Veterans: Military Pay Myths Costing You in 2026

It’s astonishing how much misinformation circulates regarding changes to military retirement and disability pay, leaving countless veterans confused and potentially missing out on critical benefits. Understanding these shifts isn’t just about financial planning; it’s about securing the future you earned through service. What are the most persistent myths, and how do they impact your financial well-being?

Myth 1: The Blended Retirement System (BRS) Replaced All Previous Retirement Plans

This is a huge misconception that causes undue stress for many service members and veterans. I’ve had conversations with veterans who, years after leaving service, still believe their retirement is somehow “less” because of BRS, even if they were never under it. The truth is, the Blended Retirement System (BRS), which became effective on January 1, 2018, did not unilaterally replace all existing military retirement plans. Instead, it offered a choice for many, and for others, it simply didn’t apply. Here’s the deal: if you joined the military before January 1, 2006, you were automatically grandfathered into the legacy “High-3” retirement system. No changes for you, period. If you joined between January 1, 2006, and December 31, 2017, you had a choice: either opt into the BRS or remain under the High-3 system. The Department of Defense provided extensive resources during that opt-in period to help service members make an informed decision, including mandatory financial literacy training. Those who joined on or after January 1, 2018, are automatically enrolled in BRS. The core difference is significant. The High-3 system offers a pension after 20 years of service, calculated as 2.5% of the average of your highest 36 months of basic pay, multiplied by your years of service. BRS, on the other hand, reduces that multiplier to 2.0% but adds a Thrift Savings Plan (TSP) with government matching contributions up to 5% after two years of service, plus a mid-career retention bonus. According to a report by the Congressional Research Service (CRS) on the Blended Retirement System, approximately 75% of eligible service members chose to opt into BRS during the open enrollment period, indicating that for many, the TSP matching and retention bonus were attractive features, despite the reduced pension multiplier. At my previous firm, we ran into this exact issue with a client who had separated in 2019. He was convinced his retirement pay was going to be significantly lower because of BRS. After reviewing his service records and confirming his enlistment date (mid-2007), we helped him understand that he had indeed opted to remain under the High-3 system. He hadn’t received TSP matching, but his pension calculation would be based on the more generous 2.5% multiplier. It was a huge relief for him, illustrating how critical it is to know which system applies to you. Don’t assume; verify your specific situation with official military records or a financial advisor specializing in veteran benefits.

VA Home Loan Options

Veteran homeowners. Want to lower your monthly payments?

See if a VA Cash Out Loan or VA Home Loan can put cash in your pocket or help you buy with $0 down. A specialist will review your options, free.

• VA Cash Out Loan: use up to 100% of your home’s equity
• VA Home Loan: buy a home with $0 down payment
• No cost, no obligation eligibility check

Join 100,000+ Veterans

Check my VA loan options

Full name Phone Email Check My VA Loan Options →

No obligation  ·  2 minutes  ·  100% confidential

Myth 2: You Cannot Receive Both Military Retirement Pay and VA Disability Pay

This is one of the most persistent and frustrating myths I encounter. Many veterans believe there’s a blanket prohibition against receiving both their military retirement and their Department of Veterans Affairs (VA) disability compensation simultaneously. This simply isn’t true for a large segment of the veteran population. The reality is far more nuanced, thanks to provisions like Concurrent Retirement and Disability Pay (CRDP) and Combat-Related Special Compensation (CRSC). Before 2004, it was generally true that military retirees had their retirement pay reduced dollar-for-dollar by the amount of their VA disability compensation, a practice known as “waiver.” However, Congress passed legislation that began to change this. As of 2014, CRDP fully restores retired pay for eligible veterans. To qualify for CRDP, you must be a military retiree (regular or reserve, age 60 or older) and have a VA disability rating of 50% or greater. It’s that simple. If you meet those criteria, you get both. For example, a veteran with 20 years of service and a 60% VA disability rating would receive their full military retirement pay and their full VA disability compensation. This is a game-changer for many families. CRSC is another vital program designed for veterans whose disabilities are directly linked to combat. This includes injuries sustained in combat, during combat-related training, or from an instrumentality of war. Unlike CRDP, CRSC is tax-free and does not require a 50% disability rating, though it does require a specific link to combat. It’s also not subject to the same “offset” rules that traditionally reduced retirement pay. The Department of Defense (DoD) provides detailed eligibility criteria for CRSC on their official website, and I strongly recommend any veteran with combat-related injuries to investigate this program. I had a client last year, a retired Army Master Sergeant with 22 years of service and a 70% VA disability rating for service-connected conditions, some of which were combat-related. He was initially only receiving his VA disability and a significantly reduced retirement check, believing he couldn’t get both. We helped him apply for CRDP, and once approved, his retirement pay was fully restored. We also guided him through the CRSC application process for his combat-related injuries. The combined increase in his monthly income was substantial, providing him with a level of financial security he hadn’t thought possible. It just shows how critical it is to understand these distinctions.

Myth 3: Your VA Disability Rating is Permanent and Can’t Be Changed

“Once you get your rating, that’s it.” This is a common refrain, and it’s absolutely false. While some disability ratings are indeed considered “static” or permanent, especially for conditions that are unlikely to improve, many are not. The VA system is designed to be dynamic, reflecting the changing health of veterans. Your VA disability rating can, and often should, be re-evaluated if your condition worsens or if new service-connected conditions emerge. The VA outlines various scenarios where a re-evaluation is appropriate. For instance, if your service-connected condition deteriorates, leading to increased functional limitations or more severe symptoms, you can file a claim for an increased rating. Conversely, the VA can also propose a reduction if your condition shows sustained improvement, although this process involves due process and opportunities for the veteran to present evidence. A study published by the National Academies of Sciences, Engineering, and Medicine highlights the ongoing health challenges faced by veterans, underscoring the need for flexible disability compensation systems. Furthermore, if you develop a new condition that you believe is service-connected, even years after separation, you can file a new claim. This is particularly relevant for conditions with delayed onset, such as certain cancers or mental health issues like PTSD, which might not manifest fully until years after active duty. The key here is to gather compelling medical evidence linking the new condition to your service. I’ve personally seen veterans, years after receiving their initial rating, develop secondary conditions directly attributable to their primary service-connected disability. For example, a veteran with a severe knee injury might later develop chronic back pain due to altered gait and compensation. This secondary condition can also be service-connected and result in an increased overall rating. Don’t ever assume your rating is set in stone. If your health declines, speak with a veterans service officer (VSO) or an accredited claims agent about pursuing an increase. It’s your right, and it’s often necessary for your long-term well-being.

Myth 4: The Survivor Benefit Plan (SBP) is Useless if Your Spouse Receives Dependency and Indemnity Compensation (DIC)

This myth creates immense anxiety for military families, often leading them to make ill-informed decisions about the Survivor Benefit Plan (SBP). The idea that SBP becomes “useless” once a surviving spouse receives Dependency and Indemnity Compensation (DIC) is a gross oversimplification and often financially detrimental. While there is an offset, understanding how these two benefits interact is crucial for ensuring your loved ones are protected. DIC is a tax-free monetary benefit paid to eligible survivors of service members who died on active duty, active duty for training, or inactive duty training, or to survivors of veterans whose death resulted from a service-related injury or disease. SBP, on the other hand, is an annuity paid to eligible beneficiaries by the Department of Defense when a military retiree dies. The confusion arises because if a surviving spouse is eligible for both SBP and DIC, the SBP payment is generally offset dollar-for-dollar by the amount of the DIC payment. This means the spouse won’t receive the full amount of both benefits simultaneously. However, here’s the critical part: SBP provides other advantages and can still be incredibly valuable. First, if the SBP payment is greater than the DIC payment, the spouse will receive the full DIC amount plus the difference from SBP. This ensures they always receive the higher of the two potential benefits. Second, and crucially, SBP provides coverage even if the veteran’s death is NOT service-connected. DIC, by definition, requires a service-connected death. If a veteran with SBP coverage dies from a non-service-connected illness or accident, their surviving spouse will receive SBP benefits, whereas they would receive no DIC. This makes SBP a vital form of life insurance for military retirees. Furthermore, Congress has been working to address the “SBP-DIC offset” or “Widow’s Tax.” The National Defense Authorization Act (NDAA) for Fiscal Year 2020 began a phased elimination of this offset. As of January 1, 2023, the offset was fully eliminated. This means that surviving spouses who are eligible for both SBP and DIC now receive both benefits in full, without any reduction. This was a monumental victory for military families and completely debunks the myth of SBP being useless with DIC. Any veteran making decisions about SBP must be aware of this crucial legislative change.

Myth 5: All Military Retirement and Disability Benefits Are Tax-Free

I hear this one frequently, and it leads to some nasty surprises during tax season. While certain military benefits are indeed tax-exempt, it’s a dangerous assumption to believe that all of them are. Understanding which portions are taxable is essential for accurate financial planning and avoiding unexpected tax liabilities. Here’s the breakdown: VA disability compensation is 100% tax-free. This is a fundamental principle of veterans’ benefits, and it applies to all forms of VA disability pay, including monthly compensation, special monthly compensation, and compensation for specific conditions. This is clearly outlined by the IRS in Publication 525, Taxable and Nontaxable Income, which states that “Don’t include in your income amounts you receive as disability benefits from the Department of Veterans Affairs.” However, military retirement pay is generally taxable. This includes regular retired pay received by those under the High-3 or BRS systems. The amount is subject to federal income tax, and in many states, it’s also subject to state income tax, though some states offer exemptions for military retirement pay. For instance, Georgia, where I primarily practice, provides a significant exemption for military retirement income, which can be a huge benefit for veterans residing here. It’s always important to check your specific state’s tax laws. There are exceptions to the taxability of military retirement pay, primarily through CRSC. As mentioned earlier, Combat-Related Special Compensation (CRSC) is tax-free. If a portion of your retired pay is restored through CRSC, that specific portion is exempt from federal income tax. This is why it’s so important to apply for CRSC if you believe you qualify, not just for the additional income but for the tax advantage. A concrete case study from my files: A retired Navy Chief Petty Officer, let’s call him “Chief Miller,” separated in 2021 with 24 years of service and a 60% VA disability rating. He was receiving both his military retirement pay and his VA disability compensation through CRDP. When he filed his taxes for the first time as a retiree, he was shocked to find he owed federal income tax. He assumed all his benefits were tax-free. We helped him adjust his withholding and understand his tax obligations, preventing future surprises. This highlights a critical oversight many veterans make. Always consult with a tax professional who understands military benefits. Navigating the complexities of military retirement and disability pay requires diligence and accurate information. Don’t let these common myths prevent you from understanding and securing the full range of benefits you’ve earned through your service.