What would you do? Military VSP

[trixs]

Hello Everyone,

Short Version
Would you leave the military, after 12 years, and give up the retirement benefits for a much higher paying civilian career?

--------------------------------------------------------------------

I haven't logged on this forum in many years but I think it is the best place to ask a nagging question: Is it logical to leave the military, after 12 years, and enter the civilian sector?

Recently the military has announced various cuts which would allow me to leave at the 12 year mark. If I am approved they will pay me approximately $55k to leave the Air Force. With the impending draw downs I started looking at possible employment options. I have a Computer Science degree and would consider myself an expert in Java and various other programming languages. Anyway, I can not find a job that pays less than $100K starting out. This is about $45K more than I bring home now. In addition I put my resume on a few websites and the phone will not stop ringing...

Ultimately my goal is to retire as young as possible and do whatever is interesting at the time. I always figured the military retirement would help reach that goal but now I am having second thoughts. At the 20 year mark I would receive about $1950 a month plus healthcare for life. However, the military is only going to give annual raises of 1% in the foreseeable future. That would mean the retirement is going to be about $1500 in today's dollars after paying for the survivor benefit plan. I figure the retirement is equal to about $400K-450...

What would you do?

 

[REWahoo]

Many years ago I was in a similar situation. I'd been in the Air Force eight years and the career opportunities had narrowed considerably due to post-Vietnam downsizing. Another big difference in your situation and mine is the military was not offering any $ to leave, choosing to create incentives for early departure by making life miserable with lousy assignments.

I left at the eight year mark and began a civilian career in an entirely different field, taking a big pay cut and starting from the bottom. It sounds like you would have a far better transition with both the departure pay and the ability to move directly into a higher paying job. That would be a very tempting opportunity for me, one I don't think I could pass up.

 

[Rustic23]

Tough decision! And, I don't think anyone on this board can answer it for you. Too many personal variables.

At the 12 year point I seriously considered leaving the AF. However, I stayed and retired at 30. I found there were just about as many job opportunities available then. Hard to tell for sure. Big difference was the retirement check and tricare prime. While I continued to work in several fields, in retrospect, I could have retired then and never worked again. Sidebar: a friend who retired on the same day did just that. I never regretted staying in. Having the AF retirement check to fall back on was a big plus towards retirement.

Having said that, your situations is different if not only for current administrations and congress's desire to screw the military retiree. The change in the retirement system may make things just bad enough to warrant a decision to leave.

As I said, there are so many personal things in this decision, I am not sure anything here will help, but good luck, let us know how it goes.

 

[braumeister]

That's a horribly difficult situation to find yourself in.

When I had 12 years in (Air Force), I was in pretty much the same situation, and I was on the fence, just as you are, and leaning toward getting out, just as you are.

In my case, fate intervened with a fantastic new assignment. That was followed by another great one, and another. Then a so-so job, but that only lasted six months before I was offered another fantastic one. By the time that ended, I only had one more year until hitting twenty. So naturally they put me in the Pentagon. I stuck it out for two years (of my four-year controlled tour there), and retired at 21 years total.

I should also say that my retired pay was considerably higher than yours will be (nearly double, considering the intervening inflation). That's another factor that helped me decide to stick it out.

Looking back at it, I did the right thing, because I totally enjoyed those years, and it really is a great retirement system if you can hack the frustrations for 20 years.

In your case, I think what you should ask yourself is how long will you stay an expert in your field, how long will your expertise be cutting edge, and how easy will it be to continually upgrade your skills in the future. If you can see a clear path toward that scenario, I would probably agree that getting out is the right move. If you have doubts, you need to either clear them up or decide to stick with it for eight more years in exchange for some honestly good benefits the rest of your life.

We have a number of retired military here, so I think you'll get some good advice. It's great that you're thinking hard about it. Best of luck!

 

[braumeister]

I should add one more thing.

Keeping your skills well honed will make you just as employable after a military career as now.
My wife still teases me about that. After I retired from the USAF, I spent about six months just enjoying life, then decided to get a real job. I saw an interesting help wanted ad, sent out one resume, had one interview, and snagged a great job. So it really is possible to have the best of both. I certainly did.

 

[martyb]

If you do leave active duty, please at least be smart enough to immediately go into the Guard or Reserve. With 12 years active, you already have 4380 points towards retirement in the military. I spent 4 1/2 years active, and 27 1/2 in the reserves, then retired. In all those years, I only managed to acquire just over 4000 retirement points. If you don't get into one of the reserve components and stay until you have at least a full 20, then you are leaving a whole lot of money on the table. Do 8 yrs, then when you're 60, those paychecks will start showing up in your account each month like clockwork. Trust me, you'll be very glad you did. It will be more $$ than you might think. You will also be eligible for Tricare at that point, if you want/need it. It's always a plus to have options. Best of luck.

 

[Hermit]

Several folks I worked with/for in DOD contracting megacorp retired from the military and slid right into some very lucrative positions in the software world. By the time they retired from megacorp, they were more than set for life. I think you could write your own ticket in network and computer security today and probably 8 years from now. I would also think you would likely be good for another promotion before retirement. Good luck on your decision.

 

[haloFIRE]

VSP certainty?

I've heard rumors the USAF May pull their separation incentive offers. The Army offers no incentives. I'd keep my eyes open... More so, plan on a good chunk of it getting eaten up by taxes.

Best advice I can offer is to imagine yourself 10 years from now, looking backwards at your decision.

May make a COLA'd monthly retirement check well worth the effort of serving 8 more years.

Break

I was in a similar situation at the 10 year mark. No VSP offer, just didn't like what I was doing. Seriously thought about leaving. Now that I've got over 25 years of active service, I'm so happy I stayed!

 

[ATC KH]

Sounds like you are in a great situation. I'd echo the comment about trying to go into the Guard or reserves if possible, although I believe you might have to pay back any monetary incentives for leaving active duty once you start pulling in a reserve component pension (so I've heard). However, I'd very roughly estimate that you would pull down about 70-75% of an active duty pension at 60 if you retired from the Guard or reserve.

Another thing to consider, if you haven't already, is cost of living differences. When I hear starting pay in the six-figures I think either defense contracting around DC or private industry in Silicon Valley. You certainly won't be destitute, but depending on where you live now you may have a similar quality of life.

I only did four years active duty and then transitioned to the Air Guard, but I don't at all regret leaving active duty. Although I had fun and worked with a lot of great people on active duty, the career field I was in at the time (TACP) was HORRIBLY mismanaged (in my opinion). I enjoy ATC much more, particularly in the FAA and contract world where all you do is control (unless you want the management route). If all you want to do is code, I'd imagine you would enjoy the private sector more. Either way, I don't think you could make a bad decision. Good luck however you decide!

 

[Huston55]

If you do leave active duty, please at least be smart enough to immediately go into the Guard or Reserve. With 12 years active, you already have 4380 points towards retirement in the military. I spent 4 1/2 years active, and 27 1/2 in the reserves, then retired. In all those years, I only managed to acquire just over 4000 retirement points. If you don't get into one of the reserve components and stay until you have at least a full 20, then you are leaving a whole lot of money on the table. Do 8 yrs, then when you're 60, those paychecks will start showing up in your account each month like clockwork. Trust me, you'll be very glad you did. It will be more $$ than you might think. You will also be eligible for Tricare at that point, if you want/need it. It's always a plus to have options. Best of luck.

+1

Agree with Marty on joining the AF Reserve or Guard. There are many ways to complete another 8 "good" years and not lose the value you've accumulated with 12 yrs active duty, plus the benefits you'll have upon retiremement. The NPV of your Reserve retirement will be >$500k, and one way to think about it is you only have to invest about 40 wks of work (8 yrs of weekend drills + annual 2 wk training) to collect that $500k+. Not a bad return on investment.

I had the same decision at 6 yrs active duty AF, and chose to remain in the AF Reserve for another 17 yrs. One of the best decisions I've ever made.

 

[mickeyd]

What would you do?

I'd get out and join the AF reserves for 8/9 good years and retire with all of the AD credit.

It worked for me.

 

[timwalsh300]

Whenever someone in the military mentions the possibility of a "much higher paying civilian career," I am skeptical. I think there are plenty of good reasons to leave the military, but money is rarely one of them.

First, placing a $450k value on your pension seems very low to me. Even with the recent legislation limiting COLA increases, I think you would collect almost $800k (in today's dollars) over your retirement if you lived until average life expectancy, plus several hundred thousand more in healthcare benefits. That's a lot of money to leave on the table. So over the next 8 years in the military you would effectively be earning at least $100k/year in retirement benefits on top of your actual salary and other allowances. Compare that to what you'd be earning elsewhere.

Second, you might only be making $60k/year right now, but probably only half of that is taxable (even less if you are deployed at all), and you are probably in a fairly low-cost-of-living locale. $100k/year doesn't go as far as you think when it's fully taxable and you are living in a place like San Francisco.

Lastly, I'm curious how you manage to be "an expert in Java and other programming languages" after spending the last 12 years on active duty. I have a computer science degree too, but after just 6 years on active duty I doubt I would be very competitive for high-paying jobs as a software developer, unless I returned to school for a while. But I guess you are getting calls with real job offers?

Tim

 

[OAG]

I had the same situation at 12 years but hung in for 9 more years due to mostly family and the economic situation at the time. Do not regret it after 35 years of "retirement". However, in your situation as you depict it, I doubt you will regret it either way, and I personally would lean towards getting off AD, join the reserves as already suggested, take the new civilian work and not look back. Good luck with your decision.

 

[Nords]

-

Short Version
Would you leave the military, after 12 years, and give up the retirement benefits for a much higher paying civilian career?

Let me restate the question: you're asking whether you should give up a decent-paying career that has a high likelihood of continued employment and a guaranteed pension in exchange for... a (potentially) higher-paying career that has neither. When the question is framed this way, does leaving sound as attractive?

You should stay on active duty as long as you're having fun. As other posters have pointed out, when the fun stops then it's time to leave active duty for the Reserves/Guard.

You should not leave the military (or any other job) if the grass just looks greener on the other side of the fence. However you might try to freelance or work part-time in your chosen field to see if the side-hustle income beats your military pay/compensation-- then I'd definitely leave active duty for the Reserve/Guard.

Recently the military has announced various cuts which would allow me to leave at the 12 year mark. If I am approved they will pay me approximately $55k to leave the Air Force. With the impending draw downs I started looking at possible employment options. I have a Computer Science degree and would consider myself an expert in Java and various other programming languages. Anyway, I can not find a job that pays less than $100K starting out. This is about $45K more than I bring home now. In addition I put my resume on a few websites and the phone will not stop ringing...

Heh. It's 1995 all over again. Anyone who could blow code and read a PERL script got a $100K/year job, and many military servicemembers were married to spouses whose tech careers made staying in uniform a losing proposition.

Some of the people who got out back then did great (they bought BMWs with their VSI), and others had five years of steady work until the tech recession started. The ones who were in the Reserves/Guard had a military income to fall back on.

I knew shipmates who bought PC parts, assembled custom systems, and configured them for dial-up Internet access-- they were making O-3 pay (each) after expenses for their night/weekend work. Another was programming on the side for Redhat, and turned a $40K investment into $400K overnight at the IPO. (The lockup whittled away at his winnings, but that still beat his military salary.) Another was teaching computer science courses nights/weekends at the local community college, which paid more than going to sea as an E-6 submarine nuclear-trained electrician. He left active duty as soon as he could. Another retired as an O-3 and ended up as a Bank of America tech exec-- until the recession started.

I've kept in touch with those guys over the years. None of them reached financial independence through those occupations. All of them became "self-employed" when the recession hit. Nearly 15 years later even the O-3 (with a military pension) is still working.

If you do take VSI and continue in the Reserves/Guard to a military pension, then the VSI will be recouped when your pension starts. However it'll be (at least) eight years later (and maybe a couple of decades), and no interest will be charged. You'll have borrowed $55K for an incredibly long time at zero percent interest, so VSI should not stop you from pursuing a Reserve/Guard career and a military retirement.

At the 20 year mark I would receive about $1950 a month plus healthcare for life. However, the military is only going to give annual raises of 1% in the foreseeable future. That would mean the retirement is going to be about $1500 in today's dollars after paying for the survivor benefit plan. I figure the retirement is equal to about $400K-450...
What would you do?

Show us your math-- or feel free to send me a PM/e-mail.

Over the next eight years you'll not only have the annual pay raises (whatever Congress tells DoD to do), but possibly four longevity (seniority) pay boosts as well as a promotion or two. It depends on your current rank, so one way to estimate your pension (in today's dollars) would be to take today's pay tables with 20 years of service and possibly one more promotion. Then deduct the 6.5% SBP premium.

Now figure out how much you'd need in I bonds to throw off that same monthly inflation-adjusted income. The military pension COLA is significant-- through the last 12 years (and two recessions) my pension income has grown over 27%.

And then figure out how much you'd have to pay to get a civilian survivor benefits policy that matches the military program, because SBP subsidizes at least 50% of the premiums.

You won't get that type of highly-reliable inflation-adjusted pension from a civilian career, let alone survivor benefits, so you'd have to figure out a reasonable approximation of your civilian retirement benefits. Moshe Milevsky's "Are You A Stock Or A Bond?" suggests looking at annuities.

I figure the retirement is equal to about $400K-450...

Again, you might be lowballing it.
Asset allocation considerations for a military pension
“Present value” estimate of a military pension