November 30

How to Calculate the Present Value of Military Pension Benefits

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Retiring from the military is a big deal. You've spent your entire career working to earn that pension amount, and now it's time to start enjoying it. But do you know what you're getting? If not, there are some important things to consider before signing off for good.

How much is a military pension after 20 years of service worth?

In the video at the top of this page we discuss why it's important to calculate the present value of military pension. Have you ever thought about it that way? 

Let's put it this way. You've served twenty or more years for your country. The tax-payer's are generous enough to pay you a monthly pension. Starting on the day you leave the military! That could be years of tax-payer funded benefits!

That, is a tremendous amount of value. And why it's important that you understand how to do a present value analysis of your pay. 

You've served twenty or more years for your country. The tax-payer's are generous enough to pay you a monthly stipend. Starting on the day you leave the military! That could be years of tax-payer-funded benefits that are far better than social security benefits! That is a tremendous amount of net present value. And why it's important that you understand how to do a present value analysis of your pay.


value of military retirement

What is the Real Value of Military Retirement?

It's important to make sure you value your retirement pay correctly, and until recently it hasn't been an easy thing to do. Calculating the value of a military pension is actually pretty simple if you know what data to look for and where to find it (i.e. the Department of Defense Finance and Accounting Services).

How valuable is a military retirement pension pay in today's dollars?

The idea that retirement pay is valuable seems to be a common subject to many financial articles and retirement calculators. But what exactly are the retirement benefits of serving 20 years in the military worth? What about 30 years? You may be surprised to hear that it is really worth a lot of money.

Your Retirement Age For Your Pension Plan

First things first, your retirement age is not the most important factor when determining how much money you're about to start getting in retirement. Unlike most retirement plans a military pension is based on time in service regardless of age. The military has retirement plans all mainly for those who serve 20 or more years to a defined benefit. What that really means is that they've earned an income stream for life.

How do military pensions work?

A military pension account pays out until death, and it usually begins paying off at a specific immediately after retirement from military service. The monthly benefit you get is based on the number of years you served and your rank.

Pension Payments

How to Take Your Pension Payments

A note of warning, if you are offered a lump sum payment be aware that it simply cannot have the same value as a full military retirement plan pension benefit. Nor would it be tax-free.

However, those who use this option smartly have a different approach to personal finance than most. They aren't worried about their retirement savings and investment portfolio.

Present Value Calculation

These people view their net worth as a present value calculation. How much can they earn in a lifetime? What is the future value they can earn by taking a lump sum for their years of service?

This is also how you should value your pension options because you will receive an annual pension with a cost of living adjustment for your expected lifetime!

Value of a Pension

Being able to calculate the present value of military pension payments is extremely important when planning for post-military life. Especially if you are concerned with protecting the full value of your pension. Most don't consider this until they discover the high costs of the Survivor Benefit Plan (SBP). 

Why Calculate Present Value of Military Pension?

Military pensions are an important part of the value you receive for your service. If you're looking to retire from military service, it's essential that you calculate how much value your pension has now.

It is very easy to think about all the value in terms of monthly payments but if you want to safeguard against inflation and other factors, calculating present value will tell you what the current worth is at any given time.

There are many ways to go about this calculation so we recommend doing some research before making any decisions on what type of plan best suits your needs for retirement planning purposes. We'll be exploring these calculations more in depth with videos coming soon!

Being able to calculate the present value of military pension pay is extremely important when planning for post-military life. Especially if you are concerned with protecting the full value of your pension. Most don't consider this until they discover the high costs of the Survivor Benefit Plan (SBP). 

On the DFAS website you can find many versions of a retirement pay calculator with military pension value results.  

However, the much more useful and slightly complicated calculators were developed by the DOD department of the actuary. Why is that important?

Because they track all the numbers about when people die! So they do the predictive models trying to determine the life expectancy of individuals. Kind of freaky, right? We have other videos looking at the probability of receiving the Survivor Benefit Plan using these calculators.

Calculating the Survivor Benefit Amount

Calculating the Survivor Benefit Amount

In many other articles in the US VetWealth education center, we talk a lot about other military pay and benefits such as the Blended Retirement System and the Survivor Benefit Plan.

The confusion that often occurs when deciding which of these options to Opt-Into or Opt-Out of is because normally the focus is on cost. And when present value calculations are done properly using realistic interest rates then you'll be sure that you have the most up-to-date net present value of your pay before your retirement date.

This is important in case you decide to replace the survivor pay benefits with a modern insurance alternative such as the Spouse Benefit Plan. You don't want to risk this decision to an investment firm who is more interested in the stock market.

Example with Inflation Adjustments


For example:

  • Army LTC (O5) retiring at age 43 after 21 years in service. 
  • Annual military retirement income pay will be $60,000
  • His life expectancy is until age 83.  
  • That's 40 years of payments totaling more than $3 Million!

If he was using his own money to receive that level of income for 40 years, he would have need to save $1.6 Million by the time he left the Army. That... is the present value of the military pension. 

Do most career service members realize that the purchasing power of that pay? Do the military spouses?

You should, and the retirement calculator with military pension can show you how. 

Because we all know the Government doesn't properly show how to protect that asset and instead convinces you to buy into the costs of the Survivor Benefit Plan (SBP) and VGLI



If you're a military service member, pay close attention to how much your pension is worth and take steps now to make sure it's protected. Calculating the present value of military pension benefits can help you get an idea about what your future retirement income might look like - but don't forget that there are other factors too (like social security).

Be sure to explore all the options before making any decisions on which type of plan best suits your needs for retirement planning purposes. We have more videos coming soon!

If this sounds complicated or if you want some help with these future value calculations, let us know!

The retirement calculator with military pension is an important tool to understand the value of your pay and benefits. Too often, service members and their spouses do not realize the true power of that income. However, by taking a few simple steps now, you can ensure that your hard-earned pension is protected for years to come. If you're ready to get started, schedule a free SBP Calculation consultation today. Our team will work with you one-on-one to help you understand your options and make the best decision for your future.

Military Retired Pay O5 guide

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Read our case studies to learn how much retirement income you could reclaim from SBP and re-invest by privatizing your military pension. (Updated for 2023)

About the author 

Scott R. Tucker

Scott R. Tucker is an author, speaker and the founder of US VetWealth, a lifestyle and financial consulting brand that helps US Military Retirees achieve more autonomy and work/life balance. He likes to say, "I help the 1% who serve our country become the 1% who influence It." A West Point graduate, serial world traveler, military financial expert, and entrepreneur, Scott brings valuable experience and insight to those who have sacrificed so much in service to our country.

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