2026 brings significant increases to both military retirement pay and VA disability compensation. With a 3.8% military pay raise and a 2.8% VA disability COLA, transitioning service members and retirees will see meaningful increases to their monthly income.
But here's what most calculators won't tell you: your state of residence can dramatically impact how much of this increase you actually keep. Some states tax military retirement income while others don't, and that difference can cost (or save) you thousands of dollars per year.
📊 Quick Summary: An E-7 retiring at 20 years in 2026 will receive approximately $2,969/month in retirement pay (up from $2,860 in 2025). Combined with 80% VA disability with a spouse and child, total monthly income is $4,564 – but state taxes could reduce this by $200-400/month depending on where you live.
2026 Benefit Increases at a Glance
Military Retirement Pay
Pay Raise
E-7 @ 20 Years Example
$2,969/mo
↑ $109/month increase
VA Disability Pay
COLA Increase
80% + Spouse + Child
$2,223/mo
↑ $60/month increase
Combined Monthly Income
$5,192
↑ $169/month total increase
2026 Military Retirement Pay: 3.8% Increase Breakdown
The 2026 military pay raise of 3.8% is based on the Employment Cost Index (ECI) and represents a solid increase for retirees. This raise applies to your base pay, which directly impacts your retirement calculation.
How the 3.8% Increase Affects Your Retirement Pay
Remember, military retirement pay is calculated as:
Years of Service × 2.5% × Average of Highest 36 Months Base Pay
The 3.8% raise increases your High-3 average, which means your retirement pay goes up accordingly.
Real Example: E-7 with 20 Years
Let's look at a real-world scenario with Master Sergeant (E-7) with exactly 20 years of service:
| Year | Base Pay (20 YOS) | Retirement % (High-3) | Monthly Retirement |
|---|---|---|---|
| 2025 | $5,720 | 50% | $2,860 |
| 2026 | $5,937 | 50% | $2,969 |
| Monthly Increase | +$109 | ||
| Annual Increase | +$1,308 | ||
That's an extra $1,308 per year in your pocket – enough to cover a mortgage payment, car insurance for the year, or build your emergency fund.
2025 vs 2026 Monthly Retirement Pay by Rank (20 Years)
All calculations based on 20 years of service (50% High-3 retirement)
Average increase: 3.8% across all ranks
2026 VA Disability Rates: 2.8% COLA Increase
The Department of Veterans Affairs announced a 2.8% Cost of Living Adjustment (COLA) for 2026, effective December 1, 2025. This applies to all VA disability compensation, dependency allowances, and special monthly compensation.
2026 VA Disability Rates (Most Common)
| Disability Rating | 2025 Rate | 2026 Rate | Increase |
|---|---|---|---|
| 10% | $171.23 | $176.03 | +$4.80 |
| 20% | $338.49 | $347.97 | +$9.48 |
| 30% | $524.31 | $539.00 | +$14.69 |
| 40% | $755.28 | $776.43 | +$21.15 |
| 50% | $1,075.16 | $1,105.27 | +$30.11 |
| 60% | $1,361.88 | $1,400.01 | +$38.13 |
| 70% | $1,716.28 | $1,764.35 | +$48.07 |
| 80% | $1,995.01 | $2,050.88 | +$55.87 |
| 90% | $2,241.91 | $2,304.72 | +$62.81 |
| 100% | $3,737.85 | $3,842.43 | +$104.58 |
Dependent Rates Make a Big Difference
If you have dependents and a disability rating of 30% or higher, you qualify for additional compensation. For our E-7 example with 80% disability, spouse, and 1 child under 18:
| Dependents | 2025 Rate | 2026 Rate | Increase |
|---|---|---|---|
| 80% (No dependents) | $1,995.01 | $2,050.88 | +$55.87 |
| 80% + Spouse | $2,119.01 | $2,178.26 | +$59.25 |
| 80% + Spouse + 1 Child | $2,163.01 | $2,223.48 | +$60.47 |
💡 Important: VA disability compensation is 100% tax-free at the federal level and in all 50 states. This is a huge advantage compared to retirement pay, which may be taxed depending on your state.
VA Disability COLA Increases: 5-Year Trend
The 2026 COLA of 2.8% is lower than recent years due to moderating inflation, but still provides meaningful increases for all disability ratings.
The Complete Picture: Combining Retirement + VA + State Taxes
Now let's put it all together for our E-7 Master Sergeant example, and here's where state taxes become critical.
E-7, 20 Years, 80% VA Disability, Spouse + 1 Child
| Income Source | 2026 Monthly | Taxable? |
|---|---|---|
| Military Retirement Pay | $2,969 | Depends on state |
| VA Disability (80% + dependents) | $2,223 | No (always tax-free) |
| Total Monthly Income | $5,192 | - |
| Total Annual Income | $62,304 | - |
That's a solid income foundation – but whether you keep all of it depends entirely on which state you call home.
Why State Taxes Matter: Real Examples
Here's where our state-by-state military retirement tax calculator becomes essential. Let's see how the same E-7's retirement income is affected by different states:
Scenario 1: Moving to Texas (No State Income Tax)
| Income Source | Annual Amount | State Tax |
|---|---|---|
| Military Retirement | $35,628 | $0 |
| VA Disability | $26,676 | $0 |
| Total Take-Home | $62,304 | $0 |
Result: Zero state tax. You keep every penny.
Scenario 2: Moving to California (Taxes Military Retirement)
| Income Source | Annual Amount | State Tax (Est.) |
|---|---|---|
| Military Retirement | $35,628 | ~$3,313 (9.3% rate) |
| VA Disability | $26,676 | $0 |
| Total Take-Home | $58,991 | -$3,313 |
Result: You lose $3,313 per year ($276/month) to state taxes.
Scenario 3: Moving to Georgia (Partial Exemption)
| Income Source | Annual Amount | State Tax (Est.) |
|---|---|---|
| Military Retirement | $35,628 | ~$1,035 (exempts $35k) |
| VA Disability | $26,676 | $0 |
| Total Take-Home | $61,269 | -$1,035 |
Result: You pay some tax, but Georgia's $35k exemption shields most of your retirement pay.
Military Retirement Tax Treatment by State
✓ NO TAX States
No Income Tax (9):
TX, FL, TN, NV, WA, WY, SD, AK, NH
Full Exemption (24):
AL, AR, CT, HI, IL, IN, IA, KS, LA, ME, MA, MI, MN, MS, MO, NE, NJ, NY, NC, ND, OH, PA, WV, WI
⚠ PARTIAL EXEMPTION
Age/Amount Limits (7):
GA: $35k exemption
AZ: $3,500 exemption
CO: Age 55+ exemption
DE: $12,500 exemption
ID: $47,838 exemption
KY: $31k exemption
SC: $17,500 exemption
✗ FULLY TAXED States
Full State Tax (10):
High Tax:
CA (9.3%), OR (8.75%), RI (5.99%)
Medium Tax:
MT (6.5%), NM (5.9%), OK (4.75%), UT (4.85%), VT (6.8%)
Lower Tax:
MD (5.75%), VA (5.75%)
Tax Impact on E-7 Retirement ($35,628/year):
🎯 Over 30 years of retirement, the difference between Texas and California is $99,390.
That's nearly $100,000 you could lose (or save) based solely on where you choose to retire. This is why the state tax feature in our calculator is so critical for your financial planning.
States That Don't Tax Military Retirement (2026)
If you want to maximize your 2026 retirement income increases, consider these states with no state income tax or full military retirement exemption:
No State Income Tax (9 States)
- Texas - No state income tax
- Florida - No state income tax
- Tennessee - No state income tax
- Nevada - No state income tax
- Washington - No state income tax
- Wyoming - No state income tax
- South Dakota - No state income tax
- Alaska - No state income tax
- New Hampshire - No earned income tax
Full Military Retirement Exemption (24 Additional States)
These states have income tax but fully exempt military retirement pay:
- Alabama, Arkansas, Connecticut, Hawaii, Illinois, Indiana, Iowa, Kansas, Louisiana, Maine, Massachusetts, Michigan, Minnesota, Mississippi, Missouri, Nebraska, New Jersey, New York, North Carolina, North Dakota, Ohio, Pennsylvania, West Virginia, Wisconsin
That's 33 states total where you won't pay a penny of state tax on your military retirement income.
How to Calculate Your Exact 2026 Income
Every service member's situation is unique. Your rank, years of service, disability rating, number of dependents, and state of residence all factor into your actual take-home pay.
That's why we built the Military Retirement Calculator with the 2026 rates already built in:
- ✅ 2026 military pay tables (3.8% increase included)
- ✅ 2026 VA disability rates (2.8% COLA included)
- ✅ State-by-state tax calculator for all 50 states
- ✅ Dependent allowances automatically calculated
- ✅ Shows you the exact civilian salary you need
Calculate Your 2026 Retirement Income Now
Get your exact monthly income including retirement pay, VA disability, and state tax impact. See what civilian salary you'll need to maintain your lifestyle.
Use the Free Calculator →Key Takeaways for 2026
- Military retirement pay increased 3.8% - An E-7 at 20 years now receives $2,969/month (up $109/month)
- VA disability COLA is 2.8% - 80% with dependents is now $2,223/month (up $60/month)
- Combined increases add up - Total increase of ~$169/month or $2,028/year
- State taxes can erase 30-40% of your retirement pay - Choose your retirement state wisely
- 33 states don't tax military retirement - Moving to the right state could save you $3,000+ per year
- VA disability is always tax-free - Federal and state, regardless of where you live
What This Means for Your Transition Planning
If you're transitioning in 2026, these rate increases give you a better financial foundation than retirees from previous years. But to truly maximize your retirement income, you need to:
- Know your exact numbers - Use a calculator that factors in YOUR rank, years, disability rating, and dependents
- Factor in state taxes - The difference between states can be $3,000-5,000 per year
- Calculate the civilian salary you need - Don't guess at what you need to earn; run the math
- File your VA claims before separating - The higher your rating, the more these COLA increases benefit you
Start Planning Your 2026 Transition
The 2026 rate increases are good news for military retirees, but you need accurate numbers to plan your transition effectively. Don't leave money on the table by guessing at your retirement income or ignoring state tax implications.
Use our free calculator to see your exact 2026 numbers – including retirement pay, VA disability, state taxes, and the civilian salary you'll need to maintain your lifestyle. It takes 2 minutes and could save you thousands per year.