Putting a value on Military Retirement

[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]

Quote:

Originally Posted by 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.

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]

Quote:

Originally Posted by 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

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]

Quote:

Originally Posted by braumeister 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.

[ncbill]

Quote:

Originally Posted by deserat 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]

Quote:

Originally Posted by 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

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]

Quote:

Originally Posted by 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.

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.

[Fire26]

Quote:

Originally Posted by aaronc879 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).

Maybe I am high maintenance but $27500 would not cut it, especially with a wife and 2 kids at home...both our families far away, saving for college, etc. I think my bear budget where I would still enjoy life a little is around $50k

shooting for $80k-$90k and that is post kids, but I want to spend a few years traveling...now, I am just waiting for the youngest to finish high school.

[aaronc879]

Quote:

Originally Posted by Fire26 Maybe I am high maintenance but $27500 would not cut it, especially with a wife and 2 kids at home...both our families far away, saving for college, etc. I think my bear budget where I would still enjoy life a little is around $50k shooting for $80k-$90k and that is post kids, but I want to spend a few years traveling...now, I am just waiting for the youngest to finish high school.

Everyone is different. I have lived on less than $27,500 every year of my life. My average gross income for my 20 highest earning years is around $28K/yr. Living on $27,500 or less is very easy for me so working longer would make no sense. If you want to pay for your kids college(not a requirement) and have a lot of luxuries in life then you will need to work longer. Only you can decide what is enough for you to be happy. No amount of money could make me happy if I still had to work full time but that's just me.

[av8er]

The DoD Office of the Actuary provides statistical reports on the military retirement system that, through 2018, included a present value estimate for non-disability retirement. Not sure why they discontinued it after 2018. Perhaps the new BRS introduced too many variables and complicated the math.

Page 275 of the 2018 report displays DoD’s estimate of present value: https://media.defense.gov/2019/May/1..._2018%20V5.PDF

[trixs]

Quote:

Originally Posted by SnowballCamper The value would be relevant to a servicemember deciding to leave service before 20 years active. It would tell them how much more they need to make as a civilian to have a comparable retirement.

It is also useful to identify how much staying an extra year and increasing the pension amount is truly worth.

[Raygun99]

Quote:

Originally Posted by 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.

I hope the benefits stay intact. Its hard to predict health so I agree it should not be part of the formula.

For me and DW the Tricare has far outweighed the pension. I went the Reserves route so pension dollars quite low (14K) but the Tricare has more than paid for the 25 years of weekend drills and summer excursions. Age 68.. Have had 3 surgeries 200K +...Between Medicare and Tricare out of pocket zero. Have been on $500 per month medication average for more than 5 years and out of pocket max $150 per year Express Scripts..

[Musica40]

In March , I will have been retired 23 years from the Air Force. I collect $22455 per year in military retirement. If I base it on one million dollars, this would be a 2.25% draw. As someone above (kitesurfer2) mentioned, you also have to consider the Tricare we receive. My goal was to pay off my mortgage (done), have no bills (done) and have net worth of over $1 million dollars (done) We have met all our goals, Retirement looks good and we have more than enough to live. We are blessed and look forward to our future retirement.

[imnontrad]

First of all, I do not include the value or my retirement in my net worth.
However, I do consider is a "bond-like" asset in any decision of stock/bond ratio.
I calculate its worth as (yearly amount received/0.04) - as in how much would I have to have in a bond to have a 4% withdrawal rate equal to what I would get for military retirement.

[jjbychko]

As someone already said go to annuities.com or whatever to find the value. Unlike others, it is a worthy exercise. People always ask do I have enough to retire. I am retired myself. I always found it useful to read historical posts from others on their retirement outcome - home much they had saved, age, expenses, outcome. I felt if others were ok with less, then I got a degree of comfort. Just some additional data points.

[Nords]

Quote:

Originally Posted by ExFlyBoy5 @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).

Thanks for the tag, ExFlyBoy5!

[First, a note to the rest of the forum. I'm not a member of the retention team, and this post is not intended to suggest that it's worth staying in the military for the pension. When active duty is no longer challenging & fulfilling, then it's time to transfer to the Guard or Reserve... or even go full civilian. Don't worry about pensions. Military families have far too much human capital to gut it out to 20.]

Quote:

Originally Posted by Fire26 Need? No need. Just trying to quantify it, see if it was worth it, use it to guide my kids decisions, my coworkers decisions (still a contractor for the military). I guess for what I want the number for my original calculation meets the need... Using the 3% SWR I want an $80k retirement. I guess I could just as easily ignore the retirement and say I want $52,500 using the 3% rule, in the end the final numbers are the same. Of course as we age and medical problems kick in the value of Tri-Care my be the real win...and I won't even try and calculate that.

I use I bonds for two reasons. First, as far as I can tell they're the easiest proxy to use to check your inflation-adjusted life-annuity math. This may not be rigorous, and you certainly can't buy that many I bonds, but they're an easy proxy.

A TIPS fund might work too, as long as you can easily find the yield. Maybe Vanguard's TIPS fund is a good proxy.

Second, when your inflation-adjusted pension is the equivalent of your bond asset allocation, you don't need to invest in annuities or bonds. You might not even need to invest in real estate-- you could just put the remainder of your assets in a total stock market index fund (with low expense ratios). Hopefully you won't be upset by the volatility of the stock market, because the inflation-adjusted life annuity has no volatility.

Your $27,500 annual income could be delivered by a portfolio of I bonds. This month they're yielding 1.68%, so the value of your pension would be ~$1.6M.

Here's some other methods from a post that's nearly six years old:
https://the-military-guide.com/prese...itary-pension/
I'm not sure whether companies still offer quotes on inflation-adjusted annuities.

[This is a flawed analogy. If you're a nuke like me, then we can stipulate that this analogy has its limits, and there's no need to nitpick.]

Quote:

Originally Posted by Gumby 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.

"Life is simple. You're either qualified or you're delinquent."
-- All of my XOs.

[Mook1e]

I use this https://www.hughcalc.org/cola.php


Seems to align with Nord's calculation (for 40 years)


It may be a bit optimistic.