Your Military Retirement Paycheck Is Bigger in 2026 — Are You Making the Most of It?

Military retirees and veterans with disability ratings received a 2.8% cost-of-living adjustment at the start of 2026.

A 2.8% Raise You May Have Overlooked

Military retirees and veterans with disability ratings received a 2.8% cost-of-living adjustment at the start of 2026, up from 2.5% in 2025. Retired pay, VA disability compensation, and Survivor Benefit Plan annuities all received the increase. 

A COLA bump is also a natural trigger to revisit your financial plan and make sure your income is structured as efficiently as possible. Here’s what’s worth looking at. 

Know Your Pension Formula

If you entered service on or after January 1, 2018, you’re under the Blended Retirement System. Your pension pays 2.0% per year of service — lower than the 2.5% under the legacy High-3 — but you also receive TSP matching up to 5% of pay. Even service members who don’t reach 20 years walk away with something saved under BRS. 

Under the legacy High-3, a 20-year E-7 with a $90,000 high-3 average receives roughly $27,000 per year in pension income — about 30% of pre-retirement pay. The TSP is what bridges the gap to a comfortable retirement, which makes fund allocation and contribution strategy more important than most people realize. 

VA disability compensation is completely tax-free at the federal and state level.

The Tax Advantage Hidden in Your VA Rating

VA disability compensation is completely tax-free at the federal and state level. Military retirement pay is taxable. This distinction has real implications for how you structure your retirement income. 

If you qualify for Concurrent Retirement and Disability Pay (CRDP) or Combat-Related Special Compensation (CRSC), both allow you to receive military retirement pay and VA disability compensation at the same time. The programs have different rules and tax treatments, and the better option depends on your specific numbers. It’s worth a careful comparison. 

Your Spouse’s Protection: The SBP Update

The SBP-DIC offset — which used to reduce Survivor Benefit Plan payments when a surviving spouse received VA Dependency and Indemnity Compensation — was fully eliminated in 2023. Surviving spouses may now receive both benefits in full, as long as eligibility requirements are fulfilled. This is a critical element to your long-term planning security. 

Healthcare in retirement is a separate but equally important piece of planning. If you’re a military retiree or spouse navigating TRICARE alongside Medicare, see our post on TRICARE for Life planning for what to expect and how to plan around costs. TRICARE for Life (TFL) 

Your Benefits Are Only as Good as Your Plan

Military benefits are among the most comprehensive retirement packages available; but accessing their full value requires understanding how the pieces interact. Pension, TSP, VA benefits, SBP, Social Security timing; each affects the others, and each has specific rules that reward careful planning. 

If you’d like to walk through how your benefits stack up and where there’s room to optimize, we’d welcome the conversation.