Is Military Buyback Worth It? The Return on Investment for Federal Employees

The Short Answer

For most FERS employees, the military buyback produces one of the highest returns available in federal retirement planning. The deposit costs 3% of your military basic pay (plus interest if you're past the grace period), while the pension increase it generates pays out every year for the rest of your life — plus annual COLA adjustments. Most employees break even in their first or second year of retirement.

The calculation only gets complicated when you're a military retiree who must waive retired pay, or when your total creditable service is already well above the thresholds that matter. For everyone else, the math is straightforward.

Running the Numbers

The FERS annuity formula: High-3 Average Salary × Multiplier × Creditable Years of Service

The standard multiplier is 1.0% per year. But if you retire at age 62 or older with 20 or more total creditable years, the multiplier increases to 1.1% for your entire service — not just the years after 20.

Here's where buyback creates leverage. Suppose you have 18 civilian years and 4 years of active-duty military service:

Without buyback (18 years at 1.0%): $110,000 × 1.0% × 18 = $19,800/year

With buyback at 1.0% (22 years, retiring before age 62 or under 20 years): $110,000 × 1.0% × 22 = $24,200/year — a $4,400/year increase

With buyback at 1.1% (22 years, age 62+): $110,000 × 1.1% × 22 = $26,620/year — a $6,820/year increase over the no-buyback scenario

The deposit for four years of service with an average basic pay of $2,000/month would be about $2,880 (3% of $96,000). Even with 15 years of accumulated interest doubling that to $5,760, you break even in the first year at the 1.1% multiplier.

The 1.1% Multiplier Threshold

This is the single biggest reason buyback is worth it for employees near the 20-year mark. Without the military years, an employee with 18 civilian years who retires at 62 gets the 1.0% multiplier — they're two years short of the 20-year threshold.

Buying back 4 years of military service pushes them to 22 total years, triggering the 1.1% multiplier on the entire annuity. That 10% increase applies to every year of service, not just the bought-back military years. In the example above, the multiplier change alone adds $2,200/year on top of the years-of-service increase.

When It Might Not Be Worth It

The buyback calculation is less clear-cut in a few specific situations:

Military retirees receiving retired pay. If you completed a 20+ year active-duty career and receive a military pension, you must waive that pension to credit the same years toward your FERS annuity. The waiver is irrevocable. If your military retired pay exceeds the FERS annuity increase, you lose money. This calculation requires comparing the two benefit streams side by side — and if you're receiving CRDP or CRSC payments tied to VA disability, waiving military retired pay eliminates those payments too.

Very short military service with high accumulated interest. A two-year enlistment from 1990, left unpaid for 35 years, might carry more interest than the modest pension increase those two years generate. Run the interest estimate before committing.

Employees who will separate well before retirement eligibility. If you don't plan to stay in federal service long enough to earn a FERS annuity (minimum five years of civilian service for a deferred annuity), the bought-back military time doesn't help — FERS requires the five civilian years regardless.

What the Calculators Miss

Free online military buyback calculators estimate the deposit cost and project the annuity increase, but they have significant blind spots. Most cannot handle variable annual Treasury interest rates compounded on your specific Interest Accrual Date. They don't know whether you qualify for the 1.1% multiplier. And they can't factor in USERRA lesser-of calculations or Guard/Reserve scenarios with non-contiguous Title 10 service.

The most reliable approach: ask your agency HR specialist for a side-by-side annuity estimate — one projection with the military service credited, one without. That comparison uses your actual salary history and service dates, not generic assumptions.

The Military Buyback Guide includes a worksheet for building this comparison yourself, plus the interest calculation tables you need to estimate your current deposit cost before HR runs the official numbers.

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