Yes, if you're eligible for the reserve retirement you want to "retire" not "resign". You still get paid either way at age 60 (or earlier with certain GWOT service). But if you "retire" two very important things occur...

1) You continue to accrue longevity. Of note, the O6 payscale used to top out at over 28 but now has another bump at over 30, which most folks would not see unless they accumulate longevity after retiring. This is especially important for O5's who retire at 20, since their scale keeps going up to 28. Under high-three, this adds up.

2) If you're "retired" the pay table used to determine your monthly check will be ther one in effect when you turn 60. If you "resign" it will be the one in effect when you "resigned". So you'd give up 10-20 year worth of COLA adjustments (assuming congress keeps up with inflation).

Downside to reserve "retirement" is that you can still be recalled but they'd be digging really deep at that point, ie would have already recalled ALL reserve and guard (unless you have some super-unique skillset).

Military pay chart says O-5 pay top out at 22 years, and O-6 at 30 years. So how does longevity work when you are getting an active duty retirement?

I was addressing reserve not AD retirement.

Everybody or almost everybody reading this will be on the high-three system. That means your ultimate retirement pay is determined by the average of your last three years of service.

Lets look at 2 O-5's retiring at 21 good years.

Joe decides to make a clean break, so he's not subject to recall (he technically resigns, but will be eligible for the retirement pay he earned at age 60). His retirement pay will be based on:

a) The average pay for his last three years of service. This will be less than the max at "over 22"
b) The pay table in effect the day he resigned. This will NOT be adjusted for inflation over the years to age 60.

Steve does what most of us should do, he "retires" from the reserves. so he is subject to recall and will also be eligible for the retirement pay he earned at age 60. His retirement pay will be based on:

a) The average pay in effect for his last three years of service WHICH INCLUDES time in the retired reserve. So he will be far beyond the O5 max at "over 22", so his pay will be based on the "over 22" value.
b) The pay table in effect the day he turned 60. There's a possibility this could be worse than Joe's, if congress gave big pay cuts and no inflation adjustments over the intervening years. But most likely it will be similar to today's scale, with inflation adjustments.

As far as AD retirement, I don't know how that works, the Navy never to my knowledge allows a retired AD person to participate in the reserves. But the question would be, does reserve participation earn you additional longevity which will move you to the right on the pay scale for purposes of your AD retirement pay. I would assume it does, but that's the question you'd have to get answered officially.