Section 1: Military Retirement Pay
Section 2: VA Disability Compensation
Section 3: TSP (Thrift Savings Plan)
Understanding Your Total Retirement Income
Most military retirees have income from multiple sources, yet many planning tools only show one stream at a time. By combining retirement pay, VA disability compensation, and TSP withdrawals, you get a realistic picture of your monthly cash flow after the uniform comes off.
This matters because each income source has different tax treatment, different inflation adjustments (retirement pay and VA comp receive annual COLA; TSP does not), and different eligibility rules. Viewing them together helps you answer the most important question: Will my total income cover my expenses in retirement?
For veterans with VA disability ratings of 50% or higher, concurrent receipt (CRDP) allows you to collect both retirement pay and VA comp without a dollar-for-dollar offset — significantly boosting total income. Veterans with combat-related disabilities may qualify for CRSC instead.
How Military Retirement Pay Is Calculated
Your military retirement pay depends on which retirement system applies to you:
Final Pay
For members who entered service before September 8, 1980. Monthly retirement pay equals 2.5% × years of service × final month's basic pay. A 20-year retiree receives 50% of their final base pay.
High-36
For members who entered between September 8, 1980 and December 31, 2017. Uses 2.5% × years of service × average of the highest 36 months of basic pay. A 20-year retiree receives 50% of their high-3 average.
Blended Retirement System (BRS)
For members who entered on or after January 1, 2018, or who opted in. Uses 2.0% × years of service × high-3 average. The lower multiplier is offset by government TSP matching up to 5% of basic pay, plus continuation pay at the 12-year mark.
Use our standalone Military Retirement Pay Calculator for a deeper breakdown of each system.
Tax Considerations for Military Retirees
Understanding what is taxable versus tax-free is critical for planning your actual take-home income in retirement:
- Military retirement pay is subject to federal income tax. However, many states exempt military retirement pay from state income tax, either partially or fully. States like Texas, Florida, and Nevada have no state income tax at all.
- VA disability compensation is completely tax-free at both the federal and state level. This is one of the most valuable benefits for disabled veterans, as every dollar of VA comp goes directly into your pocket.
- TSP withdrawals from traditional (pre-tax) TSP accounts are taxed as ordinary income. Roth TSP withdrawals are generally tax-free if you meet qualifying conditions (age 59½ and the account has been open for at least 5 years). A mix of traditional and Roth TSP can provide valuable tax flexibility.
- CRSC payments are tax-free (they replace VA comp). CRDP payments are taxable (they restore retired pay).
Consider consulting a tax professional familiar with military benefits to optimize your withdrawal strategy and minimize your overall tax burden.
Frequently Asked Questions
How much does a military retiree actually take home per month?
It depends on pay grade, years of service, VA rating, and TSP savings. As an example, an E-7 retiring at 20 years under High-36 with a 50% VA rating and $250,000 in TSP (using the 4% rule) would receive roughly $2,500 in retirement pay, $1,075 in VA comp, and $833 from TSP — approximately $4,400 per month before taxes on the retirement pay and TSP portions.
What is the 4% rule for TSP withdrawals?
The 4% rule is a widely used retirement guideline. You withdraw 4% of your total balance in the first year, then adjust for inflation each year. For monthly income, divide the annual amount by 12. On a $250,000 balance, that equals about $833 per month. The rule is designed so your savings last roughly 30 years.
Does VA disability compensation reduce my retirement pay?
Historically yes — VA comp was offset dollar-for-dollar against retirement pay. However, Concurrent Retirement and Disability Pay (CRDP) now allows retirees rated 50% or higher to receive both in full. For combat-related disabilities, Combat-Related Special Compensation (CRSC) may apply even at lower ratings. Check our CRSC vs CRDP calculator for your situation.
Do military retirement pay and VA compensation get COLA adjustments?
Yes. Both military retirement pay and VA disability compensation receive annual Cost-of-Living Adjustments (COLA) based on the Consumer Price Index. TSP withdrawals do not automatically adjust for inflation, which is why many financial planners recommend increasing TSP withdrawals each year to keep pace with rising costs.