Retiring from the Armed Force. 20 to 30 years.

[Sam]

I understand that if you retire after 20 yrs of service, your pension is 40% of your last basic pay.* 75% after 30yrs.

What do you get if you retire sometime after 20yrs and before 30yrs of service?* What formula do you use?* Link?

Just curious,
Sam

[Nords]

Quote:

Originally Posted by Sam I understand that if you retire after 20 yrs of service, your pension is 40% of your last basic pay.* 75% after 30yrs. What do you get if you retire sometime after 20yrs and before 30yrs of service?* What formula do you use?* Link? Just curious, Sam

Actually it's a little more complicated than that. Well, OK, it's a LOT more complicated than that.
Keep in mind that military pensions are only tied to BASE pay, nothing else-- no bonuses, allowances, or special pays. Base pay isn't much more tnan 70% of a paycheck and sometimes even less.

Final Pay: If you entered the service before 8 September 1980 then your retirement pay is based on your final pay scale.

High Three: If you entered the service between 8 September 1980 and before 1 August 1986 then your pension is based on average of the pay scales in effect for your final 36 months of active duty. In addition your first cost-of-living adjustment (COLA) after retirement is reduced by one percent from the Consumer Price Index (CPI) estimate of inflation.

Career Status Bonus: This system affects everyone who entered the military on or after 1 August 1986. Originally called "REDUX", it promises a $30,000 bonus in the 15th year of service in exchange for a reduction in benefits. REDUX base pay is still calculated on the "High Three" system but, up to age 62, the pension is usually smaller and COLAs are reduced by one percentage point from the CPI. In the year 2000 the Congress, alarmed by reduced retention and extensive feedback from service chiefs, changed REDUX back to the "Career Status Bonus" system. This is the same as the "High Three" system with the option of converting to REDUX.

Now that you've located your final pay scale or calculated your high-three average, you're ready to apply your service multiple. If you're retiring with 30 years of service, it's 75%. If you're somewhere in between 20 and 30 years, then it's 2.5% times your years of service, with each leftover month counting as one-twelfth of a year. (If you had 23 years and 5 months of active duty then your multiple would be 2.5% x (23 + 5/12) = 58.54%.) If you took the REDUX retirement option-- and this is usually a bad idea-- then your service multiple is reduced by 1/12th of a percent for each month of service less than 30 years. If you're retiring at 20 years under REDUX, your service multiple is only 40% instead of 50%.

However, and it's another big caveat, you can still wipe out your military retirement COLA by taking the REDUX bonus. It seems like such a simple thing at your 15th year of service: if you agree to a smaller service multiple and give back 1% of your COLA between retirement and age 62, then Congress will hand you a check for $30,000. At age 62 you'll receive a "catch-up" adjustment to your retirement pay and your COLA, so REDUX seems like a pittance alongside that big $30,000 payment. The catch is that compounding makes all the difference, and your elected representatives are hoping that you haven't bothered to check the math. If you retire at age 37 on 40% of your base pay and give back 1% of your COLA for the next 25 years, then by age 62 your pension will only have 62% (four fifths of 78%) of the purchasing power of its "High Three" equivalent. You may be able to overcome that drag (after taxes) if you dump your REDUX bonus into an equity index fund and ignore it for 25 years, but the vast majority of REDUX recipients have chosen to invest their $30K in pickup trucks. The REDUX bonus may be a lifesaver if you're struggling with credit-card debt, trying to buy a home, or start a business, but it's usually wasted on consumer goods.

[Arif]

Quote:

However, and it's another big caveat, you can still wipe out your military retirement COLA by taking the REDUX bonus. It seems like such a simple thing at your 15th year of service: if you agree to a smaller service multiple and give back 1% of your COLA between retirement and age 62, then Congress will hand you a check for $30,000. At age 62 you'll receive a "catch-up" adjustment to your retirement pay and your COLA, so REDUX seems like a pittance alongside that big $30,000 payment. The catch is that compounding makes all the difference, and your elected representatives are hoping that you haven't bothered to check the math. If you retire at age 37 on 40% of your base pay and give back 1% of your COLA for the next 25 years, then by age 62 your pension will only have 62% (four fifths of 78%) of the purchasing power of its "High Three" equivalent. You may be able to overcome that drag (after taxes) if you dump your REDUX bonus into an equity index fund and ignore it for 25 years, but the vast majority of REDUX recipients have chosen to invest their $30K in pickup trucks. The REDUX bonus may be a lifesaver if you're struggling with credit-card debt, trying to buy a home, or start a business, but it's usually wasted on consumer goods.

I actually did a spreadsheet for a friend that was contemplating taking the 30k at 15 years of service. I don't have it in front of me but the gist of it was if you took the 30k and invested it in the S&P and then started withdrawing the 10% shortfall (50%-40%) after about ten years the 30k would be gone. Before even running the calculations I used to tell folks to just wait to 20 years and get your 50%. Don't even get me started on going over 20 years and what a ripoff that is. Congress sure knows how to get the uneducated when they're not looking.

[Rustic23]

I am glad I was in the before 1980 crowd!

[JPatrick]

Quote:

Originally Posted by Arif Don't even get me started on going over 20 years and what a ripoff that is. Congress sure knows how to get the uneducated when they're not looking.

The over 20 option can be very lucrative in some situations depending on grade and time in grade.* For some, hanging on to 22 can be huge, others probably not.

[Sam]

Quote:

Originally Posted by Nords Actually it's a little more complicated than that.* Well, OK, it's a LOT more complicated than that.

Thank you Nords.* You're right, it's complicated.

Sam

[Nords]

Quote:

Originally Posted by JPatrick The over 20 option can be very lucrative in some situations depending on grade and time in grade.* For some, hanging on to 22 can be huge, others probably not.

I don't know how it is in the other services, but unless you're already seen as a future admiral, when you get to this point in your Navy career the duty stations & billets generally suck so badly that it's impossible to muster the intestinal fortitude (let alone the family's patience) to hang around for the next longevity raise.

[Sam]

Quote:

Originally Posted by Nords I don't know how it is in the other services, but unless you're already seen as a future admiral, when you get to this point in your Navy career the duty stations & billets generally suck so badly that it's impossible to muster the intestinal fortitude (let alone the family's patience) to hang around for the next longevity raise.

Nords,

Not sure I understand this one.* Sounds like you're saying the optimal time to get out is right at 20 years?* Could you elaborate?

Sam

[Nords]

Quote:

Originally Posted by Sam Not sure I understand this one. Sounds like you're saying the optimal time to get out is right at 20 years? Could you elaborate?

I'll go even farther than that. The time to get out is when it stops being fun. I gritted it out for about eight years past that point, and if I'd had any idea what the Navy Reserve had to offer then I would have been gone in a heartbeat. I wasn't blissful but we sure were ignorant.

Again I may not be speaking for the other services, but let me tell you what happens in a typical Navy career path. You make O-4 at about 9-11 years of service. You start competing for O-5 at about 15 years of service. If you don't select for O-5 by the second try then you'll probably never make it. The result is that you're at about 16-17 years of service, at least a full tour short of a pension, and all the "good" O-4 billets are being saved for O-4s who actually have a chance of making O-5. However the assignment officers are always looking for someone to be that U.S. Naval Liaison Officer in Chinhae, South Korea. If you want to start homesteading in your current port, then that might be a problem.

If you make O-5 then life is still fun-- you're heading off to a sea command and finishing that tour at about 18-19 years of service. You'll earn the types of fitness reports that send you on to the next highly professional developmental fun job or... you're not. If you're not, the assignment officer can tell if you're hanging on for a pension. (Guess what billets he's saving for that situation.) If you're gung-ho to develop a specialty that'll take you to 28 years that's a different story, but there will still be a certain amount of dues to pay before the fun comes back.

If you stay past 20 and select to O-6 then you're still having fun and you have no worries about the billet choices. But if you stay past 20 and don't select to O-6, there's plenty of jobs available for you with words like "Deputy" and "Assistant" and "Watch Officer". A couple of them are even in America. Sometimes that's fun, but if you have kids in American high schools then the family might not see it your way.

If you're an O-6 hanging on for that huge over-26 pay raise but you don't select for flag officer (the vast majority will not) then you'll end up in another one of those staff jobs with a high frustration quotient and a low quality of life. Sometimes by that point you've forgotten what fun is like, so it may not matter to you.

However it's possible to find some fun jobs. O-4s like me scurry into the training community and spend a few years teaching thousands of students (some of my most enjoyable tours). I know O-5 aviators who will spend the rest of their careers (up to 28 years) in various NAVAIR and BUWEPs jobs. They'll run experimental detachments, oversee weapons development programs, and maybe even get some flight pay. Many submariners go into the "acquisition professional" community with program planning & shipyard supervision. The U.S. Naval Academy runs a "Permanent Military Professor" program where you apply as an O-5, teach leadership & seamanship courses while you get your PhD, start teaching in your post-doc field, and remain at USNA until your senior retirement date. You're then expected to continue as an associate professor on a tenure track, and you may never want to retire from that. Knife fights will break out if you throw a PMP billet into a roomful of guys who want to spend their lives in the DC area tailgating at Navy-Marine Corps Memorial Stadium.

Generally the problems start between 10-20 years when you run out of fun jobs or when the selection statistics go against your performance. If the assignment officer smells even a whiff of "hanging around for retirement" then you go right to the bottom of the billet bucket. In some situations this may be the right choice to make-- 17 years of service, sole family provider, willing to relocate, no major family conflicts, last job before you ER. In most situations, as in civilian careers, it's better to get out and take a paycut pursuing your civilian career while you join the Reserves for weekends, or even to just get out and join the Reserves. I know many Reserve officers who live in one part of the country and take whatever temporary jobs are available at local commands (anywhere from 30-180 days) or volunteer for overseas tours (180 days to three years). With a little salesmanship & initiative it's possible to string together temporary-duty jobs for months or even years.

In my case I stayed active so that spouse & I could anchor our homeport in Pearl Harbor. It didn't work. If I'd entered the Reserves we would have probably stopped working by now anyway or, at worst, kept working for another 5-10 years at local Oahu commands. Things would have been a little bumpy when I would have been mobilized after 9/11, but we still would have had a better quality of life than the way we ended up doing it.

Spouse's case was even worse. She took a job out of community (she'd dead-ended in Pearl Harbor) and did so well at it that she was promoted by a mentor at 17 years. No one was more surprised than her, perhaps me, certainly her community managers. Her assignment officer essentially said "Well, for you to re-develop your career at this new rank, it's necessary for you to take a big step back and do a junior officer's job for two years." Aside from that argument, we'd just returned to Hawaii, found our dream house, and learned that her parents were moving to Oahu to watch their grandkid grow up. It wasn't a good time to announce "just one more move" let alone to Yokosuka. Spouse dug her heels in, the assignment officer called her bluff, and she left about two weeks short of 18 years of service (she was also just a couple days short of mandatory two-year orders to Japan). Having the financial independence part of FIRE (barely) to stick it out made a big difference, and she was willing to work in the Reserves. We estimate that she passed up about $750K in pay & pension, but her pension will start up at age 60 and she'll still make enough money for the life we care to live. The quality of life has been priceless.

One of the other two officers in that same situation retired at a lower rank. The third officer admits that he "folded like a two-dollar suitcase" and took the junior officer job. He retired at 20, which makes it tough to believe the sales pitch about the career re-development.

Spouse spent the first six months in the Reserves learning the system (at zero pay) but got a paying billet at the next opportunity and since then has enjoyed it far more than active duty (albeit for only up to a couple weeks at a time). She could work full-time if she wanted to-- there's plenty of vacant billets at local commands-- but she's been cutting back every year as I corrupt her work ethic she deprograms.

I guess the military moral of the story is to move on when the fun stops. Life might be bumpy for a while but in the long term it's better. If your morale sucks then so will your performance, and that just makes everyone miserable. Or dead.

[Sam]

Thank you Nords for the long detailed reply.* Reading material for me tonite!

Just one quick clarification for now:* When you say "if you don't select for O-5", what you mean is "if you don't get selected for O-5", right?* Sorry, I'm not familiar with Navy lingo.

Sam

[Nords]

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Originally Posted by Sam Just one quick clarification for now:* When you say "if you don't select for O-5", what you mean is "if you don't get selected for O-5", right?* Sorry, I'm not familiar with Navy lingo.

Yes, that's right, sorry about the jargon creep.

You "get selected" or you "select" for O-5, and a few months later (during the next fiscal year) you're actually promoted to that rank. If you don't make it on the first time you're eligible then you get a second try. If you don't make it after that you still get more chances but it's highly unlikely to make it after two tries.

I use O-5 because it's what I'm most familiar with, but it's similar in the senior enlisted ranks. In fact in the Navy it's been easier to make O-5 than it is to make E-8.

[JPatrick]

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Originally Posted by JPatrick The over 20 option can be very lucrative in some situations depending on grade and time in grade.* For some, hanging on to 22 can be huge, others probably not.

My comment here was in reference to Arif's comment which implied (to me) that financially it is all downhill after 20. *Actually it may not be depending on individual circumstances. *It's all in the math, remembering the circumstances created today may well have a 40 year multiplier or even more when dependents are considered.
However, I am quick to agree with brother Nords ascertion that it is really all about heart. *Any life decisions that are 100% financial, are probably bad decisions.

[Arif]

Quote:

My comment here was in reference to Arif's comment which implied (to me) that financially it is all downhill after 20. Actually it may not be depending on individual circumstances. It's all in the math, remembering the circumstances created today may well have a 40 year multiplier or even more when dependents are considered. However, I am quick to agree with brother Nords ascertion that it is really all about heart. Any life decisions that are 100% financial, are probably bad decisions.

I don't think it is worth it to stick around after 20 years financially. The amount of increase in pension is more than offset by taking a civilian paying job with the same pay even if you lived 40 years after retirement.

[Arif]

Nords,
Your post is 100% spot on target and applies to the Army as well. As my wife and I were finishing up our 10th year we were disappointed in the positions available to us. I can honestly say that there were no positions that I saw and said "man I can't wait to pin on 0-4 so I can do XYZ." Seemed like all of our fun jobs were behind us (company command, etc.) and we were staring at staff jobs and being seperated for atleast a year. In additon, with a 3 year old we weren't willing to make that sacrifice again. We haven't regretted our decision to get out when we did. Actually it was one of the best moves at the time. I even joked with my wife that I should stay in until Feb to see if I made the 0-4 list. She didn't get the joke.

[JDARNELL]

I concur with Nords assessment.* You could take out Navy and insert AF and you would have it.* The AF is the same way.* When you have x number of yrs* they know they have you.* In my case I have 16 yrs in (4 as enlisted) and when the assignment bubbas came calling I wanted location and a fun job over move up job and I got a resounding "no hell no."* I even told them I would take my chances at my next promtion board.* No such luck.* I was more than willing to seal my fate and remain an 0-4 and no one would listen.* It was unreal.*

There was a very frank dialog between several GOs about my preference and it was determined that "the needs of the service" was most important and if I refused I would completely hose myself.* My records are on the upper end and I was slotted in an excellent job, the junior ranking guy again,* but the entire situation is not even close to what I wanted.*

As for staying past 20 under the high 3 pay system that 3rd year time in grade as an 0-5 really adds alot to retirement.* I think my optimal point will be 21.3 yrs.

Tomcat98