DFAS: Review your allotments when you apply for retirement

By DFAS Cleveland

Allotments are a convenient way to ensure your bills are paid. However, there are some allotments that cannot transfer from military pay to retired pay. Also, if the total amount of your allotments is too high when you retire, your retired pay may come up short.

Pay Will Change When You Retire

Military retirement is cause for celebration! You’ve given your nation a binding commitment for (usually) at least 20 years, helping ensure our freedom at great personal sacrifice by yourself and your family. But … when you retire, the amount of money you receive from DFAS will likely be less, and sometimes much less.

No More Additional Benefits

Keep in mind, when you retire, not only will your retired pay almost always be lower than your active duty pay, you also won’t be getting those special pay benefits. No more Basic Allowance for Housing. No more Basic Allowance for Subsistence. No bonuses, no incentive pay, no clothing allowance, no cost of living allowance based on your location, no hardship pay – none of the special pay benefits you may have been receiving.

And There’s More…or Less?

The amount of pay that eventually ends up in your bank will also be reduced by federal income tax withholding. Yes, most military retired pay is subject to federal taxes. Consult with the IRS or a tax professional if you have questions

(DFAS cannot provide tax advice). Monthly premiums for Survivor Benefit Plan (SBP) coverage will also be deducted, if you elected to cover your loved ones. There may be other deductions based on your situation and the benefits you elect.

Allotment Rollover

If the total of your monthly allotments coming out of your active duty pay – your mortgage or rent, your car payment, or any other allotment – is more than your retired pay, you may run into a problem. Remember, when you transition into retired pay and still have those same allotments, with less pay coming in, you may not have enough money available to cover all the allotments, and if that happens you will incur a debt.

Thrift Savings Plan Loan Allotments

If you have a Thrift Savings Plan (TSP) loan and you currently make payments through an allotment from your military pay, those payments cannot transfer to retired pay. You will need to contact TSP and arrange to make payments directly.

Plan Ahead

Do yourself a favor and plan ahead for automatically paying your bills or making donations before you reach retirement. You can set up automatic payments directly through most banks or credit unions. Setting those up ahead of time can help you avoid financial headaches – something nobody needs as part of their “welcome to retirement” life.