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One of the biggest questions you may have when preparing to leave active duty is when your military retirement pay starts and how it is calculated. Military retirement benefit is paid in arrears, meaning that your first retirement check covers the month you just completed, not the month ahead.

Let us break down how military retirement pay works, when you can expect your first payment, and what else you should plan for before leaving service.

Here’s When Military Retirement Pay Begins

Military retirement pay is issued once a month, typically on the first business day of the month. Because payments are made in arrears, the check you receive on July 1 is a payment for June. If you retire on June 1, your first retirement paycheck should arrive on July 1.

This schedule often surprises new retirees who are used to twice-monthly active-duty payments.

How Is Retirement Pay Calculated?

The amount of retired pay you receive depends on your Date of Initial Entry into Military Service (DIEMS) and the retirement plan under which you fall. There are several systems currently in place:

Legacy (High-36) Retirement System: For those who joined before Jan. 1, 2018, retirement pay depends on your highest 36 months of basic pay’s average. After 20 years of service, you receive 50% of that average, plus 2.5% for each additional year served.

Blended Retirement System (BRS): For the military personnel that entered service on or after Jan. 1, 2018, BRS offers a smaller pension, which is 40% of your high-36 pay after 20 years. However, it adds government contributions to your Thrift Savings Plan, same as a civilian 401(k).

Reservists typically become eligible to receive retirement pay at age 60, though certain active-duty service can move that date earlier.

Taxes & Withholding After Retirement

For federal purposes, military retirement pay is considered taxable income, but it is not subject to Social Security or Medicare payroll taxes. Your state may also tax some, all or none of your retirement income, depending on where you live.

If you start a new job after retirement, make sure to adjust your tax withholding through Defense Finance and Accounting Service (DFAS). Many retirees are surprised by a bigger-than-expected tax bill because their withholding did not reflect their new income level.

Allotments & Final Pay

Any allotments you had during active duty, such as automatic payments for insurance or other obligations, will continue unless you cancel them. Double-check that your retirement pay is enough to cover these, or make changes before your first check arrives.

Your final active-duty paycheck may also be delayed while your accounts are reviewed. If you sold back leave, those payments may arrive separately and at unpredictable times.

Arrears of Pay: What Happens After Death

Another important term to understand is Arrears of Pay (AOP). This is a one-time payment made to your beneficiary after your death and includes the prorated amount of your final month’s retirement pay plus any other money owed.

You must designate an AOP beneficiary in your retired pay account. Without a named beneficiary, DFAS must follow a federally mandated order of precedence, which can delay payments for months while they locate your next of kin.

Planning for a Smooth Transition

Military retirement pay provides an important financial foundation, but timing and logistics can catch new retirees off guard. Understanding that pay is issued monthly and in arrears, adjusting withholding for your new tax situation and ensuring that your beneficiary designations are current can make the transition less stressful.