There is nothing more confusing than military retirement pay - except possibly corporate tax deductions. And maybe working out how to split the restaurant bill after several bottles of wine ...

Things used to be simple when it came to retirement pay - you put in 20 years, and you got 50 percent of your base pay immediately upon retirement.You were probably only about 40 at the time, unless you were a late starter, so you could find other work, or start a business, and have an income cushion for the rest of your life. Pretty sweet.

Then, if you had put in more than 20 years, retirement pay was even better. You were entitled to 2.5 percent more of your final base pay level for each year of active duty after 20 years (up to 75 percent). Not bad, but then you have been putting yourself in harm's way for a long time by then, so we, the public, couldn't really begrudge it.

Lately, though, with financial crises, ageing population, and retiring baby boomers to worry about, our great nation is significantly less generous when it comes to retirement pay. I guess those baby boomer chickens are coming home to roost, and once again, it is Gen X and Gen Y who will pay the price.

If you are Navy and Marine Corps, you are considered to be a "retired member" for classification purposes if you have over 30 years service as an enlisted member, or if you are a warrant officer or commissioned officer on your retirement. That's an extra ten years you need to put in, compared with the past practice. Note, too, that if you are a commissioned officer, you must have at least 10 years of commissioned service to retire at your commissioned rank. It seems a bit rude to ask someone who has put in 15 years working their way up through the ranks, going to night school, bettering themselves, and finally been commissioned as an officer that it took them too long, and they should have done it five years earlier.

If you are Air Force or Army you are better placed - anyone with over 20 years service is uniformly classified as retired, regardless of rank.

Enlisted Navy and Marine Corps members who "retire" with less than 30 years service are transferred to the Fleet Reserve/Fleet Marine Corps Reserve. From that point, their pay is referred to as "retainer pay". The law treats retired pay and retainer pay exactly the same way, but as you are not officially retired, you can be recalled to active duty.

Military retirement pay is significantly different from civilian retirement benefits. Most importantly, you do not accumulate retirement benefits gradually over your time in the military. You either qualify completely for full retirement by serving over 20 years in the military, or you get nothing at all. It's a big incentive to stay in once you have re-enlisted a couple of times.

Retirement Pay Computation

If you entered active duty or on prior to 8 September 1980, you can calculate your retired pay level by multiplying your service factor (normally referred to as your "multiplier") by your active duty base pay at the time of your retirement.

If you entered active duty between 8 September 1980 and 30 July 1986, the base pay you use for the calculation is the average of the highest 36 months of active duty base pay received during service. If you are on active duty when you retire, this is likely to be similar, but if you have been a reserve for 10 years or so, the base pay rises due to inflation will have consumed any active duty bonus pay levels. Think of it as a tricky way to pay you less in retirement.

The "multiplier" for the above two plans is 2.5% per year of active service above 20 years (up to a maximum of 75%).

Just to make it even more exciting, there is a third retirement system for individuals who joined the military on or after August 1, 1986.

These fortunate individuals are required to make a decision at the 15-year point of their career, which means people have been making these decisions for the past few years now.

You can elect to participate in the retirement program described above (the stingier one, not the original simple one), or you can choose to receive an immediate monetary bonus ($30,000), and elect the "REDUX" system.

The "REDUX" system reduces the level of retirement pay between the time the individual voluntarily retires, and the time the individual reaches the age of 62, if the individual retires with less than 30 years of active service. While $30,000 sounds like a nice lump sum, you can be sure that you will pay for it in reduced retainer pay. Of course, if you stay on active duty for 30 years or until you are 62, whichever comes first, then being on "REDUX" makes no difference, so you may as well pocket the bonus.