Military Retirement Planning: State Residency, Relocation, and Pension Strategies
Where you establish residency and retire can significantly impact your military pension’s value. With proper planning, you can potentially save thousands of dollars annually in state taxes.
Key Planning Window
Start planning your retirement location 2-3 years before separation to properly establish residency and maximize benefits.
States with No Military Pension Tax
These states don’t tax military retirement pay at all:
Potential Annual Tax Savings
Here’s what an E-7 with 20 years could save by retiring in a tax-free state:
| Scenario | Annual Pension | State Tax | Annual Savings |
|---|---|---|---|
| California (9.3%) | $33,114 | $3,080 | $3,080 |
| New York (6.85%) | $33,114 | $2,268 | $2,268 |
| Virginia (5.75%) | $33,114 | $1,904 | $1,904 |
Over 25 years of retirement, this could mean $50,000-$75,000 in tax savings.
How to Establish Legal Residency
To change your state of legal residence before retirement:
- File DD Form 2058 – State of Legal Residence Certificate with finance
- Get a driver’s license – In the new state
- Register to vote – In the new state
- Update vehicle registration – If applicable
- File state tax returns – As a resident of the new state
- Open bank accounts – With addresses in the new state
Warning
Changing residency solely for tax purposes without actual ties to the state can be challenged. Ensure you have legitimate connections (property, family, intent to return, etc.).
Retirement Location Factors Beyond Taxes
Consider these factors when choosing where to retire:
Military Infrastructure
- Proximity to military bases for commissary/exchange access
- TRICARE provider availability
- VA hospital and clinic locations
- Military retiree community
Cost of Living
- Housing costs (rent/mortgage)
- Property taxes
- Healthcare costs
- Daily expenses (groceries, utilities, transportation)
Quality of Life
- Climate preferences
- Family proximity
- Employment opportunities (if planning second career)
- Recreation and lifestyle amenities
BRS vs. High-3 Pension Comparison
If you joined after January 1, 2018, you’re under the Blended Retirement System:
| Feature | High-3 (Legacy) | BRS |
|---|---|---|
| 20-Year Pension | 50% of high-3 | 40% of high-3 |
| TSP Match | None | Up to 5% |
| Continuation Pay | No | Yes (at 12 years) |
| Lump Sum Option | No | Yes |
| Best For | Full 20+ career | Any service length |
Retirement Timeline Checklist
2-3 Years Before Retirement:
- Research tax-friendly states
- Begin establishing residency if changing
- Maximize TSP contributions
- Review SBP options for spouse coverage
1 Year Before:
- Complete DD Form 2058 for residency
- Attend TAPS/Transition classes
- Calculate expected pension and benefits
- Research health insurance options
6 Months Before:
- Submit retirement paperwork
- Schedule final medical exams
- Begin VA disability claim process
- Plan household goods move
Leave a Reply