Four Military Retirement Pay Surprises to Avoid

Stacks of coins and pile of bills.

Retiring from the military comes with many big changes, including understanding your new pay. After sitting through briefings and researching what to expect, you're probably well prepared.

But readers tell us they still encounter some surprises after their final out date. And when it comes to money, unless it's a big inheritance or winning the lottery, a surprise is the last thing you want.

1. Surprise: Your Spouse's Last Paycheck Will Be Delayed

How long your spouse's final paycheck is delayed depends on which military service you were in. You can find all of the details about each service here. Pay is delayed while the military makes sure your service member doesn't have any outstanding debts, and that could take up to 60 days, so make sure you are not counting on that final paycheck to come in on time.

2. Surprise: Your Income Tax Might Be Higher After Retirement

Many military retirees move on to a new career. But adding additional income to your retiree paycheck could very well push you into a new, higher tax bracket. Be prepared to see a higher tax bill -- and potentially a lower return. Read more about tax changes when you retire.

3. Surprise: You Could Owe Money to Uncle Sam at Tax Time

Remember that higher tax bracket? DFAS won't automatically withhold extra money from the retirement paycheck, and your service member's new job might not, either. If your new retiree isn't careful to adjust his or her W-4 withholding to reflect that additional income, you will likely owe money at tax time.

4. Surprise: You Could Owe More State Taxes

Thanks to laws that allow service members to be exempt from state income taxes in their home of record, you likely spent your family's military time avoiding most state income taxes. But now that your spouse isn't in the military anymore, you must file returns to the state in which you reside (assuming you live in a state with income tax). Since you probably haven't been paying state income tax up until this point, that new cost might feel hefty.

Read more about state taxes after you retire.

If you do end up owing money, it's important to remember that you must pay it by the annual filing deadline of April 15. Requesting an extension will give you more time to get your paperwork in, but not more time to pay what you owe. Missing the deadline could mean paying extra interest or penalties.

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