Retiring from the Reserves or National Guard is more flexible than retiring from active duty. In the vast majority of cases, your retirement is based on at least 20 good years of service. (A “good year” requires a certain minimum number of points or days of drill or active duty as well as complying with other readiness requirements.) You’ll be tracking these years as you complete the minimum annual requirements, and after you reach 20 years our service will formally notify you with a letter of eligibility.
Some Reserve/NG members may actually be eligible for a retirement earlier than 20 years. The current legislation (passed in early 2008) reduces the age 60 retirement requirement by three months for every 90 consecutive days of mobilization for war or national emergency. In other words, a Reservist volunteering to deploy to the desert for a year would now be eligible to start their Reserve pension at age 59. A member of the National Guard who deploys with their unit for 24 months of the next five years would be able to draw their pension at age 58. But this law only applies for deployment time served after Jan. 28, 2008. Several amendments have been proposed to retroactively extend this benefit to September 11, 2001, but none of these modifications have yet been approved by Congress.
When you’re eligible to retire, you may still prefer to stay as long as you can. You may be successfully balancing the military with your civilian career and your family and you might be able to continue your routine for years. The money may not be much, but it can greatly boost your tax-deferred savings. Military pay offers another stream of income to serve as insurance against civilian layoffs and may also augment necessary skills in a civilian career. Some Reservists/NG will even work in unpaid billets that only offer retirement points, in hopes of later qualifying for a paid billet or earning a promotion. As your family situation permits you may be able to kickstart your military career with advanced schools, special programs, or extended active-duty mobilizations. In metropolitan areas with large military commands it’s not unusual to serve with many Reserve/NG members in their late 40s or even mid-50s.
Of course you’ll have to balance your interest in staying with the prospect of mobilizing and deploying every few years.
Another issue, perhaps a minor one, is time in rank. The service requirement to retire at your current rank is generally three years (since the date of promotion, not selection!). Keep an eye on your service policies, because when the services are trying to cut their end strength it’s not unusual for this requirement to be reduced to two years.
Retiring from the Reserves/National Guard
Reserve/NG retirement is even simpler than an active duty retirement. (This link summarizes the requirements.) The letter of eligibility has already certified that the member is eligible to retire, and their retirement request sets the date. If a retiring Reservist/NG is actually on active duty (mobilized) at the time of their retirement then separation procedures are executed just as for any demobilization. If a Reservist/NG is not on active duty then there is no DD-214, no medical/dental examination, and no other paperwork. They’re transferred to “retired awaiting pay” status, they’re issued a “gray” ID card, and they wait for age 60. At age 59½ another round of verification paperwork is completed and the pension begins six months later.
The Department of Defense wants Reservists/NG to request retirement instead of resigning. One difference is that personnel “retired awaiting pay” could hypothetically be mobilized, although that has not happened in decades. (It would require a full mobilization for a Congressionally-approved war, which is broader than the Presidential mobilization declared after 9/11.) Another difference is that requesting retirement keeps Reservists/NG on the pay seniority list. At age 60, the years of annual pay raises and longevity increases will be applied to your first pension check, which will be based on the latest pay tables and the maximum longevity at that rank. A resigning Reservist/NG will not receive any of those increases, so the cost of avoiding mobilization is a retirement frozen at the pay tables in effect at resignation– which by age 60 may be decades old and without any pay raises or longevity increases.
The Survivor Benefit Plan is an important consideration for “retired awaiting pay” status. You may be waiting for the pension benefit for over two decades, and if you don’t make it to age 60 then you may want to ensure that some of your pension is still available to your surviving loved ones. Retiring Reservists/NG can elect SBP coverage during the years between retiring and reaching age 60. No premiums are paid during this time, and if you don’t make it to age 60 then at least your survivors will still receive their SBP payments. However if you do celebrate your 60th birthday then you’re required to pay the next two years of SBP premiums (deducted from your pension payment) to recover the cost of your insurance during those years between retiring and reaching age 60. After paying two years of premiums the Reserve/NG retiree has the option to decline SBP or to continue with it under the same rules as active-duty retirees.
Health insurance while retired awaiting pay
You do not have any subsidized military healthcare when you’re retired awaiting pay. Tricare will start at age 60 and Medicare/Tricare For Life will start at age 65, but Reservists/NG awaiting a pension will need to buy other health insurance. Healthcare benefits may be one reason that some Reserves/NG continue to drill well into their 50s, although that should not be the only reason to continue to serve.
In late 2009 Congress authorized “Tricare Retired Reserve“, which began in fall 2010. It’s intended to offer a version of Tricare Standard to retired Reservists and National Guard who are still under age 60. The program is not subsidized by the government and fees are quite high compared to other Tricare premiums. $400-$1000 per month may even be higher than some civilian healthcare programs, but this program offers the first “gray area” coverage between retirement and age 60. I’ll cover the details in the next post.
Keep in mind that no matter what version of Tricare you choose, it does not include dental insurance. Most military retirees pay for their own dental insurance and dental care.
The pension starts at age 60, but you can retire right now on savings
One of the biggest advantages of the Reserve/NG is having an inflation-adjusted pension by age 60. It’s paid by one of the world’s most credible financial institutions, or at least one with the power to raise revenue by taxation. A civilian retiree, if they even have a pension, may not only have to wait years– but they may also have to worry that the company won’t survive to pay the “guaranteed” pension. A military pension is even more highly rated than an insurance company’s annuity, and you don’t have to worry whether the insurance company will be able to make good on its future claim. The future is never certain, but a military pension is as close as you can get to a guaranteed stream of income at a known date.
The key to retirement as a Reservist/NG is planning your retirement finances around multiple streams of income. By the time you request retirement (awaiting pay), you’ll have several different forms of savings. In addition to the pension at age 60, you’ll also have your military Thrift Savings Plan account, as well as personal IRAs and taxable investments. If you’re in the federal civil service then you’ll have a second TSP account. If you’re employed by a corporation then you’ll probably have another tax-deferred savings account (a 401(k)) as well as other forms of deferred compensation. And if you’re self-employed there are several other ways to save through tax-deferred accounts.
When a Reserve/NG pension is in your future, your early-retiree challenge is to live off your savings until the tax-deferred accounts are available and until the Reserve/NG pension starts. The advantage of the pension is its known starting date, its inflation adjustment, and its high probability of payment. Your other savings may only have to bridge the gap between your retirement request and the start of your pension. You won’t have to worry about outliving your personal portfolio– only about making it last until the pension begins. In addition to spending down your taxable accounts, you can also tap your tax-deferred accounts if necessary, and under some conditions even without penalty. If savings won’t stretch to cover the whole gap between retiring and receiving a pension, then annual income can be augmented from part-time work or a civilian bridge career.
The planning and calculations may seem complicated or even overwhelming, but today’s retirement-planning software is tremendously flexible at projecting multiple streams of income over an entire retirement. We’ll cover more details and a “multiple streams of income” example in a later post.
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