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The
Military Reform Act of 1986 created the REDUX retirement
system. This system applied to all members who joined on or
after August 1, 1986. The National Defense Authorization Act (NDAA)
for Fiscal Year 2000 amended this system. The act made two
major changes: 1) it allows those in this group to choose
between the High-3 retirement system and the REDUX retirement
system and 2) it added a $30,000 Career Status Bonus as part
of the REDUX retirement system.
The CSB/REDUX
retirement system applies to those who entered the military on
or after August 1, 1986, and who elected to receive the
$30,000 Career Status Bonus at their 15th year of service.
The
REDUX retirement system and Career Status Bonus is a "package
deal." The combination of these two items can be advantageous
to personnel. The REDUX portion determines retirement income
(the longer your career, the higher the income). And the
$30,000 Career Status Bonus provides current cash - available
for investing, major purchases, or setting up a small business
after retirement.
REDUX System Details
The REDUX multiplier calculation and annual cost of living
adjustments differ from the other systems. Also, REDUX has a
catch-up increase at age 62 that brings the REDUX retired pay
back to the same amount paid under the High-3 System. REDUX is
the only retirement system with a readjustment feature.
Each of
the first 20 years of service is worth 2.0% toward the
retirement multiplier. But each year after the 20th is worth
3.5%. For example, 2.0% x 20 years = 40%. But a 30-year career
is computed by 2.0% times the first 20 years plus 3.5% for the
10 years beyond 20, resulting in the maximum of 75%. The table
below summarizes the initial multiplier at various years of
service under REDUX.
|
Years
of service |
20 |
21 |
22 |
23 |
24 |
25 |
26 |
27 |
28 |
29 |
30 |
|
REDUX |
40% |
43.5% |
47% |
50.5% |
54% |
57.5% |
61% |
64.5% |
68% |
71.5% |
75% |
Under
REDUX, the longer the service member stays on active duty the
closer the multiplier is to what it would have been under
High-3 up to the 30-year point where the multipliers are
equal.
In
precisely the same way as High-3, this multiplier is applied
against the average basic pay for the highest 36 months of the
service member's basic pay. This usually, but not always,
equals the average basic pay for the final three years of
service.
Cost of
Living Adjustments (COLAs) for retired pay are given annually
based on the increase in the Consumer Price Index (CPI), a
measure of inflation. Under REDUX, the COLA is equal to CPI
minus 1%.
A unique
feature of REDUX is a recomputation of retirement pay at age
62. Two adjustments are made. The first adjusts the multiplier
to what it would have been under High-3. For example, a
20-year retiree's new multiplier would become 50%, a 24-year
retiree's multiplier would become 60% but a 30-year retiree's
would remain 75%. This new multiplier is applied against the
service member's original average basic pay for their highest
36 months. Then the second adjustment is done. Full CPI for
every retirement year is applied to this amount to compute a
new base retirement salary. At age 62, the REDUX and High-3
retirement salaries are equal. But, REDUX COLAs for later
years will again be set at CPI minus 1%.
The $30,000 Career Status Bonus
Those members who elect the CSB/REDUX retirement system at
their 15th year of service receive a $30,000 Career Status
Bonus. To receive this bonus, the service member must agree to
complete a 20-year active duty career with length-of-service
retired pay under the 1986 Military Retirement Reform Act --
1986 MRRA or REDUX. Continuation beyond 20 years is possible,
subject to personnel management actions. However, the service
member''s commitment with the CSB is only to the 20-year
point. The entire $30,000 bonus, or first installment payment
for those electing a multi-year payment option, is paid
shortly after the service member makes the CSB/REDUX election
and commits to the 20-years-of-service obligation.
If the
member doesn't complete the obligation of the 20-year career,
the member must repay a pro-rated share of the CSB bonus.
Note:
the CSB bonus is taxable, but you can shelter part of the
bonus by placing it in a TSP account. For tax purposes,
standard rules apply for IRAs. |
