Is Buying Back Military Service Worth It?

Buying back military service means paying a deposit — 3% of your military basic pay under FERS — so that time in uniform counts toward your federal annuity. The question people ask is whether it is worth it. For most FERS employees the honest answer is that it is not close: the deposit typically pays for itself inside the first year of retirement and then keeps paying for the rest of your life.

The arithmetic, on a common case

Four years of enlisted service with about $96,000 of basic pay across the four years. The employee was first covered by FERS deductions in June 2012 and is considering paying now, in 2026.

• Deposit principal: 3% of $96,000 = $2,880.
• Interest accrued since the grace period closed: $935.01. Total now: $3,815.01.
• What it buys: four more years of creditable service. On a $100,000 high-3 at the 1.1% factor, the annuity rises from $28,600 to $33,000 a year — $4,400 more, $366.67 a month.

The deposit is recovered after about ten and a half months of retirement. Had the same employee paid within the interest-free window, the principal alone would have been recovered in under eight. Over a 25-year retirement the four purchased years are worth more than $110,000 before any cost-of-living adjustment, against a payment of under $4,000.

There is no other decision in federal retirement with this shape. It is worth being suspicious of an answer that good — which is why the rest of this guide is about the cases where the answer changes.

Why waiting costs so much more than it looks

Interest is not a flat rate applied to the balance. It is assessed once a year, on the anniversary of your interest accrual date, at a composite rate blended from the two calendar years the preceding twelve months fall in, and it compounds on the unpaid balance. A two-year grace period runs from the date you are first employed in a covered position, and because interest is only ever assessed on an anniversary of that date, a deposit paid in full before the third anniversary costs principal only.

In the example above, eleven years of delay added $935 to a $2,880 debt — about a third again. The deposit still pays for itself quickly, so waiting is not fatal; it is simply the most avoidable cost in the whole transaction.

The four rules that decide it, none of which is about the money

1. Under FERS, unpaid means uncounted — for everything. Post-1956 military service credits toward neither your annuity nor your eligibility date unless the deposit is paid in full. There is no partial credit, and the deposit must be complete before you separate. Once the retirement application is filed it is too late, permanently.

2. Military retired pay generally has to be waived. This is the real reason to decline. A military retiree receiving retired pay must normally waive it to have the service credited toward a federal annuity, and for a 20-year military career that is usually a bad trade. The exceptions are retired pay awarded for a service-connected disability, and reserve retired pay under 10 U.S.C. chapter 1223 — neither of which has to be waived, which is what makes buyback attractive for reservists.

3. Five years of civilian service is still required. Bought-back military years count toward the 20- and 30-year thresholds, but never toward the five years of civilian service that any FERS annuity requires. Buying back four years does not put someone with three civilian years anywhere near a pension.

4. Under CSRS the trap runs the other way — “Catch-62”. For an employee first hired before 1 October 1982, 5 U.S.C. § 8332(c) credits the military service without a deposit, and then removes it from the annuity at age 62 if the retiree is eligible for Social Security. The annuity is cut decades after the decision that caused it, which is why the rule has a name. The remedy is the same deposit, made before separation.

What to do with this

Ask your agency for an estimated earnings statement from your service branch (DD Form 214 gives the dates; the branch supplies the basic pay), then have the agency compute the balance. Pay it as early in your career as you can afford to: the principal never changes, and everything above it is interest you chose to pay.

Two dates matter more than any figure. The third anniversary of your first covered appointment, after which interest begins. And your separation date, after which nothing can be paid at all.

Sources

• 5 U.S.C. § 8411(c) — FERS credit for military service, conditional on the deposit (§ 8422(e) for the deposit itself). Text of § 8411
• 5 U.S.C. § 8332(c) — CSRS credit for military service, and the age-62 removal known as Catch-62. Text of § 8332
• OPM CSRS/FERS Handbook, Chapter 23 — the deposit percentages, the interest accrual date, and the composite interest formula at § 23A3.1-5. Chapter 23 (PDF)
• OPM Form 1514, Military Deposit Worksheet — the published variable interest rates. OPM Form 1514 (PDF)

Deposit and interest figures are computed by lib/military-deposit.js, which reproduces OPM’s published composite interest table cell by cell in its tests, and the annuity comparison by lib/fers-annuity.js. This guide does not model the retired-pay waiver decision, which turns on facts specific to a military career.

This guide is informational only. It is not financial, tax, or legal advice, and FedAnnuity is not affiliated with OPM or the U.S. government. Retirement rules turn on the specific facts of a career, and only your agency and OPM can give you a binding figure.

Last reviewed: August 2026 · Against 5 U.S.C. §§ 8411(c), 8422(e) and 8332(c), and OPM Handbook Chapter 23.