Last Military Pay, Military Retirement Pay, and VA Disability Compensation

The transition from active duty military to retirement is full of lots of winding twists and turns. One of the most common questions is how all those pays are going to come together. You’ve got military pay, military retirement pay, and possibly disability compensation. And it’s important to understand it as part of your overall financial planning.

However, keep in mind that any or all of these steps can get held up for a variety of reasons: missing paperwork, inaccurate calculations, or just administrative errors. You definitely want to have some money put aside to take care of your family while the military and Department of Veterans Affairs figure out your stuff.

This post is part of The Comprehensive Military Retirement Checklist. Be sure to read all the other posts that go with the checklist, too!

Last Military Paycheck

The last military paycheck is typically held for audit. It may be held a few days or a few weeks. In extreme cases, various issues may hold that last pay for months.

The purpose of the audit is to reconcile any outstanding debts, under-payments or over-payments, or any other way that the government owes you money or you owe the government money.

If you have a regular longevity retirement and retire at the end of the month, your last (probably held) paycheck will be for the end-of-month pay period in the month in which you retire. For example, if your first day of retirement is 1 June, your last payday (probably held) will be on 1 June (or the previous business day, if 1 June falls on a weekend or holiday.) Your mid-month pay, in the previous month, should not be affected.

First Military Retirement Pay

Military retirement is paid monthly, in arrears (after it is earned.) Your first retirement paycheck should arrive on the first of the month following your first month of retirement, or the previous business day if the first falls on a weekend or holiday.

For example, if your first day of retirement is 1 June, you should receive your first retirement pay on 1 July, or the previous business day. Then again every month on the 1st, or the previous business day.

However, as previously mentioned, there are any number of things that can delay the start of military retirement pay. The most common holdup is that Defense Finance and Accounting Service (DFAS) hasn’t received your DD Form 2656. Be sure that form is complete, has any necessary signatures from your spouse regarding the Survivor Benefit Plan, and is properly submitted to DFAS. But even if that paperwork happens on time, other stuff can happen. Be prepared for that possibility.

VA Disability Compensation

This one always confuses me, even though I know how it works.

VA disability compensation is not accrued on the first month of retirement. So if you retire on 1 June, disability compensation does not accrue for June.

After that, VA disability compensation starts accruing and is paid in arrears at the beginning of the month following the month for which the compensation was earned. This can be confusing because the VA calls the date that the disability compensation starts to accrue the “pay start date.” But it’s not the date that the pay starts to arrive, it’s the day that the pay starts to accrue.

Even if you file your VA disability claim with the Benefits Delivery At Discharge program, and have a disability rating that is effective on your first day of retirement, you are not eligible for compensation for that first month.

However, you don’t get VA disability compensation until you have made a claim and received a rating. This can take months, depending on when you file your claim and how the system is working in your specific area. Claims filed within 1 year of retirement can be made effective as of the first day of retirement, and start accruing on the first of the next month, and you will be eligible for retroactive compensation for those claims.

But keep in mind that there are many ways this process can be delayed. On some level, that first disability payment will come when it comes.

Completely baffled what I just said about disability compensation? Let’s see if this helps:

• 1st day of retirement: 1 June
• Disability compensation starts to accrue (if claim is filed within 1 year of retirement): 1 July
• First disability compensation payment: 1 August (or retroactive to 1 August)

All those dates shift to the previous business day if the date falls on a weekend or holiday.

Understanding when things are supposed to happen, and being prepared in case they don’t happen when you expect, is a big step in getting through transition with as few financial hassles as possible. And goodness knows that there’s enough stuff going on during retirement; any ways that you can relieve the uncertainty are good!