will not count toward your FERS pension. You’ll receive a smaller annuity for the rest of your retirement.

There’s also a Social Security interaction to consider. If you don’t make the deposit and you’re eligible for Social Security at age 62, your military service time may be removed from your FERS annuity calculation entirely (since it would be counted under Social Security instead). This can result in an unexpected pension reduction at 62.

This is one of the most misunderstood aspects of federal retirement planning, and it catches many employees off guard.

Real-World Example: The Math in Action

Let’s look at a concrete scenario:

Sarah is a GS-13 step 5 in the Washington, D.C. area with a high-3 salary of $125,000. She served 6 years in the Navy before joining federal service. Her total military base pay during those 6 years was $180,000.

Without buyback: Sarah has 24 years of FERS creditable service. Her pension at age 62 would be: $125,000 × 24 × 1.1% = $33,000 per year.

With buyback: Adding her 6 years of military service gives her 30 years. Her pension becomes: $125,000 × 30 × 1.1% = $41,250 per year.

The difference: $8,250 more per year — for life, with annual COLA adjustments.

Her buyback cost: $180,000 × 3% = $5,400 (assuming she paid within 3 years of hire).

Sarah would recoup her $5,400 investment in just 8 months of retirement. Over a 25-year retirement, that $5,400 deposit would generate over $200,000 in additional pension income.

Common Questions About Military Buyback

Can I make a partial deposit?

Yes, but only a complete deposit earns you full credit. If you deposit only a portion, you’ll receive partial credit — but the mechanics can be complicated. It’s generally best to complete the full deposit.

Does Reserve or Guard time count?

Active-duty periods count. Inactive duty for training (IDT) weekends generally do not, but active-duty periods such as deployments, annual training, and mobilizations do count. Check your DD-214 and any activation orders carefully.

What if I already get VA disability compensation?

VA disability compensation is separate from military retired pay. You can receive VA disability compensation and still make a military buyback deposit for FERS credit. They’re different programs.

Is there a deadline to make the deposit?

You must complete the deposit before you separate from federal service. There is no hard deadline while you’re employed, but interest continues to accrue after the 3-year grace period. The sooner you act, the less it costs.

Take the Next Step

Military buyback is one of the highest-return financial decisions available to federal employees who are veterans. If you served before joining the federal workforce, reviewing your buyback options should be a priority.

Not sure whether buyback makes sense for your situation? Register for a free Fed Pilot retirement workshop where we walk through scenarios like this in detail — including how buyback interacts with Social Security, the Special Retirement Supplement, and your overall retirement timeline.

Your military service already served your country. Make sure it also serves your retirement.