If you get a military disability rating of 30% or greater, you will receive disability retirement pay. For every dollar of VA disability pay you receive, you will lose a military disability retirement dollar. VA are preferred as they are non taxable. Military disability dollars are taxable unless your disability was caused by combat or an instrument of war. (Or unless yu were obligated to join the military on or before September 1975 butI am guessing you weren't even born at that time.
In FY 2004, Congress passed the concurrent receipt law. This law states that you should get both your retirement pay and your VA disability pay without any off-set. The rationale is that retiremnt is for years of service and VA disability is for wear and tear incurred in service. However, to be eligible as the law is currently written, you must:
Be a non-disability retiree and have a total VA disability rating of 50% or more.
Be medically retired for disability and have at least 20 years of service and have a total VA disability rating of 50% or more.
Various Veteran Service Organizations are working to modify this law so that it:
a. Applies to disability retirees even if they have less than 20 years of service.
b. Applies to all retirees who receive VA disability pay even if it is only at the 10% level.
These changes will probably happen some years in the future but it will take time and effort.
The current law is being phased in over a ten year window. In 2014 the offset will be totally eliminate for non diability retirees with a 50% or more rating from the VA. However, the phasing schedule is front loaded. By 2010, 95% of the off-set will be eliminated.