Putting a value on Military Retirement

[Fire26]

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]

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/14/2002131753/-1/-1/0/MRS_STATRPT_2018 V5.PDF

 

[trixs]

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]

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]

Is it worth putting a value

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]

@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.]

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/present-value-estimate-of-a-military-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.]

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.

 

[Out-to-Lunch]

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.

This makes sense to me so far...

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.

But this does not make sense to me. The portfolio you describe would indeed throw off the inflation-adjusted dividends equal to the pension. However, when you die, your estate would STILL HAVE the I-bonds.

Wouldn't a better comparison be to construct a theoretical ladder of I-bonds out to, say, your life expectancy? For corn's ~35 year horizon, that would cost ~$740k at that I-bond rate.

Or, said another way: If you had $1.6M in the bank, few people would opt to use it to purchase a COLA annuity paying $27.5k.

 

[WWDog]

I've kept a spreadsheet for several years. Quite detailed calculating my net worth, projecting by month my expenses etc. After several years I came to realize that since I am putting away each month more than I used to make while on active duty. The military retirement and savings in health care etc. is the key to that savings. My grown children will some day inherit a nice bundle that should set them up well.

 

[Mook1e]

 

[friar1610]

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.

I’ve always thought the same way about mine.