Military service buyback for FERS: the 2026 complete guide

1. What the military service buyback actually is

If you served in the active military before joining federal civilian service under FERS, that military time does not automatically count toward your federal pension. To receive credit, you have to make a deposit — the “military service buyback,” technically a military service deposit — equal to 3% of the basic pay you earned during the military period, plus interest if you wait past the grace period.

Once paid, the military years count toward your FERS retirement in two ways:

• Retirement eligibility. Military years count toward the 5-year minimum, the 30-year threshold for MRA+30, the 20-year threshold for age 60+20, and the 10-year threshold for MRA+10. A federal employee with 26 civilian years and 4 military years has 30 years for FERS eligibility purposes once the deposit is paid.
• Annuity computation. Each military year adds 1% per year of your high-3 average salary to your annual pension — or 1.1% per year if you retire at age 62 or later with at least 20 years of total creditable service.

The legal basis is 5 U.S.C. § 8422(e) for FERS employees and 5 U.S.C. § 8334(j) for CSRS employees. The operational rules are in OPM’s CSRS/FERS Handbook Chapter 22 (creditable military service) and Chapter 23 (service credit payments for post-1956 military service).

2. How the deposit is calculated

The base formula is straightforward:

Three details matter for the calculation:

Basic pay only. The deposit base is your military basic pay — the W-2 wage equivalent. It does not include BAH (Basic Allowance for Housing), BAS (Basic Allowance for Subsistence), special pays (flight pay, combat pay, sea pay), bonuses, or any non-basic compensation. For most service members, this means the deposit is calculated on roughly 50-65% of total military compensation. The fact that the buyback is priced on basic pay only is one reason the math works so favorably.

The 3% rate has two exceptions. Service performed in 1999 used a rate of 3.25%, and service in 2000 used 3.4%. These were one-time adjustments tied to specific congressional action. Service in every other year from 1957 to the present uses the standard 3% rate. If your military service spans those years, your overall deposit blends rates.

You get the actual numbers from DFAS. You don’t estimate the deposit from memory. You request Form RI 20-97 (Estimated Earnings During Military Service) from your branch’s finance center — DFAS for Army, Navy, Air Force, Marine Corps, and Space Force; the Coast Guard handles its own. They send you a certified statement of total basic pay by year. Your agency uses that to fill out OPM Form 1514 (Military Deposit Worksheet) and calculate the deposit owed.

These are illustrative ranges using rough modern pay tables. Your actual RI 20-97 will produce a precise number based on your dates of service, rank progression, and any time-in-grade adjustments.

3. Interest accrual and the grace period

The deposit is interest-free for a window from your FERS hire date, then begins accruing interest at the prevailing federal composite rate, compounding annually. The mechanics:

Grace period. The interest-free window is approximately three years from your FERS hire date — the date you first became covered by FERS, not the date of your military service. An employee hired into FERS in March 2023 has until roughly March 2026 to pay without interest. After that date, the unpaid balance starts accruing interest.

Interest rates change annually. The interest rate is set each year by the Department of the Treasury and published by OPM in an annual Benefits Administration Letter (BAL). Recent rates:

Interest compounds annually on your personal Interest Accrual Date (IAD). If you have a partial-year balance, the rate is composite — pro-rated across the rates applicable to that period.

Why the interest matters less than people think. Even at 4.25% compounding for 10 years past the grace period, a $3,600 base deposit grows to about $5,460. The break-even is still under 17 months of retirement at a $4,000-per-year pension boost. The interest makes the deposit more expensive but rarely makes the math fail. The most expensive way to handle the buyback is to never make it — not to make it late.

4. The break-even math (why this almost always pays off)

The buyback is one of the rare federal retirement decisions where the analysis is unambiguous. The deposit is 3% of basic pay. The annual pension boost is 1% (or 1.1%) per year of high-3. For nearly every combination of service length and high-3, the deposit pays for itself in months — not years.

The break-even stays remarkably consistent at about a year because both the deposit and the pension boost scale with the same underlying compensation. The exception is officers whose basic pay exceeded the average federal civilian high-3 — in those cases the deposit is larger relative to the high-3 boost, but still pays off in less than two years.

The math improves even further if you retire at age 62 with 20+ years of total creditable service. The FERS multiplier bumps to 1.1% for every year of service, including the bought-back military years. Each military year now adds 1.1% of high-3 — another 10% return on the buyback before you even hit your first month of retirement.

What the table doesn’t show:

• The military years count toward retirement eligibility. Four military years can convert an MRA+26 (not yet eligible) employee into an MRA+30 (eligible to retire immediately, with full pension and FERS supplement). The optionality alone can be worth more than the deposit.
• COLA compounds on the higher pension. Every COLA going forward applies to the larger annuity base. Over a 25-year retirement, the cumulative COLA on the extra $4,000/year is roughly another $30,000-$50,000 in real terms.
• Survivor benefits use the higher base. If you elect full survivor benefits (50% of unreduced annuity), the survivor benefit is calculated on the post-buyback pension — another permanent uplift for the spouse.

For nearly every FERS employee with creditable military service, the buyback is the highest-return decision available in federal retirement planning. The deposit pays for itself in months. Every year of retirement after that is pure additional income, compounded by COLA, passed to the survivor.

5. The military retired pay waiver decision

The harder version of the buyback question applies to federal employees who already receive military retirement pay — the 20-year retirees from active duty who later joined federal civilian service. The general rule:

You cannot receive credit for military service in your FERS computation while also receiving regular military retired pay. To use the years in your FERS pension, you must waive the military retired pay. Once waived, you lose the monthly military retirement check and the years count instead toward your FERS annuity.

The math almost never works for 20-year military retirees. Consider a typical case:

• Military retirement pay: $30,000/year for life, with COLA
• FERS bump if waived/bought: 20 years × 1% × $100,000 high-3 = $20,000/year for life
• Net change: -$10,000/year — you lose by waiving

The military retirement pay is typically larger than the equivalent FERS bump for the same service because the military pension formula (2.5% per year, multiplied by the High-36 average) is more generous than the FERS formula (1.0% per year, multiplied by the federal high-3). Adding the high cost of the deposit on top (around $30,000-$40,000 for 20 years of officer basic pay) makes the math worse.

The exceptions where waiver and buyback do work:

Disability retirement awarded for a combat-incurred or war-instrumentality injury. If your military retired pay was awarded under 10 U.S.C. Chapter 61 specifically for a service-connected disability either incurred in combat with an enemy of the United States or caused by an instrumentality of war during a period of war, you can keep the military retired pay AND receive FERS credit for the service. No waiver required. The deposit still has to be paid.

Reserve component retirement. Military retired pay awarded under 10 U.S.C. Chapter 1223 (Reserve component retirement, payable starting at age 60) does not require waiver to credit the service toward FERS. The deposit must still be paid. This is the most common useful exception — it applies to retirees from the Reserves or National Guard who served the qualifying years and received Chapter 1223 retired pay.

Combat-Related Special Compensation (CRSC). CRSC is paid in addition to military retired pay (after the VA waiver mechanism). CRSC itself is not affected by the FERS buyback decision. But if you waive your military retired pay, you also lose CRSC eligibility — you have to be receiving military retired pay to receive CRSC.

VA disability compensation is always separate. Your VA disability rating and the resulting tax-free monthly payment from VA are not affected by waiving military retired pay. VA compensation is a separate program. You can waive military retired pay to buy back FERS credit while continuing to receive your full VA disability check.

6. What military service qualifies (and what doesn’t)

The general rule: active-duty service in the uniformed services performed after 1956 qualifies for the buyback. The specific qualifying services:

The National Guard distinction is the most common source of confusion. Guard members who have done a combination of drill weekends, annual training, and occasional federal activations need to look at each period individually. The activations under Title 10 (federal call) count; everything else generally doesn’t. Your DD-214s from each activation period are the documentary evidence.

The activation rule cuts both ways — veterans who deployed multiple times can often add up substantial creditable time from Guard or Reserve service that they didn’t realize counted. If you have multiple DD-214s from different Title 10 orders, all of them are buyback-eligible.

7. The process: forms, timeline, and deadlines

The buyback process moves through three parties — you, your branch’s finance center (DFAS for most), and your federal civilian HR/payroll office. It takes 6-18 months from start to finish depending on agency responsiveness. The steps:

Step 1: Request your military earnings statement. Complete Form RI 20-97 (Estimated Earnings During Military Service) and submit to your branch’s finance center, attached to your DD-214(s). DFAS handles Army, Navy, Air Force, Marines, and Space Force. Coast Guard, NOAA, and PHS use their own offices. Processing typically takes 60-120 days; longer if records are pre-1970 and have to be pulled from federal archives.

Step 2: Get OPM Form 1514 filled out by your agency. When the RI 20-97 comes back from DFAS with your certified earnings totals, take it to your agency’s HR or benefits office. They complete Form OPM 1514 (Military Deposit Worksheet) calculating the deposit amount. They’ll also determine your Interest Accrual Date and any accrued interest if you’re past the grace period.

Step 3: Submit SF 3108 to request the deposit. File SF 3108 (Application to Make Service Credit Payment — FERS) with your agency. This is the formal application to make the deposit. Some agencies have an internal supplemental form (e.g., AD-3116 in USDA) that goes with this.

Step 4: Make the payment. Most agencies allow payroll deduction over time, or lump-sum payment by check or money order. Payroll deduction is interest-free in the sense that you stop accruing additional interest once the agency has the authorization (subject to timely remittance rules). Lump sum is faster but requires available cash.

Step 5: Confirm completion. When the deposit is fully paid, your agency issues a paid-in-full confirmation. Get the confirmation in writing and keep a copy with your retirement records. OPM has occasionally lost track of payments — the paid-in-full letter is your proof at retirement that the credit is real.

8. When the buyback is not worth it

Three categories where the math fails and the buyback is genuinely a poor choice:

You plan to leave federal service before retirement. If you’re not going to retire from federal service (deferred separation, private-sector exit, anything that doesn’t culminate in an immediate FERS annuity), the deposit doesn’t produce ongoing pension benefits. You can request a refund of the deposit if you separate before retirement, but the refund is interest-free — you lose the opportunity cost of the deposit funds during the federal service period. For employees who don’t plan to retire from federal service, the deposit isn’t worth making in the first place.

You receive regular (non-disability) military retired pay greater than the FERS bump. As covered in section 5, 20-year military retirees who waive retired pay to buy back almost always come out behind. The math fails because military retirement is generally a richer benefit than the equivalent FERS service would generate.

The deposit + interest exceeds your remaining federal career’s pension boost. An employee very close to retirement (1-2 years out) with significant accrued interest may find the deposit amount approaching or exceeding the cumulative pension boost they’d receive over a short retirement. This is a narrow case — usually it requires the employee to be in poor health or already past their MRA with limited remaining service horizon. For most employees the math still works even close to retirement, because the lifetime annuity (potentially 20-30 years) far exceeds the deposit.

For everyone else — the large majority of FERS employees with creditable military service — the buyback is the right answer. The break-even is short. The lifetime benefit is large. The decision is closer to obvious than to close.

9. Try the buyback calculator

The calculator assumes the standard 1% FERS multiplier and excludes COLA effects on the lifetime number (COLA would push the lifetime benefit roughly 30-50% higher in real terms). It also excludes the 1.1% multiplier bonus available at age 62+/20+ years, which would add another ~10% to the lifetime calculation. The numbers shown are conservative.