Is REDUX Retirement Worth it?
I recently received a reader question regarding the CSB / REDUX Retirement System and whether or not it was worth it to take the cash and reduced retirement pay, or stick with the High 3 Retirement System. In almost every situation, the High 3 Retirement System results in a higher monthly pension for military retirees. But let’s break it down so you can learn how to make your own decision and decide whether you should choose the CSB / REDUX Retirement System or the High 3 Retirement System.
What is the CSB / REDUX Retirement System?
The CSB / REDUX Retirement System was created by the Military Reform Act of 1986, and applies to all military members who joined on or after August 1, 1986. The system was designed to save the government money when paying out military retirement pensions to the ever growing number of military retirees.
How REDUX works: The REDUX Retirement System pays out a $30,000 Career Status Bonus at the 15 year mark to military personnel who select the REDUX retirement plan. In addition to the $30,000 Career Status Bonus, military retirees will receive a reduced military pension compared to the High 3 retirement plan, and a lower annual Cost of Living Adjustment (COLA).
Cost of Living Adjustments (COLA) 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%. Here are more details about the REDUX Retirement System.
REDUX Retirement system:
- $30,000 Career Status Bonus.
- 40% monthly retirement at 20 years, plus 3.5% per additional year.
- *Maximum monthly retirement benefit 75% of base pay at 30 years.
- COLA = CPI -1%.
*Some military members may be eligible to retire at 100% base pay after 40 years of service, depending on high year tenure status, military needs, and other factors.
The High 3 Average Retirement System
The high 3 Average retirement System pays an average basic pay for the highest 36 months of the individual’s career. The High-3 Average Retirement System does not come with a cash bonus, but base retirement pay and COLA accrue more quickly than under the REDUX plan.
Cost of Living Adjustments (COLA) are given annually based on the increase in the Consumer Price Index (CPI); under the High-3, the annual COLA is equal to CPI.
REDUX Retirement System:
- 50% monthly retirement at 20 years, plus 2.5% per additional year.
- *Maximum monthly retirement benefit 75% of base pay at 30 years.
- COLA = CPI.
*Some military members may be eligible to retire at 100% base pay after 40 years of service, depending on high year tenure status, military needs, and other factors.
Which military retirement plan is better – REDUX or High 3?
It is possible to receive the same percentage of your final pay with both retirement plans, however, you would need to serve 30 years under REDUX to receive the same amount as you would receive if you retire under the High 3 retirement plan. Retirees under the REDUX plan will accrue lower COLA increases to their retirement pay, so even if the retiree completed 30 years and ended with the same base pay they would have had under the High-3 retirement system, a gap will steadily grow between the amount they receive under REDUX vs. what they would have had under High-3.
REDUX Adjustment at Age 62. To counter the pay gap between the two retirement systems, retirees under REDUX receive an adjustment at age 62 to bring their retirement pay up to the level it would have been under the High-3 retirement system. However, the COLA remains at CPI – 1, and the gap begins to widen once again. Over the course of a lifetime, the difference can easily reach into the hundreds of thousands of dollars, and for higher ranking individuals, the difference can reach well into the million dollar range.
Military Retirement Calculators
I recommend visiting the DoD Retirement Calculators for additional information:
When you compare the REDUX Retirement System to the High 3 retirement plan, you can see how the difference between the two plans can add up quickly. Unfortunately, the $30,000 bonus is sometimes enough money to entice many military members to mortgage their future pension.
Your situation may differ, so I encourage you to examine your situation, play with hte calculators, and speak with a professional advisor for more information.
Related posts:
- A Military Retirement is Worth Millions of Dollars
- Military Retirement Pay No Longer Capped
- Is Military Retirement Pay Enough to Retire On?
- Ohio Military Retirement Pay Tax Exemption Bill
- 2009 Retirement Plan Contribution Limits
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July 27th, 2009 at 9:04 am
Great analysis of the REDUX plan, but I thought that you would have taken a stronger stand for or against it. While I’m not a big fan of it, if you knew at 15 years of service that you were going to stay in another 15 or 25 years (but who knows that?!?!), maybe it would be an okay deal. But, for most people, the REDUX plan will cost you retirement income in the long run.
July 27th, 2009 at 10:07 am
Hank, in almost every situation, the High 3 Retirement System results in a higher monthly pension for military retirees – the difference is easily in the hundreds of thousands of dollars in a lifetime, if not well into the millions.
REDUX is almost never a better option – even with 40 years service (because the COLA adjustments are a huge factor). However, there may be a time when it makes sense to take the $30,000. The idea is for people to use these resources and tools to better understand their options and make an informed decision regarding the best military retirement plan for them.
October 31st, 2009 at 11:49 am
The underlying problem is that most young service members (officer and enlisted) are not given enough useful financial information at the start of their careers where it can do them the most benefit. In fact, retirement briefings occur at the end of one’s career when they should be given at the beginning. The young Soldier, Airman or Sailor would then realize that 1) a majority of them will NOT remain in the military long enough to get a retirement check, and 2) these are the best years of their lives in which to begin investing given the “magic” of compounding interest. Unfortunately, more than one person I know when presented with a choice of whether or not to take the $30K did not have enough information to make an informed decision.
January 9th, 2010 at 4:47 pm
does the Redux expire….example, my husband was in reserves 16 yrs ago and he didn’t realize that those years counted toward his retirement, so now he is at the 16 yr mark already but no one has ever talked to him about Redux, is to late??
January 9th, 2010 at 9:22 pm
Robin, The Reserves program may have different requirements for retirement. I suggest he contact the Reserves personnel department for more information.
March 3rd, 2010 at 4:27 pm
The High 3 Average Retirement System
Are the contrubution to this retirement reported to the IRS and can the contributions be included in your yearly taxes.
March 3rd, 2010 at 4:34 pm
Daway, I’m not sure what you mean by “contributions” to the retirement. Do you mean the pay you receive as part of the your retirement compensation? If so, then yes, your retirement compensation is reported to the IRS and is taxable income. There may be a portion of your income that is not taxable if you are receiving disability compensation.