Is Military Retirement Worth It? | Value of a Military Pension

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by Scott R. Tucker // December 24 /

Are you or your spouse a “career” military retiree who wants to maximize your retirement savings military pensions?

Are you planning on serving 20 years so that you can bank that nice pension retirement plan income stream?

Ultimately you may end up asking your self, how much is my pension worth? Then it’s time you had a wake-up call about what it is you are creating for yourself in the form of an annual pension!

By the time most military retire and get their pension, they’re so used to a career of monthly pay and thrift savings plan statements that they don’t have the awareness to understand the true value of this benefit because it also comes in the form of monthly payments.

You see, a military pension isn’t just a nice little side income that you get monthly until you die. It’s an ASSET that you’ve earned in service to our great nation: an asset that both you and your family has sacrificed for. In fact, it’s a tremendous asset with significant value.

For the average retiring officer (let’s say an O5 with 20 years), the military pension amount is valued at well over a million dollars. Did you know that?

I bet you didn’t think of it that way. And right there, my friends, is the opportunity cost—the cost of not thinking intentionally about the opportunity you’ve created for yourself. You are at risk of being okay with a mere side income to supplement your new job.

If you’re reading this and thinking, ”Yeah, That’s how I was thinking of my pension," then you need to keep reading because what I have to tell you is extremely important. And yet most military get little more than a few PowerPoint briefings about how this works. Maybe they mention it to their spouse. Then they go on their merry way to the inevitable job fair.

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How much is my military pension worth?

When it comes to planning for their financial future, many veterans don't realize what their service is really worth. They don't know how to calculate military retirement pay present value properly because they aren't focusing on the bigger picture. At US VetWealth, we can help you protect the true value of your service.

The typical veteran approach to salary negotiations during the standard post-military job hunt reflects this. So does their acceptance of the status quo military financial planning “benefits” when they retire. In both cases, many veterans are cheating themselves. The total value of their military retirement pay is actually much higher than they think it is.

There are two issues that many military and veteran families don't understand:


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Regular Military Compensation

RMC is the combined amount of your military pay plus the tax advantages of these allowances. Your military pay includes your basic pay, average basic allowance for housing, and basic allowance for subsistence. All military personnel have a RMC based on their pay grade, years of service, and family size. You can watch a video on how to calculate your own RMC here.

The big takeaway here is that you are making more money than you probably think you are. Are you thinking in terms of matching your basic pay with a civilian salary post-military? Then you are not asking for enough money.

You are setting yourself up for a significant pay cut in civilian life. Just look at how much you receive tax-free for housing allowances. Shockingly, veterans often forget about these benefits when searching for a new career.

What's the True Value of Your Service?

Status quo military financial planning options do not know how to calculate military retirement pay present value in a way that reflects its true value. It's important to not just rely on what an active duty retirement caluclator spits out. Consider this scenario. 

A 40-year-old retiring male E7 with 20 years of service has an active duty RMC of $104,000 a year (see table column A.) This E7's military retirement pay will be roughly $30,000 a year. If his spouse elects the SBP and he predeceases her, she would receive 55% of the pension. That's $16,500 a year (E) or about $1,375 per month until she, also, passes.

So what is the true value of the E7 military retirement pay? Will the veteran and the spouse receive that true value in this scenario?

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Military Retirement Benefits Present Value

Blended Retirement System

Note: This article is addressed to those career service members and military retirees who are retiring under the legacy HIGH-3 system who did not opt for a lump sum payment. We will address the Blended Retirement System (BRS) in other articles on this website.

How to Calculate Military Retirement Pay Present Value

Let's assume that the E7 lives for 30 years beyond his military retirement, to the age of 70. That $30,000-a-year pension (B) paid out annually over 30 years, including adjustments (2.5%) for inflation over the next 30 years, amounts to a total of $778,000 (D). This is the amount of money that the E7 would need to have RIGHT NOW, invested in an account that's earning at least 4% interest, in order to generate a $30,000 a year annuity.

A Military Retirement Pension is Valuable

Discovering how your pension can work for you isn’t hard. In fact, we developed a proprietary system to not only help you understand your true value, but to significantly enhance how you can use this powerful asset to continue your life’s mission. 

Once you leave the military, all the comforts are gone. You can’t turn to the guy next to you who has a similar career MOS, the same time in service, the same rank, etc. and compare. That structure no longer exists. It’s up to you to know what you are doing. YOU must take responsibility for your future.

No amount of trips to the "Military Transition Specialist" at the separation and military retirement pay office is going to answer the questions you should have but didn’t know to have asked.

And they certainly don't know about the alternative to the two things that reduce the value of your pension the most. The Survivor Benefit Plan and Taxes. We've written about tax implications in other articles, the one question that is often over looked is whether SBP is worth it?

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What Happens to Your Military Retirement Pay After Death?

You should make a similar consideration when you calculate military retirement pay present value. It's important that you understand what your post-military pay benefits are worth when factoring in a pension protection plan.

This is because it's important to consider what the spouse of the retired veteran would receive at the time of the pension earner's death. Technically, the military pension is only tied to the life of the veteran. So a privatized life insurance solution must be considered to protect it. 

Around the time their spouse retires, military spouses must decide whether or not to accept the Survivor Benefit Plan (SBP). The SBP is a form of life insurance for veteran retirees.

It guarantees a basic level of support in the event a retired veteran predeceases their spouse. If the retiree and spouse elect NOT to take the SBP, then whenever the retiree dies, retirement payments will stop.

Retiring veterans do not have to qualify. It doesn't pay out a lump sum to the beneficiary like most life insurance policies. It pays a portion of the deceased veteran's retirement pay each month for the remainder of the surviving spouse's life.

Once you know how much your military pension is worth then you can begin to design a better protection plan than the Survivor Benefit Plan costs. 

Is the Survivor Benefit Plan a Good Deal?

Essentially, when the veteran dies, the value of his or her pension (and military service) is halved. The ONLY way that the Survivor Benefits Plan makes good all-around financial sense with regards to return on investment (ROI) is if a service member dies within a few years of retiring.

The SBP cost of 6.5% of the pension, in return for 55% of the pension, again adjusted for inflation, to be paid to the spouse for life sounds like a pretty good deal as long as the insured retiree dies within a few years of retiring from the military.

But a quick look at the DOD Office of the Actuary SBP probability calculator shows that may be a lower probability than you thought.

survivor benefit plan cost

There are other options that will truly value your military service.

Here at US VetWealth, we understand how to calculate the true value of military retirement pay and protect it. We have designed an alternative to the status quo military financial planning options, going above and beyond traditional active duty retirement calculators.

Our solution offers equity growth, as the plan earns interest based on the S&P 500 performance, not the federal bond rate. It also offers a lot more liquidity that the retiree can access while still alive. It offers a safeguard against negative market returns.

It allows you to both comfortably fund retirement and do what the SBP can't possibly do, leave a legacy behind you when you die. We call it the Military Pension Protection System.

This completely new approach to privatizing the SBP or pension protection has become available in recent years. However, few financial professionals are aware of this solution and the game-changing benefits it brings to solving the SBP problem.

Modern life insurance can provide the death benefit protection of a term policy like the VGLI while also producing an annuity stream much like the SBP. To be more accurate, it can provide an annuity stream much like the pension.

But the payouts are higher, and you can use it while the veteran is still alive! Further, after 30 years, the costs are significantly lower than the costs of SBP. The ROI is also significantly higher than from VGLI premiums, a term insurance, or whole life policy.

It also costs less than the typical Thrift Savings Plan (TSP), 401k, mutual funds, or other retirement plans.

If this interests you, then click here to schedule a discovery call about how the Military Pension Protection System would work for you.

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.