Master Sergeant Dana Alvarez, a made-up but very typical retiree, walked out of her transition briefing at 42 with 22 years of service and a retired pay estimate of about $3,000 a month. She felt like she had won. A friend at the base asked what she planned to do about retirement. "I'm already retired," she said.

She was, in a sense. But she was also 25 years from a normal retirement age, with a mortgage, two kids, and a likely second career ahead of her. That monthly check was one leg of a stool, and a stool with one leg doesn't stand.

The three legs

The traditional framework is pension income, Social Security, and personal savings. For someone who spends years in uniform and then years in a federal civilian job, each leg looks a little different:

  1. Guaranteed pension income: military retired pay, plus a FERS annuity if you stay long enough in a civilian position.
  2. Social Security: earned through both military and civilian work.
  3. Savings: the Thrift Savings Plan, plus IRAs where they fit.

The trick is that these pieces come from different systems with different rules, and nobody hands you a single statement showing how they fit. That coordination is your job.

Leg one: the pensions

Military retired pay

Your formula depends on when you entered service. Under the legacy High-3 system, retired pay is 2.5% of your highest 36 months of basic pay for each year of service, so 20 years yields 50%. Under the Blended Retirement System (BRS), the multiplier is 2.0% per year, so 20 years yields 40%. The BRS makes up the difference with government TSP contributions and continuation pay, a cash payment around the 12-year mark.

Dana is legacy High-3. Twenty-two years at 2.5% gives her 55% of her High-3 average, which lands near that $3,000 a month figure. It carries cost-of-living adjustments and starts immediately.

If you're under BRS, you may also be offered a lump sum at retirement in exchange for reduced monthly pay until full Social Security age. Treat that offer with real skepticism and run the numbers first. The discount rate built into those offers is often steep.

The FERS annuity

Dana takes a GS job at 43 and works until 62. With a High-3 salary of about $95,000, the FERS formula is 1% per year of service, or 1.1% if you retire at 62 or later with at least 20 years. That gives her 1.1% × 20 years × $95,000, or about $20,900 a year. Roughly $1,740 a month.

One caution: if you keep your military retired pay, your military years generally don't count toward the FERS annuity. There are exceptions, such as certain disability retirements and some Reserve retirements, so confirm your situation with OPM before assuming anything. Military time may still count toward leave accrual and your service computation date for other purposes, which is a separate question from annuity credit.

Leg two: Social Security

Military basic pay has been covered by Social Security for decades, and FERS employees pay into the system as well. So Dana's earnings record will blend both careers. Check it at ssa.gov at least every few years and make sure all your military years show up.

If you're coordinating with CSRS, the picture used to be messier because of the Windfall Elimination Provision and Government Pension Offset. Congress repealed both in the Social Security Fairness Act, so that older worry has largely gone away for benefits payable from January 2024 on. If you've heard otherwise from a coworker, ask them when they last checked.

Timing is the big decision here. Claiming at 62 permanently reduces the benefit. Waiting until 70 increases it. For someone who already has two pensions covering baseline expenses, delaying Social Security is often a strong move, since it acts as longevity insurance later.

Leg three: the TSP

One account, two sets of rules

The TSP is the same plan whether you contribute from a military paycheck or a civilian one. Your account holds separate uniformed services and civilian balances, and you'll see both on tsp.gov. When you move from military to federal civilian service, you keep the same account. No rollover needed.

Under BRS, the government contributes an automatic 1% after about 60 days and matches up to another 4%. Under High-3, you get no government contributions as a service member, but you can still contribute. As a FERS civilian employee, you'll get the same 1% automatic plus 4% match going forward, and Dana will want to contribute at least 5% to capture all of it.

The combat zone advantage

If you serve in a combat zone, your pay is exempt from federal income tax, and you can make contributions that are not subject to the usual elective deferral limit, up to a higher overall annual limit. This is a rare window to build a large tax-free base. Annual limits change, so check tsp.gov and irs.gov for the current numbers.

Be careful about early access

Dana's TSP balance, if she contributes 10% of her civilian pay over 20 years with the match, could plausibly reach the mid six figures by 62, depending on markets. That is an illustration, not a forecast. At a 4% starting withdrawal rate, a $600,000 balance would provide about $24,000 a year.

The 10% early withdrawal penalty generally applies before age 59½, with an exception if you separate from service in or after the year you turn 55. Retiring from the military at 42 doesn't change that. The TSP counts you as still employed in the plan as long as you keep federal service. Plan to leave this money alone, and keep a taxable or cash reserve separate for the gap years.

Where IRAs fit

An IRA is a supplement to the TSP, not a replacement. It makes sense mainly for specific purposes: Roth contributions if you want tax diversification, a wider investment menu, or a landing spot for rollovers. The TSP's low costs are hard to beat, so don't move money out just because an IRA feels more flexible. Income limits and contribution caps for IRAs change yearly, so check irs.gov.

Putting it together

Dana's stool at 62 might look like this, in today's dollars and rough numbers:

  • Military retired pay: about $36,000 a year
  • FERS annuity: about $20,900 a year
  • TSP withdrawals: about $24,000 a year
  • Social Security: added on top, whenever she claims

That is more than $80,000 before Social Security. She built it without a single dramatic financial decision. She just kept all three legs in view.

A few things deserve attention before you retire from either system:

  • Survivor Benefit Plan: SBP costs 6.5% of the base amount you elect and pays 55% of it to your survivor. FERS has its own survivor election. Make both decisions together, because they affect each other.
  • VA disability: Compensation is tax-free, but it can reduce retired pay unless you qualify for concurrent receipt programs like CRDP or CRSC. Know which applies to you.
  • Required distributions: The age at which you must start taking money from the TSP and IRAs depends on your birth year. Check irs.gov for the current rule.
  • Tax planning: Military pay, FERS annuity, and traditional TSP withdrawals are all taxable income. A year of planning before retirement can save you real money.

The military check is the easiest leg to see, and that is exactly why it's the easiest to lean on too heavily. Build the other two while you still have paychecks to build them with.