Putting a value on Military Retirement

[corn18]

My reason for asking was strictly from a FIRE/SWR aspect so when I die is not relevant.

Just trying to see where it fits into fire and SWR, not "how much will I get"

That's a good reason to ask. I still find it difficult to apply the SWR rule to my retirement. A military pension and then SS @ 70 covers a lot of expenses that others need to save for. I finally just caved in and made a spreadsheet that had all my income by year and goes out to 100. Then I plugged in my best guess at expenses by year. It showed that I didn't need any savings @ 70 because the pension + SS covered all expenses. The big unknown is LTC. So I plan to have some left @ 70 to try to cover that. Other than that, I can spend like a madman between 55 and 70.

 

[aaronc879]

My reason for asking was strictly from a FIRE/SWR aspect so when I die is not relevant.

Just trying to see where it fits into fire and SWR, not "how much will I get"

I would have retired immediately at age 40 if I had a cola'd pension worth $27,500 starting plus healthcare paid for for life. Why keep working? It's good to have options. I can choose to retire immediately in your position while you can choose to work longer(for some reason).

 

[ExFlyBoy5]

I agree with other posters in that there isn't any one "correct" way but I like the 25x for a general idea. For planning purposes, don't forget what would happen if you kicked the bucket. As far as I know, the maximum SBP is 55% of your base retirement...and that could be a kick in the teeth if your death was unexpected.

@Nords might weigh in as well, he's very versed on the mil side of FIRE and has written a couple of articles on the value of the mil pension. You should be able to find it through a Google search (include The Military Guide in your search query).

Also, as others have mentioned, Tricare can very well be worth as much (or more) in true $$$ than the retirement. DWs recurrent spinal tumors have been operated on 3x and we have reached the OOP max twice so far. Without Tricare, we would most definitely have to w*rk and would be spending A LOT of money on healthcare.

My scoreboard is binary. Are you qualified to wear these? If not, no amount of money in the world can make up for that lack.

Move along, squid...don't you have a deck that needs swabbing or something?!

One reason to add the future value of periodic payments to your net worth is so one does not feel so inadequate when surfing celebrity net worth.

As far as I can tell, it's a vanity thing and not very useful for anything else. To see where you stand on the scoreboard of life, pffft!

Vanity? Keep from feeling inadequate? Well, aren't you a ray of positivity this morning? Matches your avatar pretty well.

 

[HawkeyeNFO]

Count me as another who doesn't really care about that math. Expenditures minus my retirement checks equals the amount I need from the portfolio (or paycheck). And, separately, the Tricare and other benefits are tough to estimate.

My scoreboard is binary. Are you qualified to wear these? If not, no amount of money in the world can make up for that lack.

No thanks. No bonuses or anything else would make me want to be a submariner. Thank you Gumby for doing your job, so that people like me didn't have to.

 

[ncbill]

I agree with other posters in that there isn't any one "correct" way but I like the 25x for a general idea. For planning purposes, don't forget what would happen if you kicked the bucket. As far as I know, the maximum SBP is 55% of your base retirement...and that could be a kick in the teeth if your death was unexpected.

@Nords might weigh in as well, he's very versed on the mil side of FIRE and has written a couple of articles on the value of the mil pension. You should be able to find it through a Google search (include The Military Guide in your search query).

Also, as others have mentioned, Tricare can very well be worth as much (or more) in true $$$ than the retirement. DWs recurrent spinal tumors have been operated on 3x and we have reached the OOP max twice so far. Without Tricare, we would most definitely have to w*rk and would be spending A LOT of money on healthcare.
:

No kidding...and you don't have to be retired...e.g. Tricare Reserve Select is a huge bargain...could I roll back the clock a couple of decades it'd be worth joining the Guard for that benefit alone.

 

[deserat]

Are you squids squawking again? ;-) ;-) I would put a picture of my space badge, Spings, Logistics and Acq badge, but I'm too lazy....plus, I don't know where they are.

To the OP, I do calculate the value of my pension - the 25X is a good one or divide by 4%. I also looked at the annuity calculator. For me the value was in determining how much extra I might need to earn to augment that pension for any spending I may require. I was a Reservist, so won't receive my pension until age 60, so if I decide (yes, I hear you REWahoo!!!) to really retire in the next year or so, I would like to know what my 'bridge' to that pension should be.

VPW worksheet at Bogleheads does a quasi-valuation as well, calculating the 'bridge amount' to the pension receipt date as well as a withdrawal amount based on your AA. It's a nifty spreadsheet with some decent chops behind it and much less onerous than the RPM.

The comment about TRICARE is a good one, as well, although, that benefit is slowly losing its platinum value. I currently work for the DHA/Army and am watching as retiree medical is being 'outsourced' through TRICARE with less access for retirees to military medical facilities (which will also probably go outsourced more than before). Nevertheless, the premium amount and then the TRICARE for life at Medicare age are nothing to sneeze at compared to most other healthcare plans. However, TRICARE Retired Reserve costs about as much as regular insurance as the 'gray area retiree' is not being subsidized in any form or fashion.....

 

[braumeister]

I think it's the COLA that makes a military retirement benefit so valuable.

Looking at the cumulative inflation since I retired from the Air Force until now, my military retired pay has gone up almost exactly the same amount. That's pretty hard to beat.

 

[deserat]

I think it's the COLA that makes a military retirement benefit so valuable.

Looking at the cumulative inflation since I retired from the Air Force until now, my military retired pay has gone up almost exactly the same amount. That's pretty hard to beat.

Yes - sometimes I kick myself for not just gutting out the 20 years or so....but then, I probably wouldn't have had the interesting careers (military and civilian) that I did; plus the Reserve pension is nothing to sneeze at either if you were able to get a fair amount of points and rank....

 

[CRLLS]

My reason for asking was strictly from a FIRE/SWR aspect so when I die is not relevant.

Just trying to see where it fits into fire and SWR, not "how much will I get"

I'm not trying to be argumentative.

However, if you reset the mindset to "what do I need above the pension", then do as I said in my 2nd para.

Have you used FireCalc? You can enter a pension with inflation adjustments and see where you end up with a withdrawal amount. Then compare the same without the pension.

If you just want a "feel good" number of your net worth today well then, that's a different discussion.

 

[ExFlyBoy5]

The comment about TRICARE is a good one, as well, although, that benefit is slowly losing its platinum value. I currently work for the DHA/Army and am watching as retiree medical is being 'outsourced' through TRICARE with less access for retirees to military medical facilities (which will also probably go outsourced more than before). .

I know my opinion probably goes against the grain, but we MUCH prefer being on the "open" market as opposed to the military medicine machine.

When DW was first diagnosed with the tumor (which was done by the mil, and only *after* I was threatened with an Article 15 because of my "poor attitude" at the medical malpractice that was happening) she was operated on by an O-6 that by all appearances was THE go to guy for this type of surgery...after all, he was the guy that stood up the TBI clinic/surgical teams in Iraq.

Well...guess what? It wasn't until the tumor recurred that we realized how terrible that MD was in what he did. THANKFULLY, when it came back, I was in a Tricare remote area and she HAD to see a civilian. It just so happened that the surgeon that WOULD take her case (a couple of Tricare network providers refused to operate on her so she was able to get an out of network provider) is one of the best and really worked miracles...no thanks to the mess that the mil doc left.

Tricare has not disappointed. When the tumor came back the 3rd time, it was suggested that she go BACK to the last surgeon. We thought that there might be an issue since he wasn't a Tricare provider and was almost 1,000 miles away, but we were still able to get the referral with no issues and she was able to come back home for the follow up radiation/proton therapy. I have NOTHING but praise for Tricare. Have we been lucky? Perhaps.

Sorry for the hijack, but thought it was at least somewhat useful to the conversation.

 

[deserat]

I know my opinion probably goes against the grain, but we MUCH prefer being on the "open" market as opposed to the military medicine machine.

When DW was first diagnosed with the tumor (which was done by the mil, and only *after* I was threatened with an Article 15 because of my "poor attitude" at the medical malpractice that was happening) she was operated on by an O-6 that by all appearances was THE go to guy for this type of surgery...after all, he was the guy that stood up the TBI clinic/surgical teams in Iraq.

Well...guess what? It wasn't until the tumor recurred that we realized how terrible that MD was in what he did. THANKFULLY, when it came back, I was in a Tricare remote area and she HAD to see a civilian. It just so happened that the surgeon that WOULD take her case (a couple of Tricare network providers refused to operate on her so she was able to get an out of network provider) is one of the best and really worked miracles...no thanks to the mess that the mil doc left.

Tricare has not disappointed. When the tumor came back the 3rd time, it was suggested that she go BACK to the last surgeon. We thought that there might be an issue since he wasn't a Tricare provider and was almost 1,000 miles away, but we were still able to get the referral with no issues and she was able to come back home for the follow up radiation/proton therapy. I have NOTHING but praise for Tricare. Have we been lucky? Perhaps.

Sorry for the hijack, but thought it was at least somewhat useful to the conversation.

No worries - I have also worked for Kaiser - horror stories there, too, as well as the VA - I have been fortunate that I haven't personally experienced malpractice outside of an overeager German ENT wanting to do surgery (I got a second and third opinion about that) and a dentist who swore I had caries (that was BS) - people are human and half of the MDs graduated in the bottom half of their class....I told some of the docs I worked with that I could find out more about a used car than about their skills and how they were 'racked and stacked' with regard to their 'harm rate.' It is difficult to find out who is good/not good. I've relied upon nurses I know and MDs I know to tell who they would use....

 

[retire202052]

One reason to add the future value of periodic payments to your net worth is so one does not feel so inadequate when surfing celebrity net worth.

As far as I can tell, it's a vanity thing and not very useful for anything else. To see where you stand on the scoreboard of life, pffft!

I don't believe the OP asked for anyone's opinion on the usefulness of the value of his pension. He was just asking for formulas to determine the value.

On that note.....I live by that scoreboard

 

[corn18]

I was reading on bogleheads about a net present value (NPV) way to look at retirement. It fits pretty well for anyone with a COLA pension. And it's easy! I use real dollars and assume we are both dead exactly at age 90. You can pick whatever end date you want. In my case it doesn't matter because income > expenses after age 72.

NPV(income) - NPV(expenses) = savings required

NPV(income)

$46,292 x 17 years = $786,964 (military pension - survivor benefits payment)
$49,524 x 18 years = $891,432 (military pension without SBP)
$42,884 x 20 years = $857,680 (my SS starting @ my age 70)
$17,292 x 19 years = $328,548 (spousal SS starting @ my age 71)

$2,864,624 Total income from 55 to 90

NPV expenses

$102,379 x 35 years = $3,583,265

$2,864,624 - $3,583,265 = $718,641 required @ 0% real return

You can pick a different real return and you will need less to retire.

I like this approach for its simplicity and ease of calculation.

 

[Bigdawg]

Using your example Corn:

NPV(income) - NPV(expenses) = savings required

NPV(income)

$56,748 x 35 years = $1,986,180 (military pension w/o SBP)(me)
$40,908 x 35 years = $1,431,780 (military pension w/o SBP)(DW)
$41,052 x 20 years = $821,040 (my SS starting @ my age 70)
$41,868 x 14 years = $586,152 (DW SS starting @ my age 76)

$4,825,152 Total income from 55 to 90 (DW 49-84)

NPV expenses

$108,292 x 35 years = $3,790,220

$4,825,152 - $3,790,220 = -$1,034,932 required @ 0% real return

With no SBP we both have 1 mil term insurance up to age 70.

 

[Bigdawg]

 

[Gumby]

I do respect the Wings of Gold and the EGA. On a slightly more serious note, it's a good reminder that not everything of value in our lives can be measured in dollars. The honor and pride of having served our nation in challenging circumstances is one that not many have. I salute you all.

 

[corn18]

Using your example Corn:

NPV(income) - NPV(expenses) = savings required

NPV(income)

$56,748 x 35 years = $1,986,180 (military pension w/o SBP)(me)
$40,908 x 35 years = $1,431,780 (military pension w/o SBP)(DW)
$41,052 x 20 years = $821,040 (my SS starting @ my age 70)
$41,868 x 14 years = $586,152 (DW SS starting @ my age 76)

$4,825,152 Total income from 55 to 90 (DW 49-84)

NPV expenses

$108,292 x 35 years = $3,790,220

$4,825,152 - $3,790,220 = -$1,034,932 required @ 0% real return

With no SBP we both have 1 mil term insurance up to age 70.

Congrats! You have won the game. By 100 miles. How do you like this approach?

 

[Lawrencewendall]

I personally found it valuable to calculate my NW. Once I added military retirement, VA Disability, DW's SSDI, withdrawal of 401k up to the 12% bracket, divided by 4x100, I realized I didn't need to be spending 3 hours a day commuting for money I didn't need to pay the bills, with a buffer! I put in my resignation within 2 weeks. F w*rk! That was 1.5 years ago

 

[deserat]

I personally found it valuable to calculate my NW. Once I added military retirement, VA Disability, DW's SSDI, withdrawal of 401k up to the 12% bracket, divided by 4x100, I realized I didn't need to be spending 3 hours a day commuting for money I didn't need to pay the bills, with a buffer! I put in my resignation within 2 weeks. F w*rk! That was 1.5 years ago

Yup - so true.....you are receiving that now; even for those not there yet, it helps to quantify streams of income over time as well as visualize where one can expect the income to cover their lifestyle costs...add in that it is COLA and it is one of the most valuable parts of one's income stream plan.

I was a Reservist and frankly did not pay attention to that aspect of it until I started calculating retirement. It blew me away when I was at my retirement how much that part-time job (with some full-time stints, of course) was worth both for a pension, the TSP I was allowed to contribute to and the healthcare coverage at age 60 and beyond....I had been working on the other side of the line, building up tax deferred assets, after-tax assets, LYBM and other possible pensions/etc.

I spend a bit of time at Bogleheads (many of whom are not military and never have been) and they throw around the amounts required to FIRE/etc. I would say at least $2M or so for comfort (plus the SS) is an average (some go a bit lower/higher - the VPW thread has a portfolio of $1M plus SS in his monthly tracking of that model). That COLA'd military pension many times is worth +$1-2M that does not have to be sitting in a portfolio generating income. That's why it was important to me to calculate what it was worth as an annuity. It was that much less I had to save/invest to provide an income in retirement.

 

[Badger]

In addition to the monthly pension I also would include the value of medical coverage (Tricare for Life) that is part of the retirement benefits that would be worth thousands of dollars annually if you had to buy health insurance with after tax dollars. I don't know what you would have to pay for the same coverage but it must be far more than $10k/yr.



Cheers!

 

[WestUniversity]

I've never even attempted to calculate it, because I see no reason.



I look at what I plan to spend, then subtract what I get in military retirement pay (and also what I get in SS now). The remainder is what I'm going to withdraw from my portfolio. A simple (perhaps simple-minded) method.

[emoji106]

 

[ncbill]

Yup - so true.....you are receiving that now; even for those not there yet, it helps to quantify streams of income over time as well as visualize where one can expect the income to cover their lifestyle costs...add in that it is COLA and it is one of the most valuable parts of one's income stream plan.

I was a Reservist and frankly did not pay attention to that aspect of it until I started calculating retirement. It blew me away when I was at my retirement how much that part-time job (with some full-time stints, of course) was worth both for a pension, the TSP I was allowed to contribute to and the healthcare coverage at age 60 and beyond....I had been working on the other side of the line, building up tax deferred assets, after-tax assets, LYBM and other possible pensions/etc.

I spend a bit of time at Bogleheads (many of whom are not military and never have been) and they throw around the amounts required to FIRE/etc. I would say at least $2M or so for comfort (plus the SS) is an average (some go a bit lower/higher - the VPW thread has a portfolio of $1M plus SS in his monthly tracking of that model). That COLA'd military pension many times is worth +$1-2M that does not have to be sitting in a portfolio generating income. That's why it was important to me to calculate what it was worth as an annuity. It was that much less I had to save/invest to provide an income in retirement.

Yep, which is why I'm begging my kids to go career, even if that means moving from AD to Guard/Reserve...the oldest will be AD for a decade anyway.

 

[leftbucket]

While it might not be a valuable calculation to some on this board, I can assure you it is of immense importance when giving advice, mentoring, etc. (as has been referenced by the OP). I have seen people make ridiculous decisions because they did not calculate the value and factor this into their choices.

The rule of thumb I use is:
20X expected pension for a reserve check (when the pension actually starts)
25X for an expected AD pension
30X for a VA check (where the disability is likely to be permanent)

If the vet expects to use it, I would add about $250k for the healthcare, but this may not be such a big deal if the vet is eligible/interested in other healthcare (Fed, VA, spousal)


Cheers,
LB

 

[ExFlyBoy5]

I was reading on bogleheads about a net present value (NPV) way to look at retirement. It fits pretty well for anyone with a COLA pension. And it's easy! I use real dollars and assume we are both dead exactly at age 90. You can pick whatever end date you want. In my case it doesn't matter because income > expenses after age 72.

NPV(income) - NPV(expenses) = savings required

That is a pretty awesome calculation. I have tried varied formulas/examples to help illustrate to my DW why she doesn't have to continue to w*rk for monetary reasons. This one shows it quite plainly that we have most certainly won the game...

 

[ExFlyBoy5]

I do respect the Wings of Gold and the EGA. On a slightly more serious note, it's a good reminder that not everything of value in our lives can be measured in dollars. The honor and pride of having served our nation in challenging circumstances is one that not many have. I salute you all.

I couldn't have said it better. As happy as I am to get wake up pay every month I am quite fortunate to have had a fantastic career in the Air Force that will never be taken from me. While I don't wear my pride on my shirt (literally have no "retired mil" gear to show off to others) it certain swells in my heart.