The military service buyback is one of the most consequential financial decisions a federal employee with prior military service will ever make — and one of the least explained. For a deposit typically equal to 3% of your military basic pay, you can convert your years of active duty into creditable federal service that counts toward your FERS pension. The upside is real: for someone with four years of military service, the buyback can add roughly 4% to your final annuity, every year, for the rest of your life.
But the deposit only pays off if you stay long enough to collect. And because the deposit amount grows with interest if you wait, the timing of your decision matters almost as much as the decision itself. This is the calculation OPM will not run for you, and most federal HR offices will not either. You have to do it yourself — or find a guide that does.
Every year of military service you buy back adds roughly 1% to your final FERS annuity — forever. The question is not whether it pays off. It is whether you will stay long enough to collect.
Section I How the deposit is actually calculated
The deposit amount is based on your military basic pay during your years of service, not your current federal salary. For most enlisted service members, this makes the buyback remarkably cheap — a four-year enlistment at E-4 pay might only produce a deposit of $3,000 to $5,000, depending on pay grade and year of service. For officers the number climbs, but so does the pension benefit being unlocked.
The formula is straightforward: 3% of your military basic pay earned during each year of creditable active duty. You request a detailed earnings statement from the Defense Finance and Accounting Service, submit form RI 20-97 to your human resources office, and they calculate the deposit amount. You then have until you leave federal service to pay it, though the sooner you pay, the less interest accrues.
| Rank | Years of Service | Estimated Deposit | Annuity Added |
|---|---|---|---|
| E-4 | 4 years | $3,200 | $3,800 / year |
| E-6 | 8 years | $8,400 | $7,600 / year |
| O-3 | 6 years | $12,800 | $5,700 / year |
| O-5 | 12 years | $34,000 | $11,200 / year |
These are illustrative estimates. Your actual deposit depends on your specific pay history, and your actual annuity benefit depends on your final high-3 average and total years of creditable service. Run your own numbers using the Buyback Calculator in Pillar V before making any decisions.
Section II When the math breaks down
The buyback is not universally a good deal. For federal employees who plan to leave service before vesting in FERS (five years), the deposit is pure loss — you do not get it back. For those who vest but leave before 20 years, the payoff exists but is modest. The break-even calculation depends entirely on how long you expect to collect the annuity.
Three scenarios where the buyback may not make sense:
- You plan to leave federal service before vesting. FERS requires five years of creditable civilian service to vest. If you leave before that, the deposit goes with you into the void.
- You are already receiving military retired pay. Accepting the buyback generally requires you to waive your military retired pay. For 20-year military retirees, the waiver math rarely works in favor of the buyback.
- You are within a few years of federal retirement and have substantial interest accrued. If you waited too long and the deposit has ballooned, the time-value math may have flipped against you.
Section III The timing trap
New federal hires have a two-year interest-free grace period to pay their military deposit. After that, interest accrues at a variable rate tied to Treasury yields — typically in the low single digits, but compounding annually. The longer you wait, the larger the deposit grows. For a 4-year enlistment at E-4 pay, waiting ten years can double the deposit amount relative to paying in the first two.
The lesson is simple: if you have decided to buy back, pay during the grace period. The opportunity cost of that $3,000 to $5,000 is trivial compared to the interest that accrues if you delay.