Why does my refund drop 2700 when we put in my husband's retirement pay

[DoninGA]

Were any federal income taxes withheld from the retirement income which would be shown on the Form 1099-R he received?

Retirement income is taxable income and added to your other income thereby increasing the taxes on your taxable income.

If your total tax payments are greater than your total tax liabilities then you will receive a tax refund for the overpayment.