We held a memorial service for the third anniversary of my grandfather's death.
The calculation of death anniversaries is based on the date of death.
Every year, our family holds a memorial service for the death anniversary.
命日 is the actual calendar date someone died, while 回忌 counts which numbered anniversary of that death is being observed.
Compound of 回 (kai, 'time, occurrence') and 忌 (ki, 'mourning, anniversary of death'). The reading is on'yomi.