All retirees have to accumulate the resources to last for the rest of their lives, but early retirees (before age 65) have two daunting challenges: paying for healthcare and ...
“But... but... but what will I DO all day?!?”
The two biggest challenges facing ERs may be inflation and affordable healthcare. However the most frequently-asked question is ...
Thanks, Peter, good points.
The biggest issues are 50 different sets of state laws, along with balancing risk in each area. USAA is also concerned about keeping customers for life, so maybe it makes sense to insure more young adults.
Great point, Gerald– the goals have to be worth the hassle factors.
I haven’t seen anything yet, Casey, but I’m keeping an eye out for it.
Perhaps the board did a much better job of treating the “candidates” fairly and of shaping expectations for the results, so nobody felt that it was necessary to leak the brief?
Thanks, OSV and Peter, those are great groups and programs!
Thanks, Richard! Let us know how it works out.
One Sick Vet, that’s good advice. The Navy has called them Tricare Ombudsmen at their clinics, and they’re essential to cutting through the bureaucracy.
Deserat, I wish I had an answer for that situation… possibly an advocate, or even a grievance. But that’s nearly impossible to deal with when you’re multiple time zones away.
Peter, I’ve had the same concierge care experience in Bangkok. It’s tempting to sign up for it in Hawaii, too.
Vanguard, I wonder if UnitedHealthcare was having a problem with their Hawaii database. I’m glad you got it sorted out!
Thanks for your question, Stephanie. This conversation goes a lot better when it’s started by the person who misses the military, although I appreciate that spouses are concerned– or even tired of being driven nuts by the problem.
The short answer is “No, you can’t return to active duty.” In this case it’s due to age, although all the services have experimented with waivers up through the late 30s. Some retirees have returned to active duty for short stints of 30-90 days for unusual skills like trauma surgeon or electrical utility grid operation in a battle zone. Other times it could be for a few months developing a special program or research project. Although the answer is usually “No”, if he has a unique skill then he can always ask the command or person who needs that skill and let that sponsor help with the waivers.
Another idea is serving the military in another capacity. Contact your local base’s Retired Activities Office, volunteer with a JROTC program at a high school, volunteer as a candidate guidance officer for students considering a service academy, or work with a veteran’s organization like MOAA.
Another idea is volunteer service. Look into disaster recovery with Team Rubicon, or helping with a local wounded warrior program, or volunteering with almost any other community non-profit organization. The key is to figure out what he really misses (leading a group? military camaraderie? mentoring and training?) and then find a way to do it without the military uniform.
A final suggestion is Ernie Zelinski’s Get-A-Life Tree. You can find the form at this link: http://bestretirementquotes.blogspot.com/2009/10/get-life-tree-great-retirement-planning.html (and Mr. Zelinski wrote an outstanding book about it, too). Use it to jumpstart your thoughts and find creative answers that are way better than doing what you’ve always done before. This can also be used by couples and families to come up with shared activities.
I’ve had a copy of the Get-A-Life Tree on my desk for nearly 14 years, but frankly I’ve been too busy to make the time to fill it out. I don’t want to get back in to the military, but I’ve found my own way to continue to pay it forward and mentor while I enjoy the camaraderie. When I’m not writing or talking with military & families, then I surf a lot, too!
You’re welcome, Jay– we’re trying to motivate some saving and investing!
Thanks, Peter, good advice!
I hope your recovery goes better, Richard.
Yes, Tricare For Life is Medicare supplemental insurance for the copayments. However it also has limits and may not cover all of situations or prescriptions that are not covered by Medicare, so you’ll need to coordinate your billing with both groups. I recommend that you talk to a Tricare ombudsman at a military clinic, or ask your Tricare contractor to assign a case manager to you.
Sorry about your back injury, Mike. Of course your first priority is to work with your doctor to try to reduce the effects of the damage and slow its progress.
You could ask your doctor whether your current condition is service-connected to the Marine laundry injury. If that incident is documented in your military medical records (or if a fellow recruit or staff can write a “buddy statement” on your behalf) then you may be able to file a claim with the Veterans Administration.
Talk with your doctor and then find a Veterans Service Officer with a vet’s group in your area like the American Legion, the Disabled American Veterans, MOAA, or your local VA office.
Peter, if your Vanguard funds were the equivalent asset classes of the TSP’s funds, and if the Vanguard funds had a higher expense ratio, then the returns of the Vanguard funds would have lagged the TSP’s performance by about the difference in expense ratios.
If the Vanguard funds returned more than the TSP then they were probably invested in different asset classes with different risks. Hopefully the higher returns were enough compensation for taking the higher risks.
They’re both good organizations to invest with, but the Roth TSP allows servicemembers (and federal civil servants) to build much more tax-deferred wealth. (I wish it had been available during our days.) And with the impending TSP matching starting in 2018, even Vanguard can’t compete.
Thanks for asking the question, Bill!
The best answer is “Call your local recruiter.” The issue is that you’re considering this during a military drawdown, and you’d also need an age waiver. The recruiter might be able to suggest ANG duties or projects that you could join. That depends on what type of service & camaraderie you’re seeking, and what openings they have.
As far as I can tell from the information you’ve given, you’re being correctly credited for your active-duty time (active service) and IRR time (inactive service).
For every year of qualifying service (a “good year”) in the IRR then you’d have an additional year of longevity for pay purposes. The good year would also count toward a Reserve/Guard retirement. Your promotion gives you a new paygrade, of course, but it doesn’t change your pay longevity or your retirement credit. In addition, the term “time in grade” for retirement is only used to determine your eligibility to retire at that grade.
However only the points that you’ve earned would count toward an active-duty retirement, and only if you reached active-duty sanctuary while on Reserve/Guard active-duty orders.
Thanks, Kevin, good point– I’ve clarified that in the post.
I heard your Pro Bowl comments from a lot of readers, and I’ve been passing them on to USAA.
I can confirm that the Pro Bowl’s pre-game event planning was hampered by geography and not by USAA. (I put quite a few miles on my car that week even though I’m in Central Oahu.) I think the biggest issue is that years ago the NFL (or the players?) moved the players out of Waikiki lodging to Ko’olina. When the renovations caused a move to Turtle Bay, it created a 90-minute bus ride from just about everywhere.
The events didn’t seem to have a lot of promotion outside of active-duty commands, although the schedule on the NFL site had the dates & times. Saturday’s football practice was open to the public, but I think the NFL logistics staff did not understand what the Volcom Pipeline Pro surf contest does to North Shore traffic.
If there’s a “good” side to this, I saw many happy servicemembers & families at Naval Station, Wheeler, Schofield, and Kaneohe Marine Corps Base. There’s an undercurrent of sentiment that too many previous Pro Bowl pregame events were at Hickam and not enough at other military commands.
I don’t know what the right balance of events and locations would be, but two of USAA’s execs are aware of the issues. Next week (once the Super Bowl commotion dies down), I’ll send an e-mail to USAA’s Communications people with anonymous reader feedback. Hopefully next year’s Pro Bowl events will be even more military-friendly.
That’s a great rule of thumb on account contributions. A 401(k) match will generally be more valuable than an unmatched TSP contribution, but not every family has both– and not every year. And then when you add in entrepreneurs with SEP IRAs or HSAs… someone could write a book and run dozens of spreadsheets to optimize all of the decisions.
I think everyone (who’s “older”) wishes they cared more about financial planning when they were younger. But you’ve proved (once again) that a high savings rate can overcome a lot of investing mistakes!
Sorry to hear about the divorce, Kim. If you or your spouse are in the service, then one of you should meet with a military lawyer to figure out your choices. If the military lawyers won’t see both of you, then one of you can get the JAG’s referral to a civilian divorce lawyer who’s familiar with military benefits.
In addition to financial and physical assets, the typical military divorce decides how to divide benefits like a pension, the Survivor Benefits Plan, life insurance, the GI Bill benefits, and child support. Your marriage didn’t meet the 10-year requirement of the federal law, but under state law the divorce court can make their own decisions. (Your children are also eligible for medical benefits as family members of the servicemember.) A lawyer who’s familiar with military benefits can make sure that the agreement accounts for military pay raises, promotions, disability ratings, and applicable medical benefits.
Don’t try this on your own. Get a lawyer who understands military benefits and has handled military divorces.
Thanks, Ryan– it’s fun, and I enjoy the way they’re showing off Hawaii!
Believe it or not, I’m also getting lots of reader questions and comments for future posts. In between football plays.
Good points, Gerald!
If you see new training materials on the blended retirement system, or a calculator to help make the choice, then I’d love to add the links to this post.
Thanks, Leftbucket, that’s exactly right!
This type of sanctuary also comes from federal law (Title 10 sections 1176 and 12646). Kf a Reserve/Guard member reaches 18 good years then they have to be continued in the Reserves for the opportunity to reach 20 good years.
It means that they cannot be separated before qualifying for a Reserve/Guard retirement, but they could still lose their drill billet and be put in the Volunteer Training Unit or IMA or IRR. The burden to perform (and obtain good years) is still on the servicemember.
A minor emphasis on one point– if you maintain a 40% savings rate for 20 years, you might reach financial independence without the pension.
The advantage of the high savings rate is that you don’t have to count on gutting it out to 20 for the pension. If you’re no longer challenged and fulfilled by active duty, you can choose to leave for the Reserves at any time. It’s far better than grimly hanging on for 20 years (and sitting on a slightly larger pile of money) after risking your health and burning out.
I’m not sure where your numbers are coming from, and feel free to share them here or e-mail them to me. Frequently this difference arises when the taxable portfolio actually has a substantially different risk/return profile from the TSP. Your first check on your analysis would be to make sure that the taxable accounts are using benchmarks identical to the C, S, and I funds. Your second check would be that the fund performance is assessed over your remaining lifespan (or longer) or at least for the lifetime of the fund. Too many funds will cherrypick the dates for their performance claims.
The reason I suggest this is because a passive equity index fund with low expenses will almost always outperform the vast majority of actively-managed funds (and their higher expenses) over several decades. There are a handful of exceptions to this generalization (like Berkshire Hathaway), but then you have to be able to pick out those exceptions from over thousands of funds.
Here’s a link comparing the TSP’s funds to Vanguard & Fidelity funds:
Our TSP portfolios were invested in the S and I funds. (Our contributions were made between 2002-2008, and today we’re in the process of converting them to Roth IRAs). For the last decade our taxable accounts have been >90% invested in equity ETFs at an average expense ratio of about 0.25%/year, at least 8x the TSP’s expense ratio. We paid much higher expenses than that (1%-2%) for over 20 years before that. Yet even at those high expenses we saved enough to reach financial independence– and despite two recessions over our 14 years of retirement, today that’s grown to “way more than enough”. My spouse and I may never touch our Roth IRAs (which will soon include all of our former TSP accounts). Life is definitely cushy.
While you’re younger and on active duty, especially with dual incomes and a high savings rate, I’m a big proponent of investing in a high-equity portfolio. It doesn’t have to be microcap telcom stocks– the TSP’s L2050 fund or any equivalent of the C, S, and I funds will do just fine.
Admittedly as an O-2 it’s tough to max out the Roth TSP (the $18K limit is nearly 40% of your base pay) plus two Roth IRAs. However if you fail to make the most of the Roth TSP (and the Roth IRAs) every year then that opportunity is lost forever. When you promote to O-3 (and have a 35% pay raise) yet continue to live like an O-2, then you’ll be able to max out those contributions much more easily.
If your spouse’s income includes a 401(k) then you should try to contribute enough to least maximize the employer’s match. 401(k)s have higher expenses than the TSP, but the employer’s match will probably overcome even a higher expense ratio.
So the priority for your 40% savings rate is TSP, 401(k) to the match, Roth IRAs, the rest of the 401(k) to the limit, and then even more in taxable accounts. Your asset allocation can be high in equities in passive index funds with low expense ratios, but your asset allocation also has to help you sleep comfortably at night despite stock-market volatility.
Exactly– we’re still “seeing the world”, but now it’s on our terms!
I’m in your camp on traveling with kids. Ours was challenging to travel with as a baby, but she got better every year.
Carl, as near as I can tell Type 2 diabetes is not on the Camp Lejeune list.
Here’s the current list of Camp Lejeune conditions that the VA is awarding compensation for:
Here’s the proposed expanded list:
I know of veterans receiving VA compensation for Type 2 diabetes, but it’s for exposure to Agent Orange in Vietnam. Here’s more info on the dates and locations:
No worries, Ryan, I think most of the crowd will stick around for another week of personal partying after the Pro Bowl… nobody’s in a hurry to get back to the Mainland to enjoy more winter weather!
Carl, I’m afraid your years of service do not qualify for a military pension. In almost all cases you have to serve for at least 20 years (active duty or Reserve/Guard “good years”). Servicemembers can also be retired early from active duty by a temporary program (like TERA) or for medical/physical disability that occurred while on active duty.
If your health issues are caused by a service-connected condition then you may be eligible for compensation from the Veterans Administration. If a veteran is severely disabled or has minimal assets then they may qualify for additional VA financial support. (http://www.benefits.va.gov/pension/) However that’s a separate program from the Department of Defense.
Although you must have more than enough good years (and a Notice of Eligibility letter) for a Reserve retirement, your active duty points alone do not qualify for an active-duty retirement.
Reservists and National Guard servicemembers can only claim sanctuary if they reach 18 years of points while mobilized on active-duty orders (not for training). They’re continued on active duty until they reach 20 years of service, and then they’re awarded an active-duty retirement based on 20 years. Reserve points are not counted when calculating an active-duty retirement. Here’s how sanctuary works, along with the instructions for each service:
Unless you’ve met the requirements to claim sanctuary, your Reserve pension is calculated using all of your points:
Thanks, Bridget, you’re absolutely right!
Congress and DoD have to treat that as a revenue-neutral change, and there has been insufficient interest in cutting other programs to fund early retirement for those mobilized between 9/11 and 28 Jan 2008.
You’re welcome– I’m happy to help!
Thanks, Peter. Good points about behavioral finance.
Glad to help, Jeffrey!
You can do points in the IRR, but before you make that leap you should make absolutely sure that you’ll earn a good year. The services have all been clamping down on the courses that qualify for IRR points, and it’s getting more difficult to access them without a valid CAC. It takes a certain amount of discipline (and free time) to keep up with the pace of correspondence courses to reach a good years’ worth of points, and if you can only access the website from a distant Reserve Center then you’re not going to be happy.
I know people in the IRR who have come up one point short of a good year, and you don’t want to experience that feeling. Of course you already have enough good years for your Notice of Eligibility and your retirement, so it’s not critical in your case.
Another option (if you haven’t already considered it) is to drill ahead over the next few months or do an extra AT (if available) to get your good year. Confirm your point count (and for those who are at 20 good years, make sure you’ll get your Notice of Eligibility) and then take a six-month Authorized Absence from drill weekends before retiring.
Very good point, Vince, thanks for catching it.
I also didn’t specifically break out National Guard mobilizations for disaster recovery operations. And, of course, the 2015 NDAA correction to the 2008 NDAA that allows mobilizations/deployments after 30 Sep 2014 be counted across fiscal years…
These details are getting way too complicated. It’s probably time for me to write another separate wrapup post on early Reserve/Guard retirement.
Thanks, Dave, I appreciate your comments!
I’m looking forward to a comprehensive spreadsheet/calculator tool that everyone can use for weighing their numbers.
Thanks, Hawkeye, sounds like you have a great plan!
My 5 AM internal alarm clock is definitely a personal problem…
I’m sorry to hear about DFAS’ slow processing, Valerie.
I don’t have any other points of contact for you. From what I’ve seen before, I think DFAS is moving as fast as usual. Most Reservists retire years short of their 60th birthday and DFAS has rarely needed to move quickly in their retirement processing.
If DFAS finishes their processing by 15 January then you could receive your first pension deposit on 1 February. However it’s more likely that they’ll use the rest of January and your first deposit will come on 1 March. The “good” news is that you’ll be paid all the way back to the amount that you were originally supposed to receive after your 60th birthday (on 1 December). The other news is that you may end up with a corrected 1099-R for 2015 before DFAS is finished with your pension processing.
If you haven’t already read this post, it helps you with the pension calculation:
You’re absolutely right, Vince, and I hope so too.
Based on what we’ve learned from our experience with REDUX, I’d say that we have an educational challenge on our hands…
You’re welcome, RL!
Shameless name-dropping: Wes Moss gave a presentation at Digital CoLab15 and handed out copies of that book to us in the audience. It’s on my reading pile (an 18″ stack) and I’ll get to it in the next few months.
And yes, he seems like a happy guy doing what he loves…
Derrick, it’s generally permitted by law (if you meet the requirements) and you can always ask for waivers, but the military is in a drawdown and there may only be limited opportunities.
I’d recommend contacting a recruiter to see what’s available.
Hey, Gerald, good to hear from you again! I’m glad the book’s advice is working for you guys.
And the next time I travel on a KC-135 I’ll have an extra pair of warm socks…
Mr. Haines, please e-mail me (NordsNords at Gmail) to tell me more about your questions and how I can help.
Jeffrey, there might be some confusion on the sanctuary requirements. In order to qualify you have to be on active duty (mobilization or other orders >29 days) at the date you go over the 18-year point. Then you’re continued on active duty (in a different personnel category) until you reach 20 years of service.
When sanctuary is granted then DoD makes the services pay for the pension difference out of their own personnel funds. The services track servicemembers who have at least 16 years of points and aggressively restrict them from reaching sanctuary status. With your 6405 points, you’re probably already on their database warnings. You’d be able to continue to do drill weekends and ATs but the only way to get orders of more than 29 days (let alone mobilization) would be with a three-star general’s approval from AF personnel HQ (the active-duty HQ, not the Reserve HQ). I’ve seen a handful approved before the drawdown, but I haven’t heard of any sanctuary approvals in the last four years.
However you could keep accumulating points on drills and shorter orders, even if you go over 18 years of points. I know of two Reservists with over 7400 points, although they’ll never be approved for any orders over 29 days.
Here’s more info plus the AF sanctuary instruction:
I’m not sure whether the 2011 edition is the latest version and I don’t have access to the .mil instruction databases, so you should check that with a Reserve center.
This post links to all of the military’s sanctuary instructions that are on public sites:
But again they may have been updated in the last year.
So in your case you’ll remain “retired awaiting pay” (gray area) until your Reserve pension starts. If you were mobilized for at least 90 days to a combat zone (or, for National Guard, some domestic emergencies) then you might qualify for an earlier pension start date. Since you were mobilized in 2012, your combat zone deployment’s 90-day periods would have to be within a fiscal year to count for an earlier pension start. If you have 180 days in a combat zone in one FY (or 90 days in one FY and 90 days in another FY), then your Reserve pension would start six months earlier. But if you have less than 90 days in a FY then that does not count. 120 days in one FY and 60 days in another FY would only start your pension three months sooner.
Keep in mind that while your Reserve pension may start sooner, your Tricare healthcare will still start at age 60.
You probably already know that you should have your VA status reviewed now to see whether you’re still at a 30% rating (or higher) before you retire in Nov ’17. When your Reserve pension starts, it’ll be reduced (“offset”) by your VA disability compensation. If your disability rating is at least 50% (and combat related) then you may be able to receive both your full Reserve pension and your VA disability compensation.
Let me know if the “90 days in a FY” or a higher VA disability rating might be an issue and I’ll go into the gory details.
I like your plan, Jason!
We haven’t had any security issues– it’s a combination of house sitters, living in a cul-de-sac with nosy neighbors, and not having anything worth stealing. No problems in 15 years, although I do bring the longboards inside the house before we leave.
I’m ambivalent on the maintenance. We’d do well with a ground-floor townhouse or garden apartment (and access to a community garden) but I’m always concerned about noisy neighbors. When it comes to fixing a fridge or getting a tech to fix it for me, I think the former is a lot less time (with roughly equivalent hassle). A yard service while we’re gone would avoid a lot of catch-up work when we get back. I think I’m enough of a control freak that I’d prefer to own instead of rent, but we’ll see how I feel about my fierce independence in 20 years or so.
Your financial approach works very well for us. I don’t think I’ve updated our annual budget since our daughter launched from the nest five years ago– there’s no point when we’ve reached financial independence and our wealth keeps rising faster than we spend it. I no longer balance a checkbook (just review the statements) and I’ve almost stopped using Quicken.
C’mon in, Rob, the water’s fine!
Thanks, Vanguard! I think you’ll do great with Guam and the rest of the Pacific– let us know how it works out. It’d make a great “Lifestyles In Retirement” post…
Our lodging success is traveling during off-peak times in areas with extra rooms. July and Christmas would be tough. Most military lodging can barely handle a Reserve/Guard drill weekend, and they don’t make special accommodations for Space A travelers. (Except for flag or general officers…) We’re always willing to spend more money at a military lodge to upgrade from a standard room to a suite or VIP quarters, since it’s a short-term stay and not much of a price difference. Otherwise we’d end up catching a cab to the off-base hotels, getting a good night’s sleep, and revising our plan when we have a feel for the next passenger roll call.
We do a lot of last-minute calling ahead because we don’t know our destination (let alone our date/time) until we make the passenger manifest. (We get the phone numbers from the Take-A-Hop app and the AMC base info sheets at the passenger terminals). Many military lodges seem to release their reservations near midnight. Just before we left Rota, the Travis Air Force lodge said “Reserve weekend, sorry, wait list.” When we landed on the Travis runway at 11 PM, the lodge said “No rooms, sorry.” When the passenger van dropped us off there just after midnight (so that we could stay on their wait list and then call a cab to town lodging), the lodge staff suddenly had a suite for us. We were only in it for six hours(!) so it was a great convenience at a good price. If we’d spent Thanksgiving week at Travis then we would’ve reserved the next available day in the lodge and gone out to a town hotel.
I think the financial aspect is that you’re saving a lot on airfare (and commercial hassles) while spending some of the savings on lodging.
I don’t know if this is a new AMC policy, but we’re seeing passenger terminals close at 2200 and re-open at 0400 daily. (Including Hickam & Travis, but not yet Rota.) I think it discourages “campers”. Peoples’ sleeping bags are probably for the aircraft: C-17s and KC-135s are freakin’ cold! But when you can stretch out on the fuselage deck then a sleeping bag (and perhaps a yoga mat) are luxurious.
As for the adventure: Plan B can always be a commercial ticket for the next available flight. Plan C would be a different destination. Many airlines charge the same price for one-way or round-trip when it’s a last-minute purchase. We’re taking a hard look at this for our next trip because we need to be at a cruise port by a deadline date, so we may do part of it with commercial flights.
I wish we could eat green waste! It really annoys me to go grocery shopping for veggies while I’m discarding the grass clippings, bougainvillea stalks, and palm fronds…
Thanks for your comment, Peter, it’ll be interesting to see how Tricare reform goes.
Great question, Sarah!
The Reserve/Guard pension starts later in life, so its impact is smaller on the total retirement payout– whether it’s a 50% pay base or a 40% pay base.
The biggest advantage I can see is the continuation pay and the TSP match. The Reserve continuation pay is a lot smaller than the active duty amount, and as you point out it’d be a challenge to make the DoD match on the TSP with drill pay and AT.
However all of those funds would be in your TSP account instead of waiting until age 60 for DoD to pay them out as a pension. I suspect that an aggressive asset allocation (L2050 or the S and I funds) would grow the investment in your TSP account faster by age 60 than it would amount to as a pension payment starting at age 60.
You’re right– there are a lot of factors and it’s a highly individual situation that needs a calculator.
When you have a choice between a TSP and a civilian 401(k), I’d contribute to the TSP first for the maximum match, then the 401(k) for its maximum match, and then back to the TSP– for its lower expense ratio. And yes, it’s a challenge when you have both accounts. A good problem to have.
Thanks, Bridget, you’re absolutely right!
Joining the Reserves or Guard is not a panacea, but it’s a much better option than burning out on active duty. The top regret of our readers in their 40s or 50s is that they didn’t get enough good years in the Reserve/Guard to earn a pension.
Thanks for your questions, RL, that’s a good plan after you’re out of uniform!
You can roll over your traditional TSP once you’re out of the military, although you should leave your funds in your TSP account as long as possible (for the low expense ratios). But once you’re ready to make the conversion, that’s the plan. The best “conversion window” for active-duty retirees is in small annual increments before you start Social Security or RMDs. Reserve/Guard retirees would convert before their military pension starts.
Either Vanguard or Fidelity is good (or even both). The former has rock-bottom expense ratios and the latter offers more services (for some higher fees). You’ll find policies and features to like (and dislike) at both firms.
Edward, I’m sorry to read about this.
Your first step is to talk with the hospital ombudsman and the Tricare rep. You can also file a grievance through the Tricare website (http://www.tricare.mil/Resources/Grievance.aspx). If that doesn’t resolve the situation to your satisfaction then I’d consult a lawyer at the base legal office.
Thanks, Ryan! I’ll keep everyone posted…
Kelly, responding to your 28 Nov comment below:
The recruiters have quotas, and they’re trying to find people for the biggest career fields with the lowest retention. If you’re qualified for (and interested in) a mainstream warfighting community like infantry, artillery, ships, submarines, flying, or missile officer then there maybe be openings. The smaller, more specialized support communities may already be fully staffed.
Another key could be signing up during off-peak times like January-March instead of the huge graduation season in June and the smaller one in December.
It’s quite possible that you’re talking with the wrong people. However if they’re focused on filling the urgent openings (and you’re not) then they may not be interested in talking with you. You could try another recruiter in another district or even another service. Another option would be finding someone on active duty in the field you’re seeking who could advise you on finding a position.
Quick note– SoloPro closed out their $1.6M seed round this month:
Great point, Jay!
If you have the discipline (and make the time) for regularly transferring funds to a high-interest account, then that’s the more profitable approach.
The intriguing feature of Digit (and their competitors) is that the transfer out of your checking account is automated for people who otherwise might never get around to it. Instead of having to make decisions every payday or every month, they only have to move their Digit funds a few times a year. This is especially useful for deployments where the servicemember is out of touch by being underwater (submariners) or away from personal bandwidth (infantry, special forces).
A long-time friend just e-mailed me some commentary on this post. I’ve edited the words to avoid revealing their identity, but I think the sentiments still shine through:
“Unlike you I decided to make my govt pension my primary means of retirement with O-6 and 30 years as my goal. Ironically I ended up as an O-8 but what I didn’t count on is the impact that stress and a sedentary life would yield. Now I have emerging health problems that may be unresolvable. (Hypertension is one of my new chronic diseases.) Sort of dampens the retirement plan. I’m thinking my major focus will be on health and an exit plan maybe in two years if I can swing it.
“By the way I tell your story to my daughters. At the end of the day life is about, well, enjoying life. Sitting behind a computer at the beck and call of the bosses is not my idea of the stress free life I was hoping to achieve.
“Please feel free to let your readers/subscribers know that rank does not equal quality of life. Quality of life is the absence of insane stressors and enjoying life while you have health to do so. While I’m fairly certain I could retire and be a professor or an administrator, I think retiring and teaching kayak lessons is more my speed.”
Thanks, Ty, that’s interesting info on the glut of housing at military bases.
Great comment, Mel!
I don’t have the answers to those questions– we’re still assessing them ourselves. In our case, passive investments and automation seem to be more important than tweaking every last percentage point of performance. My spouse has also volunteered to take over the financial duties when I reach age 60, just so that she’s more familiar with the accounts & logins.
I agree that federal law is being mis-applied to those who are eligible to retire, yet do not want to retire because of the huge financial penalty for reverting to an enlisted pension.
I also hope the Army reviews their personnel numbers and does the right thing for those affected by this decision.
Good point about taxes, especially with many universities beginning to offer in-state rates to military residents stationed there.
While servicemembers are on active duty, I think they should attempt to become residents of states that don’t tax military pay– but there may be other factors affecting that decision. After the military I think that there are many more important criteria for choosing where to live. Taxes should be a part of the overall decision, but I don’t think that taxes should be the most critical part of the decision.
As to Hawaii taxes, Hawaii’s real estate prices are higher than most of the country. However the property tax rate is roughly 3.5 mills. This puts me in the position of owning property that’s assessed at a value of 3x-4x some Mainland properties, and yet I’ll still pay as little as half of their property taxes.
Thanks, Peter– great advice!
Andrew, read the text at the paragraph titled “Army National Guard Retirement Calculator” and click on the second link:
You can also do your own (manual) calculation at this post:
Excellent points, Deserat– thanks!
Good point, Bill, thanks. I’ll pass that on to him, although I don’t know if it tracks with his officer promotions.
Stephen, you’d have to spreadsheet the math to decide whether finishing 20 for an enlisted active-duty pension is better than going to the Reserves for an officer’s pension. Some of the math depends on your age at retirement and when you’d start a Reserve pension.
Regardless of rank or the size of the pension, I think the most significant factors in a military pension are the cost-of-living adjustment and the cheap Tricare premiums. Without crunching all of the numbers, it’s probably better to take an active-duty pension sooner at a lower rank.
Of course the key is whether you’re able to stay on active duty to finish 20 years.
The above paragraphs assume that you’re still enjoying your time in uniform. If you’re miserable on active duty then it’s probably better to transfer to the Reserves, enjoy the improvement in quality of life, and know that your pension will pick up at age 60. The cliché “It’s only money” certainly applies here.
I hear that comment a lot these days, especially from people who would have been close to 20 years by now. But family is one of the best reasons for making a retention decision.
Not quite. See this post: http://the-military-guide.com/2014/04/10/mixed-plate-military-sanctuary-disability-and-civilian-pensions/
Here’s a summary: the services discourage sanctuary because they have to pay big bucks for it. When a Reservist reaches sanctuary (and is retained on active duty for an active-duty retirement) then that pension funding is not supported by DoD. Each service has to pay sanctuary active-duty retirements out of their own personnel funds until the servicemember reaches age 60 (the Reserve pension start date) and the funding obligation reverts to DoD.
If a servicemember has over 5840 points (over 16 years of points) then they’re still allowed to keep drilling and doing AT and even multiple ADTs of up to 29 days each. That’s considered training, not active duty, and that’s all approved by the local Reserve Center and the gaining command. However BUPERS N9 (and CNO N13) screen orders when the servicemember is ordered to active duty (30 days or more) via ADT, ADSW, or even mobilization. That’s considered operational active duty, and that’s only approved by OPNAV.
Servicemembers are also required to track their point counts and ensure that they don’t exceed sanctuary without OPNAV approval. If they “somehow” reach sanctuary without that approval then they could be involuntarily released from active duty and sent back to Reserve status. See paragraph 6 of OPNAVINST 1001.27 (https://doni.documentservices.dla.mil/Directives/01000%20Military%20Personnel%20Support/01-01%20General%20Military%20Personnel%20Records/1001.27.pdf)
I have seen a Reservist mobilized by a PACOM flag officer even though the servicemember was very close to sanctuary (17.9 years of points). The next morning BUPERS overrode the flag officer and canceled the orders, then told PACOM to submit a sanctuary request. (It was disapproved.) The Reservist was allowed to continue to do drills and ATs, and one 29-day ADT per fiscal year. They eventually retired with over 7400 points (over 20 years of points, and 25 good years) but for a Reserve pension.
Good question, Stephen!
Federal law includes a section called “sanctuary”: any servicemember, active or Reserve/Guard, who reaches 18 years of active duty must be continued on active duty to 20 years (and an active-duty retirement). The Reserve/Guard services want to avoid inadvertently letting their members reach sanctuary (and an active-duty retirement), so they track everyone with more than 16 years of points and restrict their mobilization opportunities.
If a servicemember left active duty at 17 years for a Reserve/National Guard career, they’d already be on sanctuary tracking. They would be permitted to do drill and AT (for up to 29 days) but longer stints of active duty would require approval by the service’s personnel HQ. It was rarely approved during the last 13 years of war, and in a drawdown it would be extremely unlikely.
Instead a Reserve/Guard member would drill (and do AT) for at least three more years to reach 20 “good years” of service, and then would be eligible for a Reserve/Guard (“non-regular”) pension. They would start that pension at age 60 or (depending on combat deployments) possibly a few months earlier.
Thanks, Bill, I’m glad that’s working– and that you don’t have to do the paperwork!
Great suggestion, Ryan! I’ve been e-mailed by another O-3E in this position who’s not eligible for retirement (not even TERA), and he says the Reserves/Guard are happy to have him.
Thanks, Ryan, I sure hope so too. That “pending review” comment on slide #61 makes me hope that at least someone is looking at ways to work around the legal issues.
Here’s a comment by reader Kay that was apparently lost during a technical glitch:
Another dual military retired couple here . . . I remember agonizing over the term/SBP/VGLI decisions, and at the time we crunched all kinds of numbers.
What we finally decided was to opt for “child only” coverage on both of our pensions. This was a very cost effective way for us to insure. We had our last kid late in life — so this coverage would carry either one of us into our 60′s. Yikes! By then the survivor would be close to collecting whatever SS we qualify for after a couple of decades of retirement.
Hopefully we won’t need it, but it would provide enough of an income stream through our last kid’s college years that neither one of us would have to return to work.”
Thanks, Kay! That’s a very good choice for retirees with kids.
This drawdown is a smaller percentage of the total force than the 1990s “peace dividend”, but it’s still every bit as painful.
I know that if I don’t check the numbers first, one of our alert readers will check them for us…
Thanks, Lee, and I think you’re right about Solar City not wanting the panels back. The hardest part of your contract is not moving every seven years like most Americans.
Our neighbors have both Volts and Leafs. My spouse and I go back & forth over which one we like the best– and which one can handle the biggest load of longboards…
For those who haven’t seen it yet, here’s the link:
Thanks for your comment, Mary!
Each situation is different, and the details make it complicated. It’s worth asking your medical provider why this wasn’t brought to your attention four months ago. If you’re not happy with their explanation then your next step would be discussing it with a lawyer at your base legal office.
Thanks, Matthew, and congratulations on your wedding!
You’re correct– the USDA’s numbers are real (adjusted for inflation) and my numbers are nominal. However it may be distracting you from the main issue, and there are better ways to adjust your estimate.
Inflation is not as high as you might think. The “child-raising price index” is lower than the Consumer Price Index. The USDA’s infographic (the PDF link at the end of this post) says that their cost estimate has only risen 23% since 1960– that’s less than 0.4% annually. Child-raising tech and safety has made quite a few leaps since then, so the hedonic adjustment has been well worth the price.
Although you could rigorously adjust your calculations for inflation, it’s (hopefully) only for two decades (unlike retirement). In the meantime, your personal child-raising costs are going to be very different from the median. The data is a huge bell curve with very fat tails from garage sales to Gucci. Inflation adjustments pale in significance next to your consumer choices.
Instead of looking at the statistics, consider how you’re going to keep your family costs on the lower end of the bell curve while keeping quality at the top. For example, you could have a blowout $25K wedding– or you could have a more affordable $5K wedding with $20K left over to buy two decades of childcare and babysitting. You could pay full retail for baby gear, or you could start visiting the garage sales now. Read more here: http://the-military-guide.com/2012/06/21/book-review-all-the-money-in-the-world/
I’m not suggesting that you go cheap– just frugal. Ideally you’ll choose a neighborhood with good public schools, nearby parks, and public libraries. A private school may deliver value, but you may find far more value in homeschooling or tutoring services like Kumon. You’ll cook healthy (inexpensive) meals instead of dining out. You’ll choose outdoor activities instead of the Fun Factory. You’ll borrow library books instead of buying video games. It’s all a matter of matching your spending with your values and balancing your own financial independence with your kid’s quality of life. Frankly, they’d much rather have your time than your money.
Great, Mel, now I’m hungry again!
Sanctuary was practically unheard of during the Cold War, although it’s been more common during the last 12+ years of war. I still get that question a couple of times a month, but I think sanctuary will disappear during the next few years of the drawdown.
Thanks for the update on pension plans. The reader who left that comment never responded, and apparently nobody else has been able to find a better inflation-adjusted annuity. There are still plenty of paths to financial independence, but that particular route may not be heavily traveled.
I’m very impressed with JO Rules. My daughter came across it on SailorBob.com (a forum for Navy officers) and that submariner has written a whole new division officer’s guide!
The statistic about Reserves costing 25% of active duty is all too easy to believe. It also explains why major commands like PACOM fill a third of their active-duty billets with Reservists, who sometimes have more experience at that billet than an active-duty servicemember.
“Streams of income” is right. A Reserve deferred annuity makes it a lot easier to save for retirement, but I question its ability in a “new” retirement system to retain people on active duty. Like REDUX, I fear that in the next decade the DoD will decide to try out the new system to learn what effect it really has on retention.
A commissary closure in Hawaii would be inconvenient, but we’d make it work. We could do a lot with local grocery store loyalty programs along with bulk buying at Costco. Farmer’s markets would take more time but less money, and we still have room in our backyard for a few more fruit trees…
You’re welcome, Jason, you’re helping a lot of military people!
I completely agree with Pfau & Kitces’ analysis. The challenge will be convincing retirees (let alone elderly investors) that they have nothing to fear from volatility. Hopefully a cash stash approach helps them find their comfort zone.
Thanks for the great questions, Tom! The answers are “sort of”.
This post doesn’t cover all the details of every situation. Every time I write about the TSP (or IRAs) the caveats and exceptions and footnotes would triple the length of the text and make it read like the tax code.
As you know, servicemembers make their contributions to the Roth TSP (or the conventional TSP) through payroll deduction– either from active-duty pay or from drill pay. The difference is that the Roth TSP contributions are after-tax dollars (servicemembers pay taxes separately on their contributions) while the conventional TSP contributions are pre-tax. And, of course, contributions from a combat zone are completely tax-free (but that’s a caveat for another post).
The “over 50 catchup” provision allows an extra $5500 contributions, but admittedly that doesn’t apply to very many active-duty servicemembers. However I see a lot of Reserve/National Guard readers in their 50s, and the TSP is a much lower expense ratio than a civilian 401(k). Reserve/Guard servicemembers could do very well by contributing their drill pay & active-duty pay to the TSP. After their civilian employer’s 401(k) match (if any), that $5500 catch-up goes further in the TSP.
Retired servicemembers can make contributions to the TSP if they’re back on duty and receiving earned income from a military salary (a very few elect to do this on occasion). Retired servicemembers can also roll over their conventional IRAs to the TSP. Now they can even roll over their Roth 401(k)s and other after-tax tax-deferred retirement accounts to the Roth TSP. See this chart:
A military pension is not earned income, so that couldn’t go into any retirement savings plan. A military retiree in federal civil service could certainly contribute their civil-service pay to their civil-service Roth TSP account. But I’m not sure that any military retirees could contribute directly to their military Roth TSP from civilian earned income. They’d have to use the rollover tactic.
The Roth TSP withdrawal rules are similar to TSP withdrawals. Take a look at this link:
I’m not familiar with TSP or Roth TSP withdrawal provisions for kid’s college expenses, but I know that you could withdraw Roth IRA contributions at any time for any reason. Beyond the basic advice in this post, you’d want to chat with your financial adviser (or one of USAA’s CFPs). Aside from the tax code rules, I think any financial adviser would hesitate to recommend cannibalizing retirement assets to pay for a kid’s college degree.
Let me know if these answers clear up your questions or just muddy the waters even further. I could turn this into several more posts on the topic…
Thanks to a reader for his feedback:
“Toward the end of your recent post, you have this line:
‘Let’s say that the worst case was zero points, and the best case was 75 points.’
Actually, in those days, I believe it would have been a max of 60 points.”
The good news is that progress is quick when you’re motivated by the third step…
Wow, thanks Rob, that’s a tax-free inheritance of $100 followed by a tax deduction on the same $100.
I’ve added this to my list and to my “inheritance letter” for my daughter. I hope I won’t have to use this for a long time, but unfortunately these conversations are starting to happen more frequently among friends & neighbors.
You’re welcome, Jeremy! We’ll both have to adopt a 20-year view of our lifestyles…
Good points, Jan! I think that entrepreneurial and portable careers are also easier to put together today, and the military is much more aware of the retention impact.
I’ve done my share of rate chasing, and I think I’m batting about .500. As I simplify my finances, I’m finding out that customer service is a lot more important to me than having to ride herd on a less-competent company. The challenge is avoiding the need for customer service in the first plsce.
Maybe us DIY finance people are not USAA’s key customers. I think they cater to “trust” & “one-stop shopping”, and members are willing to pay a little more for the peace of mind.
Thanks, Kate! I try to stick to the topics where I actually know more than the average reader, and sanctuary is a little-known program.
In this case it’s personal experience. (You’ll notice I’m begging for links on the Army & Air Force sanctuary regs.) My spouse was subject to sanctuary monitoring during her Navy Reserve career (2001-2008) when she drilled at PACOM. PACOM mobilizes a lot of senior Reservists who are close to 18 years of service (6480 points) and the subject came up several times a year. She still has her (very thick) XO correspondence file, which got me started. I also spent a couple of hours last year plowing through Title 10 USC looking for changes to sanctuary case law, because now I can make the time to do things like that.
Fortunately, Rob, one of the PACOM Reservists my spouse served with was a Marine O-5. He was a very experienced watch officer drilling in an active-duty billet which was chronically gapped. PACOM fills nearly a third of their active-duty billets with drilling Reservists, and J1 finally persuaded USMC Reserve to mobilize him under this exact same scenario with a similar retirement at 20 years. Shortly after he was mobilized, he was selected for O-6 and pretty much ruled PACOM’s Joint Operations Center (especially midwatches & weekends). He elected to serve his two years’ time in grade and retired in 2006. (I even ran into him once, literally, while we were surfing.) I e-mailed that Marine’s name and Linkedin profile to the reader who asked this question. I’ll have to tell you the rest of those sea stories over a frosty beverage at FinCon13.
The POC for PERS-91B came from a very old NAVADMIN: http://www.public.navy.mil/bupers-npc/reference/messages/Documents/NAVADMINS/NAV2008/NAV08371.txt I don’t know if Mr. Sam Wyvill is still serving as the Navy’s sanctuary expert, but he was a big help back then. Sadly he held the line on Navy sanctuary, too, and almost never approved those requests.
The gory details on time in grade and retirement programs are in the DoD Financial Management Regulation manual (DoDFMR, http://comptroller.defense.gov/fmr/current/07b/index.html), and I sure wish I’d known this one better while I was on active duty. I revisited it in 2011 while I was researching the details of the Temporary Early Retirement Authority because it was referenced in a message from my own thick 1990s correspondence file.
The FMR used to have interim changes authorizing the services to reduce time in grade from three years to two. (For example, http://comptroller.defense.gov/fmr/archive/07barch/07b_ic_r09_03.pdf) That change was finally made permanently (to public law) in 2004: http://comptroller.defense.gov/fmr/archive/07barch/07b_ic_r02_04.pdf Two-year TIG retirements were almost routine in the Navy Reserve. But the services would have to go to SECDEF to reduce TIG below two years, and SECDEF might even have to go to Congress.
The FMR is a gold mine of retirement nuggets, but unfortunately you have to either be blessed with an outstanding personnel staff– or you have to be retired to make the time to read it. Everyone should review chapter 3 before they file their retirement request, and that’s especially important if there are medical or disability issues: http://the-military-guide.com/2012/07/05/the-regulation-for-calculating-an-active-duty-pension/
Kate, when I was in your position (at-home parent married to an active-duty spouse facing a new set of transfer orders) I used to spend many a cozy evening with my spouse paging through the Joint Federal Travel Regs and the Officer Transfer Manual. Again, you practically have to be retired to make the time to learn this info– or you end up depending on your assignment officer to “take care of you”. The information we found in those references led to her leaving active duty to start her Reserve career. (More sea stories for our FinCon13 frosty beverages.) I hope you never have to defend yourself with these weapons of mass instruction!
Thanks again for bringing this up– one of my older posts used a dead FMR link, so I fixed that too.
Good points, everyone, I’m going to have to take more notes on our next trip…
I logged in to find 68 coupons (way down from last week’s 115):
24 “general” (including condiments, supplements, & skin care)
1 packaged meat
I’ve “clipped” coupons for a buck off toilet paper and 50 cents off packages of frozen fish. We’ll still save 2-3% this time, although not every time.
Mike, it’s mostly convenience/processed foods and brand names. No fresh foods, although Dole canned pineapple made the list and I’ve bought bagged salads before. I noticed this time that there are no cleaning products but hair care is popular (and pricey). The cereal brands do not seem to be on board yet.
I agree that it’s still cheaper to shop the generics and healthier to buy local fresh/raw. Coupons almost never inspire an impulse purchase, either– we only use them for items already on our list. However we’ve been using more of the rewards card coupons than the printed ones, and compared to paper it takes me a fraction of the time to manage the website.
Good point about the military bases, Rob, and this card would also be useless for retirees far from a base. Our local grocery stores (even with loss leaders and their own rewards cards) can’t beat the commissary or Costco. Local stores are less than two miles from our house but it’s literally over a year between our trips there. Even just shopping loss leaders would take more time/gas than going straight to the commissary.
Spencer, I’m going to have to check whether our commissary even has coupons on the shelf by the product anymore. They used to but I’ve stopped looking. I don’t know how much a manufacturer spends processing paper, but the rewards cards have to be a significant savings for the stores and the corporations. And if people have the card number on their grocery list or in their smartphone, they don’t even need to remember to bring along the card.
Thanks Rob, it’s the best spending I’ve done all year!
Mike, there’s enough information to keep you happily reading for hours. And if you’re a genealogy enthusiast like my spouse then you’ll keep going for months. “DNA USA” is a fascinating book, as is “Saxons, Vikings, & Celts”.
You’re absolutely right about using the data to drive your behavior. That’s exactly how I felt when I read my results, and it’s the best motivation I’ve found in over 25 years. Even better, my daughter found our family’s info to be a tremendous relief and especially empowering– we can stop wondering, start planning, and keep an eye out for potential trouble.
I’m heading down your path after coming from a different direction. Fitbits will be showing up in our house soon, as well as a few other tracking apps, because the habits only seem to change when you’re logging the behavior. But that’s a post or two for another day.
Thanks, Jerome, Romeo, this needed to be said.
I’ve told my daughter just about every one of my sea stories, too, so she has full disclosure…
Thanks for the comments, everyone!
@Anjali, I’m OK with being a public figure and it was a big help to see the problem on FIA’s website, but I was not at all happy with the snail-mail and telephone bureaucracy. They still seem to need signatures on paper and formal notification before they can act.
@Jason, thanks for Clark Howard’s link; I hope that the fraud alert takes care of this. I’ll look at my free credit report in another four months and revisit the decision. I froze my Dad’s credit when he went into his care facility, and that process seems to work well. But my spouse and I are contemplating yet another mortgage refinance in a few months, so a credit freeze would get in the way of our short-term plans.
@Gubmints, I’ve started putting our utility bills on a dedicated separate card too.
@Janette and everyone who mentioned USAA, I’ve always had good credit-card service from them. The difference between Amex’s 2% rebate and USAA’s 1.5% rebate seems a lot less significant when you add back the hassle factor of dealing with FIA’s fraud process.
You’re absolutely right, Romeo– just under 5000 words– and worth every one of them. This story is too powerful to break up into two posts. Judging from the traffic, it’s going to turn into a “pillar post”.
Yes, the author is in the Army. He contributed the post with that information and I “sanitized” it to help readers of the other services identify with his situation. It applies to everyone.
Thanks for the HARP advice! It always surprises me how many setbacks and mistakes we’ll see during our service, yet our finances can still recover. And I’m with you on the boredom part– after a decade of early retirement I feel busier than ever.
Thanks, Jason, it’s on my list.
Everyone saw Crystal’s comment, right? That coupon code drops her eBook price to only $17, which is only a few days of AdSense earnings– or just one individual ad– or a handful of affiliate commissions.
Spencer, I’m just dipping my toe into affiliate sales now. We’ll see how it goes next month with USAA and then other Commission Junction offers.
Thanks Chris, Romeo, I couldn’t have said it better!
I’m a big fan of TA, especially at commands who support giving their people the evenings/weekends free to take the classes. My training commands benefited from many MBA surveys, studies, & projects. Especially when the XO was working on his own MBA.
I think a name-brand MBA program can help a marginal student grow into their skillset, especially by spending time with the mentors and top performers. Ironically the high-powered performers who can get into any of the top programs would succeed even if they attended a program at a community college. It’s the application that counts, not the source.
I’d love to see the data on whether veterans have a higher demographic representation among startup entrepreneurs and small-business owners. That military experience shines through pretty brightly.
Here’s another calculator to help estimate how long it takes to reach financial independence:
Give it a chance to load. The website’s very busy.
Mike, Al, thanks for your comments!
Another reader said:
1. Staying another year? If the assignment officer is sending you to Kabul– no way.
2. Cash flow is king. Restructure debt to get required monthly payments lower. Flexibility is the key to Air Power you know.
3. I had a guy in my office today saying that with his military retirement check he could be a civilian guard for $12 an hour and be just fine.
I’m with you guys. It’s good to stay on active duty if it’s still fulfilling, but it’s tempting to choose the “comfort” of the uniform instead of the unknown of the transition. Unfortunately I think too many servicemembers leave their finances until it’s too late, and they feel they don’t have choices.
Heh– nice to see that we all suffered some of the same plebe experiences… at the time I didn’t exactly appreciate how that skill would pay off.
Thanks to Gunny at CitizenBlogger1984 for providing a link to news of the pending Marine Corps early retirement announcement:
Marines to offer early retirement, with benefits
My mistake; I didn’t mean to skip over the details. When NFCU said (perhaps mistakenly) that I’d still be subject to the $600/day ATM limit, I didn’t try to use it at the bank. Instead I used a credit card– for a 3% fee.
I’ll lay it all out in the Wed 9 May post. But the bottom line is that if NFCU and I had understood each other then I would’ve tried to use the NFCU debit card first… and it probably would’ve worked, with no cash-advance fee.
@Robbo, at least it saves the percentage fees that come with cash advances. Sounds like a wire transfer on paper, and doesn’t take much more time. By the time I was done talking with all the credit unions & banks, this would’ve seemed like the way to go.
@ejw93, that’s the sort of transaction I hope everyone’s doing in a few years.
She’s looking at three different cars in the next couple days. I can’t wait to see how this works out!
Just got a note from the author– very cool!
Name: Tom McBride
Email: mcbridet [at] beloit [dot] edu (not dot com)
Comment: Thanks ever so much for your review of our book, THE MINDSET LISTS OF AMERICAN HISTORY! If any of your visitors would like an autographed bookplate, free of course, just have them get in touch with me.
Best, Tom McBride (and Ron Nief)
Time: Tuesday April 3, 2012 at 6:48 am
I wish I’d thought of doing this for “The Military Guide”!
My trauma, er, memories have faded… I couldn’t remember whether it was you in there, or Samaha, or Carlson. You probably each deserve the troubleshooting credit from one time or another!
Gosh I miss those sea-duty days. NOT.
Thanks, guys– e-mails and “contact me” are running evenly split too. It’s also interesting to note that the servicemembers & veterans are much more critical of the graphic.
Thanks, good question! The 1990s military drawdown was more about the end of the Cold War, not the politics. Remember the “peace dividend”?
Your question about “retired benefits” leads right into the post scheduled for 5 AM HST Wed 14 Dec. And while there will be a slash & burn, I don’t think it’ll impact today’s active-duty personnel as badly as it did in the 1970s. I think the Reserves & National Guard will feel pain in their training, equipment, & travel budgets but not in the expenses for current personnel.
I’ll put some thoughts together for a “drawdown predictions” post.
Thanks, Jay! Real estate has been pretty good to us over the years, but I think we’ve seen enough of fixer-uppers for a few decades. I’m way behind on surfing.
Neighbors have been very understanding. “This Trophy House” overlooks Kipapa Gulch. We’re on a cul-de-sac with one neighbor being a sewage-pumping substation. The neighbors across the turnaround circle never hear a thing since the familyroom’s all the way at the back of the property. The other neighbors just went through their own renovation from hell (new wood floors in the entire house, new kitchen) so they’re quite sympathetic.
I can’t imagine doing this with kids in the house, although they’d be awful handy for getting a nailgun and a paint brush into those little nooks & crannies…
I used to get teased about my car or about commuting by bicycle until I pointed out that they reflected my values, not my assets.
We tell our daughter that we hope she finds an avocation that she loves, but that financial independence gives her the choice to do what she loves…
From the comments of DoD and Congress, I think there’s a commitment to preserve the current system for those who are serving. Benefits changes would only affect those who join the service after they’re implemented.
I’m also beginning to think that the DBB study will not be supported by the new SECDEF, although it certainly started a discussion.
The TSP aspect of the proposal would shift military retirement from a defined benefits pension (which, like Social Security, DoD can only invest in government securities) to a defined contributions system (the TSP, which servicemembers can invest in other assets). This would allow retirees to control their own funds (through the TSP) for a hypothetical higher return. But most significantly of all, it would also reduce DoD’s pension obligations.
I think most servicemembers would much rather choose a bigger TSP after their service obligation rather than wait for a 20-year pension vesting. It’s quite possible that DoD would offer new servicemembers (and perhaps even those currently serving) a choice between a much bigger TSP or the current defined benefits pension.
It’s a logical extension of the existing Career Status Bonus/REDUX system, which offers a tempting choice but which we all know is not such a good deal for the servicemember. It’s also similar to the civil-service retirement system.
How would that proposal affect everybody’s retention decision?
Good point about the fireworks– although that’s getting better as the city council passes more laws against private New Years’ Eve blowouts.
I really enjoyed the 4 AM surface off Oahu, rigging the bridge with all those stars overhead, and the smell of the first cup of morning coffee as it came up the bridge hatch!
Thanks for letting me know– I don’t have an iPad and you’re the first to call attention to my blissful ignorance.
This blog’s theme, WordPress’ Twenty Ten, has an iPad utility that lets me set some of the display features. It says “Onswipe displays a beautiful app-like experience to visitors browsing with an iPad.” It lets me select the “Cover Display”, “Cover Logo”, and the “Launch Screen Image”. I don’t have anything chosen for those and I’m not sure you should care about them, but now you know they’re options.
The final option is “Display Font”, and there seem to dozens of them. If you have an iPad font that works well for you on other blogs or sites then I’ll set it up here.
Here’s the support page for these settings: http://en.support.wordpress.com/onswipe-theme-for-ipad/
By March I suspect you’ll really be ready to visit here! Let me know if you have questions or if you’re looking for suggestions. A relatively new way to explore Oahu is 3DHawaii.com…
Thanks, Clif, my brain is definitely full and I have a lot of surfing to catch up on.
USAA did a great job of answering our questions. I need to distill it all down into a couple of poignant posts for next week… but that’ll be after I drive to Houston today to visit my daughter!
You know what they say about sea stories: every one starts with the disclaimer “This is a no-sh!tter”, when in fact it turns out to be the main subject…
Thanks, Jay! Nearly a decade ago I never would’ve predicted a retirement like this. Must be all of that time I spent on surfing thoughtful contemplation…
I’ll point out that it isn’t just this tiny island at risk for hurricanes and, of all things, earthquakes.
And thanks, Stephanie, I’m looking forward to it too!
We’ll get guardianship & conservatorship, although the courts make it a bit complex to have conservatorship from a different state. I might be able to do the court hearing by phone or by Skype, but I’m supposed to sign an extradition waiver with Dad’s state…
Before you start “the talk” with your grandfather, it can be a tremendous help to hit it off with a geriatric care manager in his neighborhood. We ended up using three of them (in my town, Dad’s town, and my brother’s city) and I couldn’t have done it without them. They’ve seen it all, and they’re thrilled to get a request for help before it’s a crisis. They’re able to walk through ideas for your talk with your grandfather, and they’ll be standing by if he wants help.
You raise an interesting point– I wonder if the assignment officer could play hardball with the 14-17-year servicemembers. It might be easier to vote with your feet for the Reserves/National Guard.
But again, it’s good to be financially independent before getting to those critical decisions!
Thanks for pointing out the budget’s million/billion typo. That’s been corrected. You’re the first reader to notice that error, and I appreciate the scrub.
I think DoD has always expected that military veterans will “complement” their service with bridge careers, even if it involves Wal-Mart. That’s why we wrote the book– to show how most servicemembers can achieve financial independence without having to tackle a bridge career. The “walking out the door” scenario you describe is exactly what DoD expects Reservists and National Guard retirees to do now. When servicemembers become financially independent before leaving the military then Wal-Mart is an option, not a mandate. I hope you can continue to serve on your terms, but if the military doesn’t cooperate then I hope the book and the blog will help you to retire on your terms.
I agree that military specialties don’t compare to civilian jobs, and the DoD’s last couple of retirement experiments in that area (REDUX and NSPS) didn’t work out very well. The 10 August post presents more info from the DBB brief. If it still leaves you feeling that there’s more to be covered then let me know what you’d like to see in a future post.
Thanks, Jay! The subject and the material are worth learning about, but I think a hardcopy book is a terrible format.
Kaiaokamalie, I’m not a Clickbank reader but Ostrofsky mentions then a number of times. If you’re as local as your name suggests, there are three copies of his book at the Hawaii state library…
Good to know– thanks. It sounds like you did exactly all the right things to come out ahead.
One of the DoD’s other examples of “coming out ahead” is the E-9 who stays for over 30 years. But at 15 years of service, that’s a tough prediction to make.
I’ve added your items to the list!
I’ll pass on all our thanks to USAA. I think they understand that this type of marketing is truly priceless.
Thanks, I enjoy Paycheck Chronicles too!
You’ve asked a great batch of questions!
As I drafted the answers, it turned into an entire blog post which I’ll put up on Monday 25 July. The good news is that I’ll have time to polish it and add reference links. The not-so-good news is that it won’t be up until Monday.
Until then I’d recommend plowing through some of the links at http://the-military-guide.com/2011/04/18/back-to-the-trinity-study/ . It all started in 1998 with this research: http://www.bobsfinancialwebsite.com/Trinity/trinity.htm
Note the update at the end of the thread with links to a spreadsheet where you can enter your own assumptions and calculate the results.
My family & friends are just happy that I have a different outlet for these tales…
I’ll keep tracking it. I don’t report the breathless blow-by-blow updates of Military.com’s Terry Howell or Tom Philpott. However when both Armed Services Committees agree then it’s probably going to happen.
In the meantime, can I research a specific question? You could post it here, or use the “Contact” box, or send me an e-mail. Most of my posts come from reader questions!
I think these guides are playing to the lowest common denominator of beginning investors. But it’s easy for military investors to overlook the inflation protection of a pension with a COLA…
Sorry to hear that, G. An unsupportive command can turn the best of retirements into the worst of nightmares.
Thanks! We’ll see how she does during sophomore year. “So far so good”…
Jan, I’ve been back for a couple days of research on this one, and I have to admit that I’m stumped. There might be few enough dual-military retirees for us to count them all by listing our acquaintances!
I’m pretty sure that this info (let alone any mutual support) was practically non-existent when spouse and I married in 1986.
Seriously, though, the data is lacking. My usual DoD statistics & demographics PDFs seem to be silent on the subject. I’ve found a couple links that I’m still digging into:
including the comment that “Out of the 1,387,674 Active Duty members, 6.7 percent are in dual-military marriages”,
And, much to my surprise, here’s a Facebook group:
I think I’m going to strike up a conversation with COL Knighton…
Thanks! That seems like a fast way to find a local planner.
I remember that Vanguard also used to offer fee-only financial planning, although some of their customers complained of “cookie-cutter results” that were heavy on some of Vanguard’s less-popular funds.
Guilty. Seems so simple, doesn’t it?
I’ve been hearing about George for years but never got around to reading his blog. I’ll take a look at it.
You could spend your entire day on this book-marketing stuff. It could turn into a full-time job…
Here’s yet another update on Tricare fees.
Last week the House Armed Services Committee forwarded an endorsement of the first Tricare fee hike in 15 years. (http://www.military.com/military-report/house-committee-okays-tricare-increase?ESRC=miltrep.nl) “If approved the committee’s budget bill would allow DoD to increase premiums by $30 a year for individual coverage and $60 a year for family coverage. The HAS defense budget would also allow DoD to raise the TRICARE Prime premium on an annual basis, but not at the rate they requested.”
There’s months of legislative process and political wrangling to go before this turns into law and a DoD implementation. I’ll keep an eye on it with updates to this post or a new Tricare post.
It’s a great idea, but I haven’t heard anything yet!
I haven’t plowed through the enabling legislation to see if that’s even permitted, but the key is whether the TSP managers want to do conversions. They’re already tracking the tax-free contributions (from combat zones) so it’s hypothetically possible to track conversions as well.
Thanks, Scott. I’m just working through the John Hancock bureaucracy to make the claim on my father’s long-term care policy. It’s not a very enjoyable process but it seems to be going OK so far.
Cherie, you ask a very good question– and one that’s being asked by many frustrated investors. The answer is an entire blog post, which I’m going to write today. I should have it ready to post tomorrow– check back after 5 AM Monday Hawaii time.
You may not feel very happy about the answer. As they say on the Bogleheads.org discussion board, it’s pretty much “stay the course”. However you can take a look at your asset allocation plan and decide how the TSP’s low expenses can fit into your savings.
As the market continues to recover from one of the worst declines since the Great Depression, your TSP funds will also continue to recover their value. Better still, they’re much more likely to return to the market’s long-term performance averages than anything else you could invest in. Best of all, you won’t have to invest a lot of fruitless efforts (and pay higher expenses) trying to chase that performance.
See you back here in 26 hours.
Thanks, Scott, good to know.
I’m calling John Hancock this week to start my Dad’s claim.
Kathy, I agree that the military retirement system seems pretty attractive… from the retiree’s side of the fence. From the active duty perspective I think it’s worth keeping in mind that there are a lot of family, deployment, and combat decisions standing between them and their retirement benefits.
The adverse effects of job-related stress are pretty clearly documented– let alone the effects of military stress. If the military isn’t challenging, fulfilling, and even occasionally fun then the risks of trying to gut out the years to retirement far outweigh the rewards you mention.
Today’s active-duty members have plenty of alternatives to the “no whining” approach. They even include pension benefits– a change of specialty or community or even service, including a transfer to the Reserves/National Guard. I know quite a few who have gone to the Reserves when their active-duty careers took a turn for the worse, and some who even decided to return to active duty when their lives got better.
My spouse left active duty just short of 18 years, and it was the right decision. (For the record, her spouse was not whining. I was ready to go where she needed to go and do what needed to be done.) We conservatively calculated that she was giving up roughly $750K in pay and retirement benefits in order to choose a better quality of life. (Hint for those of you on active duty: when you find yourself attempting to assess the quality of the family counseling & support services at your new duty station, then it’s probably not worth the money.) Today she’s retired after another seven years in the Reserves. Life has never been so good. Our family was able to stay in Hawaii. She found plenty of drills and active duty, and the money worked out just fine. She even picked up a promotion (that never would have happened on active duty) and she expects to collect more pension as a retired Reservist than she would have collected by retiring from active duty at the lower rank.
Among my shipmates who were trying to “gut it out to retirement”, I’ve seen too many divorces. I’ve seen families broken apart. I’ve seen too many disability screenings. I’ve seen antidepressants handed out like candy, and that was on sea duty as well as shore duty. I’ve seen three suicides that didn’t need to happen, and one of them included a homicide. Active duty was not the only cause of their problems, but it contributed. I wish every one of those people (and their families) had considered a transfer to the Reserves or even going cold-turkey civilian.
The military retirement system is worth a lot. It might even be worth everything that we feel we need for a good life. But is it worth sacrificing everything? I vote “No.”
But hey, that’s why we wrote the book– to help military members and their families assess the relative benefits and drawbacks of leaving active duty. Financial independence means working and retiring on your terms– and not having to stay on active duty if it’s not the right career anymore.
I don’t have any solutions here, Jan, but one possibility is to keep alert to another open enrollment period for the SBP. But that’s unpredictable.
When we first retired I kept a pretty tight grip on the purse strings. My spouse was fine with that because her frugality makes me look like a spendthrift. However nearly nine years later after coming through two recessions with an intact portfolio, we’ve both become a lot more comfortable with loosening up a little. We know we can always fall back on our black-belt frugal skills if it becomes necessary.
I think the AF is unique among the services in letting their retired members return as drilling Reservists, but I don’t know each of the services’ Reserves or Guard as well as I know Navy.
Navy Reserve would also prefer that their members not “homestead”, and eventually it can count against them at promotion boards. However in the Reserves there’s at least a choice, while we all know what would happen if we tried to homestead on active duty…
After I’ve had a few years to reflect on submarine design, you’d think that by now we’d have figured out (1) how to build a waterproof electrical pump, and (2) how to put it away from hatches and other water sources. We certainly didn’t save any money from skimping on those two criteria.
For those of you arriving from a search engine, please tell me what terms you used! This post had double the blog’s usual daily traffic, and three days later it’s still at the top of the list.
Thanks, I’m glad those pingbacks are working.
Thanks also to Deserat/Bridget for her draft on this subject. That chapter of the book comes from someone who really knows how to balance the Reserve and civilian aspects of life & work, and the chapter practically wrote itself.
Man, I can’t believe the spam that this post has inspired.
WordPress’ “Akismet” utility does a pretty good job of screening it out, but there’s a whole new wave of “Groupon”-style spammers who make their comments look more like an announcement. Somehow that gets through the filter, although I hope it’s learning.
It might be a while before I put up another post on this subject. Please comment or “Contact” me or e-mail me if you have questions.
And to think that people wonder what early retirees do all day…
Most servicemembers (and even most veterans) have no feel for the expense of civilian health insurance. I think military healthcare will get more expensive, but I think it’ll still be a lot cheaper than the civilian equivalent.
Keep saving as much as you can while active duty is still fun, and you guys will win the game. You’re already well on the way.
My spouse and I found that our priorities began to conflict with the “active duty lifestyle” when we started a family.
Speaking of higher Tricare premiums, here’s the latest DoD proposal: a much more modest 13 percent increase for retired TRICARE Prime enrollees for FY2012, with no enrollment fee or deductible changes for TRICARE Standard or TRICARE For Life. Specifically, the plan calls for:
– Raising the 2012 Prime enrollment fees by 13% — from $230 single/$460 family per year to $260/$520
– Indexing those fees in 2013 and beyond to a medical inflation index (based on a measure of Medicare cost growth projected to rise at 6.2% per year)
– Minor changes to TRICARE pharmacy copays.
Thanks! And wow. Good questions.
I guess the first answer would be that I don’t see any big changes coming. Congress tried “big changes” in 1986 with REDUX and retention plummeted steadily over the next decade. There were other factors contributing to the drop, but the only factor to consistently correlate with retention (in both directions!) is money.
The rest of the answers will be long enough to make an excellent post. Let me look up some references and put together a better answer for next Monday. And thanks again for asking!
Asset allocation when you’re getting a military pension: the military pension is the equivalent of a lifetime of inflation-adjusted income from TIPS or I bonds. We’ll calculate how big that asset class would have to be to throw off that much income, and then talk about how to diversify it with other asset classes.
That was a very interesting day.
It was also interesting because the hospitality suite was on the 35th floor of the Hilton, where I could look down on Queen’s at a solid 4-6 feet swell all morning. It was killin’ me because I’d left the longboard back home, never expecting to get a chance to use it. I didn’t think this was quite the crowd for free surfing lessons…
You’ll have to keep us posted on how things work out. You’re turning into one of the retirement mentors now…
Thanks. I have to admit that I’m a bit weak on the GI Bill and much more familiar with active-duty tuition assistance.
I hope all the bureaucratic delays get straightened out before it turns into the military scandal of 2011…
I’m looking forward to when I’ve been retired 14 years!
We own a home and a rental property. We’re DIY & HGTV home-improvement enthusiasts, so in 1989 we were able to scrape together the down payment on a “quaint fixer-upper”. In 2000, after looking at dozens of homes, we were also able to scoop up another “handyman’s special” bargain during the pit of Hawaii’s decade-long real-estate recession. The sweat equity has been a substantial investment.
Today’s prices are eye-popping, and we’ve improved our homes to the point where they’d be out of our reach if we had to buy them again. (I envy anyone who could live on the North Shore, especially during winter surf!) When I retired in 2002 we were carrying an 8% mortgage on our home but a couple months ago we were able to refinance down to 3.625%. That’s helped our financial situation quite a bit.
Rental property cash-on-cash returns are particularly pathetic here and it ties up a lot of equity– 3-4% APY is common but it was a good hedge during the 2008-09 recession. Our rental is between Schofield and Hickam/Pearl Harbor so military tenants have been great.
Although Hawaii’s real-estate prices aren’t for the faint of heart, there are bargains. Condo & townhome prices have been especially soft for the last couple years and they offer good ways to build equity over the next decade. I’ll have to work up a post on retiring in Hawaii, but feel free to comment or e-mail me with questions. Thanks!
Thanks for your comment, Christopher. I’m hoping that the more military families learn about financial independence, the less pressure they’ll feel to get a job “just because” they’ve retired from the military.
The best part about retirement is having the time for quiet contemplation and reflection, even if it’s “only” to decide what you’re doing this afternoon. I just added a link in the “Retirement” sidebar to Ernie Zelinski’s “Get-A-Life Tree”. It’s guaranteed to jumpstart your retirement activities. Keep in touch and let us know how things are going.
Same here, and I think most ERs struggle with it. I try to turn the conversation back to them.
When new acquaintances see the way I dress and learn about my surfer-bum lifestyle, though, I think they’re afraid I’m going to ask to borrow their money. So they’re happy to talk about something else…
I’ve really enjoyed your blog over the years. I think you deal with the personal & emotional issues that most financially-oriented bloggers never get around to. (Those issues also seem to keep a lot of military veterans in the workforce even if they don’t have to be there.) It’s even more impressive with your background of accounting & venture capital, where very few seem to ever feel compelled to retire!
Thanks! As you can imagine, there’d be some skepticism from certain segments of the military if I didn’t have equations & numbers to back up the claims…
Thanks! So far so good…
I wonder if it ever really goes away while we’re working.
The only solutions seem to be a few weeks’ leave of doing absolutely nothing… and of course terminal leave!
Thanks! We have one in college on a Navy ROTC scholarship, so these subjects are getting a lot of discussion & practical application.
Thanks, Gary! Great website– I’ve added it to my blogroll.
I’m also going to mention your website at Early-Retirement.org. Blogging has really broadened the resources that I’ve been recommending for military retirees.
Well, you can also tap the Roth for first-time home purchases and education expenses! But you’re probably done with those categories.
I need to finish estimating my 2010 income so that I can squeeze in a little bit more of a Roth IRA conversion. It seems easier to write blog posts than to chase down all the details of the income and deduction numbers.
The biggest advantage of a Roth is NOT having to take distributions. A conventional IRA may grow so large by the time you turn age 70 that the required minimum distribution could be a huge tax hit. Instead that would be one of the first things you’d tap (definitely after age 59.5 and perhaps even earlier with 72(t)) to smooth out the tax bill over the years.
After eight years of early retirement I’m beginning to wonder if frugal habits will ever change, although I still enjoy the challenge. Our spending habits have started to change, especially if the alternative jeopardizes safety or a bigger expense. For example I’ve reluctantly concluded that car tires on Oahu are pretty much worn out after six years, no matter how few miles we’ve put on them.
Good comment about the spreadsheet– I need to put up a post about “lifetime consumption-smoothing” retirement calculators like ORP and ESPlanner. Those of you who want to explore on your own can check the retirement links in the sidebar.
Yep, the trick is not being scared by those 5-10% withdrawal rates that consume a lot of savings before the pension(s) and Social Security kick in!
Thanks! The next three posts are on Reserve/NG healthcare, pension comparisons, and handling those multiple streams…
The book includes the story of a shipmate who was retiring (Yay!). He’d spent most of his Navy career avoiding Navy dentists (Booo…) so when it came time to fill out the retirement checkout sheet he left the dentist’s appointment until the absolute last possible moment. We practically had to drive him over there.
You can see where this is going. They had to do six root canals: one every other week for three months. Not a good way to spend terminal leave…
Thanks to Jerome and everyone else who nominated cover designs over at Early-Retirement.org, Facebook, and e-mail! We have some pretty talented graphics artists out there.
The publisher made the selections from our nominations and the contest is now over. I’ll post the results on the blog as soon as the press releases go out.
Jerome, I’m afraid they didn’t go for the flaming financial house. I like the image, though, and I’m going to figure out a way to get some use out of it somewhere…
WordPress flagged a comment from a German poster whose website translates to “daily cash winners”… smells like spam to me. (Please contact me if I’m mistaken.) However their comment is still worthy of response: “I don’t usually reply to posts but I will in this case. My God, i thought you were going to chip in with some decisive insght [sic] at the end there, not leave it with ‘we leave it to you to decide’.”
Sorry you didn’t get the easy sound-bite answer you’re seeking. Early retirement is a highly individual decision all by itself, even without spouse/family considerations. Many veterans miss the opportunity to make the transition, let alone pursue the education or the self-confidence to handle the issues that arise.
I can’t tell you the best way to live your life, but I can tell you that it can best be achieved through financial independence.
I can also suggest that you read the book when it’s published next year! There’s plenty more material in it than I’ve put in the blog, and the book is packed with the personal stories of over 60 veterans. In the meantime you can join the discussion at Early-Retirement.org and see what hundreds of others are doing with their ER lives.
Yep, and I learned an epically awesome foreign language too!
I’m sorry, I can’t ever recall ever seeing anyone ever taped to anything on any submarine. Why, you’d have to station a safety monitor to make sure that they could be freed in the event of an emergency, or you’d have to carefully design the taping method to ensure that they could free themselves.
It sure was a different Navy back then… and I’m glad taping is no longer a part of it.
And we division officers miss the heck out of that other stuff too. NOT.
You’re protected by federal law, but you’re also going to have to request an extension in your status past age 60.
First, please check your Air National Guard drill records to make sure that you indeed have nine good years. Sometimes mistakes are made at the local or national level, and you want to be absolutely sure that the ANG national database has everything you’ve earned. Good years are not just based on points. Good years also depend on mobilization readiness (dental/medical), being within physical standards (height/weight and the physical fitness test), and perhaps satisfactorily completing annual active duty. Even if you have enough points to qualify for a good year the unit still has to attest to the personnel center that you met the standards to receive a good year. If that unit confirmation doesn’t get into the ANG database then although you may have enough points for a good year, you won’t have the credit for a good year.
It’s far easier to correct those records now than a decade from now. Keep good records of your drill musters and your active duty and make sure the official database gives you credit for everything you’ve done– and then gives you credit for a good year.
If you have nine good years in your record today, then you’ll need 11 more good years to qualify for a Reserve/Guard retirement. Since you’re 50 years old with nine good years, that means when you get the 11 more good years you’ll be 61 years old.
Federal law says that when you reach 18 years of service then you’re entitled (protected) to stay on active duty status (drilling) until you reach 20 years (good years) of service. Here are the sections of federal law for enlisted and officer ranks:
Although Reserve/Guard pensions normally start at age 60 (or a few months earlier for some mobilizations), you’ll have to stay in a drill status past age 60 to earn the last couple good years. That requires an age waiver for you to stay up through age 62. This could be what you were told in June 2013, but they may have meant that you just made the age deadline to qualify for your pension. Make sure you get that waiver to stay in a drill status past age 60, because it doesn’t happen automatically. Here’s one cautionary tale:
Next time you’re at the drill weekend or on a military base, I strongly recommend that you talk to a JAG lawyer about your good years, your broken service, your age, and your need for an age waiver. When you submit the waiver, make sure you know who’s approved it and that it’ll be completed on time.
I’m not sure what you mean by “My LES shows a payday of 070510 with 9 years.” That could be referring to the number of pay months that DFAS has in their records for your longevity on the pay tables. It’s not the same as your ANG record of your number of good years. The LES is not the reference document for retirement eligibility. That can only come from the ANG record of your good years, because that’s what’s used to generate your Notice Of Eligibility letter for your pension.
I hope this clarifies the rules! Please let me know if that answers your questions or if there are other issues.
Thanks for the advice, Bill! I so want to believe that the industry has priced it correctly this time.
And, yeah, if the indemnity basis means that the LTC benefits are not considered income then that sounds like a wonderful way for caregivers to worry less about the paperwork.
Good question, Super Dave. Unfortunately the answer is “No”.
I get that question several times per year from Reserve/Guard members who have missed a good year and then (for whatever reason) run into an obstacle: failure to promote, not permitted to re-enlist, or not able to continue in a drill billet.
I’ve heard (but have not confirmed) that it’s hypothetically possible to transfer to another service. One example is an O-4 who fails to promote and reaches their service limit at 20 years but has only 16 good years. They could separate from the Navy Reserve and apply to the National Guard in the enlisted ranks, reach 20 good years there, and then file for retired awaiting pay. Because they had more than 10 years of commissioned service they’d be considered eligible (at age 60) for an O-4 Reserve pension.
Thanks, Super Dave, I appreciate that the IRR has an unsavory reputation– and not all of that is deserved.
One of the biggest issues with the IRR is that the Reserve/Guard member is no longer eligible for Tricare Reserve Select. Even a one-day gap between units (with that time spent administratively in the IRR) means that there’s no health insurance.
A second issue in the IRR, especially in the Army and Navy, is the difficulty of completing a good year. That’s rendered even more difficult by the new restrictions on correspondence courses. IMA can help if you can get it, but otherwise IRR is very likely to lead to a “no good year” situation.
If I was a drilling Reservist with a shorter-term time challenge then I’d make every effort to reschedule drills, do quarterly drills (five months apart), or even take a few months of Authorized Absence. Before going into the IRR I’d make darn sure that I had a good year. When I returned to drill status I’d try to quickly score enough AT or ADT (or even ADSW) to obtain another good year before my anniversary date.
Thanks, Brad, that’s a great question!
You’re absolutely right: a conversion only makes sense when you do it during a lower tax bracket. A conversion also avoids the hassle of RMDs, and that may also mean that your Social Security income is not subject to taxation.
Military servicemembers are an edge case because so much of military compensation is untaxed. Especially at the junior ranks, it makes much more sense to contribute to the Roth TSP and Roth IRA(s) because you’re in the lowest tax bracket of your life. Pay the tax now and avoid conversion paperwork (and RMDs) later.
When you retire (at an O-4 or an O-5 pension) you’re going to start right out in the 15% or 25% income-tax bracket. If you minimize all other income (no bridge career, no dividends, no interest) then every year you may be able to convert a little of a traditional IRA (and a traditional TSP) to its Roth equivalent. You’d do that up to the top of the 15% income tax bracket. You’d also have to either live within your military pension or sell some of your investment shares for capital gains. (You’d try to stay within the 15% income-tax bracket to qualify for the 0% capital-gains rate.) That’s a challenge.
If you retire to an O-4/5 pension *and* start a bridge career, you’ll be in (at least) the 25% income-tax bracket. The only benefit you’d gain from TSP & IRA conversions would be avoiding RMDs.
There are two times when it makes sense to contribute to a traditional IRA now and convert to a Roth IRA later.
The first one is reaching financial independence without earning a military pension. A very few servicemembers with extremely high savings rates (or gifts, or inheritances) can do this within 10-15 years. They’d leave active duty and do a little bit of a conversion every year (perhaps up to the top of the 10% income-tax bracket) to avoid having to deal with RMDs later in life. If their expenses are extraordinarily low then they might be able to do conversions at the 0% income-tax bracket: no taxes at all! See this post from my friend Jeremy:
(Caution: it’s an extremely in-depth tax discussion.)
The second case includes servicemembers who leave active duty for the Reserves or Guard. They’ll start a pension at age 60 and RMDs at age 70.5, which (along with other dividend/interest income) will probably push them into at least the 25% tax bracket. In their case it makes sense to do conversions before their pension pension starts at age 60. My spouse is facing this exact situation: she’s converting her IRA and her TSP into a Roth IRA at the 15%-25% income-tax brackets to avoid RMDs at the 28% income-tax bracket.
Side note for dual-military or dual-career couples: if your earned income is too high to contribute to a Roth IRA, then contribute to a traditional IRA (sorry, no tax deduction for you either) and then immediately convert that traditional IRA to a Roth IRA. See: “backdoor Roth IRA conversion”.
Thanks, Donna, I’m looking forward to it!
Thanks, Peter, good comments.
Servicemembers (and especially spouses) really need to read the SBP case studies before they make their choice– no matter what situation their finances may be.
You’re welcome, Donna, it’s a great book and a big help to people dealing with more debt than income.
Thanks, Erin, NMCRS does good work these days!
Thanks, Deserat, I appreciate the gratitude but I can’t think of this as “work”– there are no department meetings or mandatory training presentations!
I think the Reserve and National Guard models of working and serving produce a much more balanced (and beneficial) life than two decades of active duty followed by a bridge career.
You’re absolutely right about the “brain drain” if people can take a little extra with them before 20 instead of sticking around for cliff vesting at 20.
The #1 regret of my readers in their 50s (and older) is that they didn’t stick around for that 20. In retrospect, the issues that kept them from serving until retirement eligibility weren’t as bad as they seemed.
I hear you on young adults, Peter, yet I think that the educational efforts for the new retirement system (and military financial tools in general) are the best they’ve ever been.
The real challenge is getting people to pay attention to the resources. I haven’t figured that one out yet.
Well, Logan, your last phrase is an important point. Nobody should plan on doing 20.
83% of the people who join the military end up leaving the service (for whatever reason) before they’re eligible for a pension. My daughter and her spouse are planning to take it one obligation at a time, and they’re also focused on reaching financial independence via a high savings rate. That way they have more flexibility at deciding whether they’ll be among the 1 out of 6 servicemembers who beat the odds, and by taking the matching feature of the BRS they’ll have more in their TSP accounts if they don’t stay for 20.
As part of their high savings rate, they’re maximizing their TSP and IRA contributions (as well as saving even more in taxable accounts). When they convert to the BRS then they’ll maximize the DoD matching contributions as well. If they go for 20 under the BRS, it’s possible that the matching funds in their TSPs will compound faster than the larger High Three pension would have yielded. That’s what I hope we can analyze with DoD’s BRS calculator, which is expected to be released next month.
However the most important factor is that nobody should plan on doing 20. Not even aviators who obligate for 10+ years upon commissioning.
Val, while you’d technically qualify for TERA, and although it’s in effect through 2018, the program is not generally offered by the services.
If you end up facing separation at 17 years then you should apply for TERA and let the Guard decide. You may also be allowed to extend to get to at least 18 (good) years of service, which (under federal law) would enable you to be continued to 20 good years.
Thanks, Peter, good points!
Thanks, Charles, good point! I’ve edited the post to fix my error.
I’m not implying that at all, Chris. The post is about the sizes of those pensions and how a military pension is affected by taking the FERS military service credit deposit.
The military service credit deposit is a bad deal for active-duty military retirees (although they should still take the adjustment to their federal Service Computation Date). I don’t know any active-duty military retirees who have applied for the military service credit deposit because it would halt their active-duty pension while they were in the federal civil service. Instead, active-duty military retirees should choose to continue to receive their active-duty pension and should not buy into the military service credit deposit. The result is that their FERS pension is based only upon their years of federal civil service. Review bullet #2 in the post.
The FERS military service credit deposit is a great deal for Reserve and National Guard retirees. The reason that FERS retirees should still buy their Reserve/Guard military service credit deposit is because there’s a specific exemption in the FERS regulations allowing them to do so while still receiving their full Reserve/Guard pension. As a result they still receive their Reserve/Guard pension (beginning at age 60 or perhaps a little earlier) and they receive a larger FERS pension. Review bullet #3 above.
Great question, Hector!
If you’re near a military base (of any service) you could contact their Retiree Activities Office. They’ll put you in touch with the Army’s regional support command.
If you’re not near a military base then contact the Army’s Retirement Services Officer through this site:
That’s a tough question, Arthur! You’re going to have to contact the Defense Finance and Accounting Service directly on this one:
You can apply from overseas, and you will need a bank account for electronic deposit of your pension. Take a look at this DFAS link for international direct deposit:
Thanks, Jordan, I’ve added your comment to the list.
You know there’ll probably be some issues with the soft dollars that replace the commissions.
I appreciate the sentiments, Mike, but I doubt that type of Reserve retirement reform is on any legislative agenda… especially in a drawdown.
Thanks, TFR, it worked with our daughter too.
She’s over three years older since I wrote this post, and last month she reminded me that she’s keenly focused on financial independence. She remembers me being available for her when she was a teen, and she wants to repeat the favor with her progeny.
Thanks, Ms. M, sounds like you’ll have the best of both worlds: working for fulfillment and fun, and not having to work for money.
I agree that Congress and DoD are acting largely out of self-interest, and less out of the benefit to servicemembers. However there’s still a way for military families to win.
Fewer than half of today’s servicemembers even have a TSP account, let alone contribute to it. The blended retirement system comes with mandatory enrollment in the TSP, along with a default 1% contribution to the L2050 fund. The federal government already has this system in place for its civil-service employees, resulting in over 90% participation rates and nearly 90% of those people contributing every month.
Military families can win with the BRS by contributing to the TSP up at least to DoD’s match, and can go even further to maximize their annual contributions. When 83% of the servicemembers leave the military before being eligible for a pension, they’ll at least have extra money in the TSP. When the other 17% retire to the new system’s smaller pension, they’ll hopefully have contributed enough to their TSP accounts to allow their growth (and nearly two decades of compounding) to win out over the old pension system.
But if they don’t contribute to their TSP accounts for at least the DoD match then you’re absolutely right: they’ll lose.
I’m not aware of any limits. You could drill in the National Guard or Reserves for up to 40 years (depending on making rank) and could even get an age waiver as old as 62 years.
If you reach over 18 years of active-duty points (AT, ADSW) while mobilized on active-duty orders of at least 30 days, then you could reach sanctuary and be eligible for an active-duty pension at 20 years of service. That would hypothetically cap your point count at about 7300 points because you’d retire and immediately start an active-duty pension. The reality is that most Guard/Reserve servicemembers never reach sanctuary and continue to earn points.
Chris, take a look at the 19 July comment above where Ford cites Comptroller General opinion, B-195448(4/3/80). That may be all the research you need.
Since you hold a commission, you would hope that the Navy would be able to find your record of attending OCS under a course number or class number.
Those are all good points, Deserat. I think USAA is focusing on the demographics (especially active-duty military) who generate the most lifetime revenue.
You’re welcome, Brenda, glad to help!
Let us know if you have any questions about the decision…
Good point, Kim. I don’t think any of the CFP offices are set up to see clients in person, and USAA is planning to provide only online support.
I’ll ask about this next month. I wonder if there are so few walk-in customers that the charge would have to be prohibitively high to pay for the fixed expenses of a branch & employees.
Great point, Chico, thanks!
We’ve seen the pendulum swing both ways over the last 30 years. Even in gray area under today’s rules as of Sep 2016, you could be escorted on the base by a sponsor or during one of the few annual holidays when the base is open to all ID card holders.
I agree that NS Rota makes it a lot harder than it should be, but the Status Of Forces Agreement was written to “encourage” retirees to spend their money on the local Spanish economy instead of on the base.
Thanks, Peter, you’re right that we have to have something to retire TO, not just retiring FROM.
Great comment, Big Dawg!
You’ll find the type of retirement life that works for you… and 20-30 hours per week is just fine when you get to choose which hours.
Thanks, Bill, I hear those comments a lot.
Your comments about the TSP have been verified by DFAS and several military media publications… 2018’s mandatory enrollment in the L2050 fund should fix that issue.
Thanks, Pat & Deserat– I enjoyed reading the books and writing the list!
Derrick, the best approach is contacting the Army’s HRC headquarters or the armory nearest you.
The Army should have a full record of your service as well as your retirement eligibility. However you should be ready to provide all of your DD-214s and anything else that will document your point count and good years. It’s possible that records weren’t correctly shared between the NG and the Reserves.
Here are two links to get you started:
Thanks, Tony, and you’ve asked a good question.
I’m not clear on the RET1 and RET2 acronyms, but let me answer the rest. Your pension amount at age 60 will be based on your total points and on High-Three average of the pay tables in effect when you’re 60 years old.
Reserve and Guard members have to get at least 20 good years to receive a Notice Of Eligibility letter certifying that they’re qualified to retire, but the extra years just give you an opportunity to rack up more points (and more promotions). Unlike the active-duty retirement formula, the extra Reserve/Guard years themselves are not part of the calculation. The multiplier is fixed and is only applied to your total points.
Because you’ll be using the newest set of pay tables at age 60, you’ll still benefit from the pay increases between now and your 60th birthday– as well as any possible longevity increases in the O-3E row. Right now you’ve maxed out that longevity, but it’s remotely possible that DoD could change the pay tables as they did in 2007.
For now, I’d calculate your pension based on your total points and today’s pay tables. I’d assume that your pension (if you started it today) will keep pace with inflation until age 60. That assumption is unpredictable (and imprecise) but it’s a reasonable approximation.
Great question, Jack, thanks for asking it!
You don’t mention whether you’re in the Air National Guard or the Army National Guard.
My first suggestion would be to contact their personnel centers through their website, either through e-mail or a “Contact us” box. You might also be able to get through by phone. Here’s the URLs for their sites:
If you’re near an armory or a base, you could also try to reach the unit closest to you.
Finally, you could contact the nearest military recruiting office and ask them to help you reach your service’s retirement personnel center.
Great question, Lonnie!
First, contact your local Air Force Reserve center to make sure that they have a record of your Army Reserve points as well as your AF Reserve points. (Other readers report that this has been a problem.) Next you’ll want to check how many good years they have on your record. For example, you may have been short of 50 drill points during a year but your 15 participation points may have put you over the 50-point threshold for a good year.
Once you reach 20 good years, request your Notice Of Eligibility from the Reserve center. They may need a few months to audit your record(s) and confirm the 20 good years. Once you’re sure that you have 20 good years then you could reschedule drills or even take an authorized absence from drills until your retirement date. You’ll want to wait until you have the NOE letter before you apply for retirement.
Keep in mind that once you leave drill status (even for one day in the IRR) you’ll lose your eligibility for Tricare Reserve Select health insurance.
Harold, I’m a little unclear on some of the jargon like “inactive duty”, “hip pocket orders”, and “duffel bag”. However if you were issued written orders for this duty then you could have been eligible to receive points which would be added to your total point count. That would raise your pension. The question is whether your duty status was actually earning you points or whether it was just putting you in a position to be quickly mobilized if necessary (no points until mobilized).
I’d suggest that you contact an Army Reserve center (phone or e-mail), give them a copy of your orders and your personal info (so that they can research your records), and see what they know.
Great question, Mark, and we won’t know the answer until 2018!
I suspect that you could always take the continuation bonus and tack four more years onto your current obligation. The big question is whether the four-year obligation could be concurrent/overlapping with your existing obligation.
I suspect that the assignment officers will make that “concurrent” retention decision for each community and specialty. You’ll have all of 2018 to assess the options and make your choice.
The key is to keep saving & investing as much as you can so that you have the financial flexibility to make the retention choice based on your career goals and quality of life– not based on getting out of debt or living paycheck-to-paycheck.
Sorry to read about this, Joe. A lot of FLTCIP clients are making difficult decisions right now, and there are no happy answers.
Thanks, Trish– looks like all the services are cutting back on correspondence courses. IRR may now be a very difficult place to get a good year.
Thanks, Mel, outstanding feedback!
I’m sorry that I’m missing the surf, but slow travel is great so far. Barcelona was wonderful and we’ve just started a Med cruise around Italy.
I’ll make up for the surfing in San Diego about six weeks from now…
You’re welcome, Alexander, I’m glad it’s helping!
DoD is currently authorized by law to match TSP contributions, but none of the services are doing so. The military’s new blended retirement system will be the first time that servicemembers can enjoy matching TSP contributions.
However you can still maximize your TSP contributions and compound those funds for your financial independence, even if you don’t stay in uniform long enough for a military pension.
I’d recommend taking active duty one obligation at a time. Keep going as long as it’s challenging & fulfilling. However, when the fun stops then don’t grimly clench your jaw and try to hang on for the 20-year active-duty pension. Instead you could leave active duty for the Reserves or National Guard and still qualify for an inflation-adjusted annuity by age 60. You’ll enjoy all the benefits of the pension (and cheap healthcare) without the physical, mental, and emotional stress of staying on active duty. (Your family will be happier too.) In addition, your Roth TSP (and Roth IRA) contributions (along with savings/investments in taxable accounts) can bridge the gap between leaving active duty and your Reserve/Guard pension
You’ll have to use calculators & spreadsheets to decide whether the current pension is better than the new blended retirement system. You’ll have all of 2018 to analyze that choice. In the meantime, keep saving as much as you can for financial independence so that you have more options.
Fantastic, Ford. Thanks for taking the time to dig up that reference!
Good point, Cherie, thanks– everyone has to do the math for their situation (and comfort level).
As you show, we might have to do it more than once…
Ouch! Thanks for your comment, Gary. It’s another new lesson from Tricare that I wish nobody had to learn…
Thanks, Peter, I’ll add your comments to the draft!
Thanks, Peter, good points.
Thank you, this is fantastic! I see you posted it over on Bogleheads, and I’ll try to direct more beta testers your way.
Thanks, David, I’m glad it’s helping!
Good question, Barbara. I’m afraid that you’ll learn there’s nothing, but let me give you some references and contacts.
The first requirement of the Uniformed Services Former Spouse Protection Act is known as the 20/20/20 rule– not only did you have to be married at least 20 years and your ex-spouse in the military for at least 20 years, but those periods had to overlap by at least 20 years. If that’s the case then you’re eligible for Tricare and for access to military bases (commissary and exchange privileges).
If your marriage and military career overlapped by at least 15 years (but less than 20) then those benefits are only available for a transition period of a year.
It seems unlikely that you’re a beneficiary of your ex-spouse’s Survivor Benefit Plan, because I’d hope that the Defense Finance and Accounting Service would have notified you by now. However you may want to check on that by contacting their office (800-321-1080) to see if you’re listed. Here’s a link with more information:
I’m not an expert on Social Security, but you should contact a local office to see whether (as an ex-spouse) you’ll be able to draw your benefits based on his earnings record.
Finally, if your ex-spouse died of a service-related condition, it’s possible that you’re eligible for Dependents Indemnity Compensation. That’s also paid by Social Security, so check with their office when you ask about drawing SS on his earnings record.
Thanks, Ryan! I’m just glad to get it done. My spouse & daughter are also relieved that they’re no longer going to get bagged with handling my claim, either.
Oahu has a fairly large population of military veterans, or perhaps the fully-developed claims process cuts out a lot of the research. I’ve already agreed that I’ve supplied all of the information that the VA would need to make a decision, so they’re not going to look for additional records.
I wish there was an easier way to analyze and speed up the process for each veteran, but that’s the whole point: the VA claims process is way too complicated, and for some disabilities it’s impossible to expect the veteran to navigate it on their own. It’s essential for vets to seek the advice & help of a VSO instead of simply uploading a bunch of documents to eBenefits.
You’re welcome, Crew Dog, you wrote a great post!
Great point on MST. Sometimes we’re too focused on proving that the condition exists when instead we should be treating the symptoms.
Thanks for the comment, Mel!
1. Yes, very fast. The VSO helped me prune the options to the most realistic claims, and the VA’s doctors confirmed most of that. It also helps to study the disability benefits questionnaires for the claimed conditions so that the C&P exam has all the evidence it needs. I claimed only the issues that were clearly causing problems, and I didn’t claim anything that was too speculative to link to a service-related cause.
2. The benefits are only retroactive to the date that the claim is initiated– in this case 8 February 2016 (three months before it was approved). I would’ve filed amended tax returns (which are easier than they seem) but since this all happened in 2016 I can just file my usual return next year. Hopefully DFAS and the VA generate the correct 1099-R at the end of this year, but the math is easy to check.
3. Dude. It was awesomely epic, and I’m goin’ back for more in about 10 hours!
Thanks, C Harley, I appreciate having another reference!
I agree, Gerald! We don’t carry collision or comprehensive insurance (which is also expensive), although we do carry a high liability limit (which is relatively cheap). We’re retired so we only drive a few thousand miles per year. My speeding ticket notwithstanding, we also have good-driver discounts.
I remember that a decade or two ago the legislature debated paying for insurance “at the pump”– per mile driven. I don’t think that bill was passed.
Great question, Les.
The good news is that you’ll have 18+ years by the time you reach age 60, and federal law does not allow separating servicemembers with more than 18 years of service. The intent of that law is to allow serving until vested in the pension.
The “other” news is that TERA is not currently being offered by the services, but it’s still an option at their discretion through 2018. If your 22-month age waiver is not approved then you should apply for TERA. You’d still have over 85% of the Reserve/Guard pension that you’d normally receive at 20 years of service. Better yet, your retirement will have an inflation-fighting cost of living adjustment plus Tricare.
Your sustained superior performance will probably be critical to the approval of the age waiver.
I understand what you’re asking, and I realize that it looks too good to be true. But this is one of those rare times when you get both benefits. Your question has been asked before, and it’s not easy to find the answer, but the answer is that you get both your full civil-service pension and your full Guard pension.
The reason you get both is because you paid a lot of money to the civil-service system to buy additional retirement credit. Because you spent your own money for that, you still retain your military retirement credit. You still have 20 good years of National Guard service, and your Notice of Eligibility letter (your 20 year letter) is still valid. If you haven’t already, you can still apply for “retired awaiting pay” for your Guard pension.
The civil-service pension buyback rules are different for military active-duty retirements and Guard/Reserve retirements. If you had retired from active duty (not the Guard) and then bought back your military service credit toward your USPS pension, then you would have been required to give up your active duty pension. (This is generally a bad deal.) However you’re qualified for a Guard pension, and when you buy your military service credit the civil-service rules do not require you to give up your Guard pension.
Your Guard retirement is under Chapter 1223 of federal law (10 U.S.C. 12731). The specific rule from the civil-service handbook (that link in my last response) is section 22A4.1-1 (Receipt of Military Retired Pay) in the text set off by the carats: “In determining eligibility for CSRS retirement or in estimating the amount of annuity for an employee (special rules for survivors of employees who die in service are covered in Chapter 70), who receives military retired or retainer pay, do not give credit for any military service at the date of separation for civilian retirement unless one of the following is true.
2. The employee is receiving military retired pay that was awarded:
• On account of a service-connected disability incurred in combat with an enemy of the United States; or
• On account of a service-connected disability caused by an instrumentality of war and incurred in the line of duty during a period of war; or
> • Under the provisions of 10 U.S.C. 12731-12739 (Chapter 1223) which grants retired pay to members of reserve components of the armed forces on the basis of age and service (active and reserve). <"
Great question, Vicki– the good news is that you’ll receive your full National Guard pension at age 60.
You’ve paid for your military service credit deposit for your years of active duty. The law which allows you to do that also makes an exception for Reserve/Guard retirements, because you’ve earned that on your own and haven’t bought it as a credit. The details are in Chapter 22 of the FERS Handbook:
Thanks, Deserat! I wish we had a better financial independence calculator for variable spending plans. Bob Clyatt’s system works great.
After 14 years of financial independence, we’ve also loosened up on our spending.
Thanks for the heads up, Gerald!
I just worked through the JKO training at this link:
I’d also caution readers to watch out for the blended retirement system’s huge flaws:
Good to know, Marta, thanks for passing this on!
You’re welcome, Marta! It’s a very confusing aspect of military retirement.
I don’t always hear back from readers, but the second reader (who retired from the Army) has succeeded in obtaining the officer pension that he rightfully earned. It took several years of legal appeals.
If you have at least 10 years of commissioned service (which is waiverable to eight years during the drawdown, at least until 2018) then you’re eligible to retire as an officer. If that rank is O-5 or higher then you’ll need three years’ time in grade (waiverable to two years) in order to have that rank on your retirement certificate. (An active-duty High Three pension is based on the highest 36 months of pay, so time in grade is not as critical in setting the amount of the pension.) If you opt for a Reserve pension then that retirement rank also determines which row of the pay tables is used for calculating your pension, so you want to be absolutely sure that you have at least three years (and three good years) of time in grade at that rank before applying for retired awaiting pay status. You might be able to get that Reserve time in grade waived down to two years.
The services may be reluctant to enlist an officer of your rank and experience, but that’s a policy decision which doesn’t have anything to do with the pension or federal law. Another possibility that you may have already considered would be transferring to your current AFSC (and rank) in the Army or Navy.
Leslie, I’m not sure which fee you’re referring to. Here’s a link to USAA’s fee schedule: https://www.usaa.com/inet/wc/investing-brokerage-commissions . The only $50 fee on that schedule is for the personal assistance of a broker in making a stock trade, and USAA’s website lets you do that on your own (without a broker) at a much lower cost.
Take a look at the fees from that link and let me know if you have more questions!
Thanks, Neecy, great points about changing the match on young enlistees!
Good points, Tom– thanks for the update!
Thanks, Peter, I agree that this is a giant bet on retention.
DoD also cuts their long-term pension costs in the hopes of persuading servicemembers with shorter-term incentives like the TSP match and re-enlistment bonuses.
From the corporate perspective, it’s always cheaper to hand out a bonus if they can avoid a lifetime pension payment.
Good quote, Mel, that’s exactly right!
I agree with your skepticism on re-enlistment incentives, too.
The really painful issue for those CSB/REDUX soldiers was losing all those years of COLAs. The new lump-sum proposal is very similar– people will give up decades of pension benefits for the sake of a little money now. It’s almost as bad as a payday loan…
Exactly, Forrest, implementing the new system is hard enough without a bunch of last-minute modifications.
The best news about this is “mandatory TSP enrollment”. However servicemembers will still be responsible for contributing enough to earn the match…
Good points, Rob. I just hope that Congress ignores this DoD change request and we can all get on with analyzing the finances of the original legislation.
And, yeah, there will be pay problems.
Great comments, Deserat, glad this is helping!
Here’s an interesting history point: the TSP was only available for the final six months of my career. It’ll be great if everyone can maximize their TSP match under the new blended retirement system, but first the other half of the military will have to sign up for a TSP account!
S, I’m afraid that all of the services have been reducing the ability to get points for correspondence courses.
At this point the best options seem to be funeral detail, IMA points for certain activities or drills with your unit, or (for a very few in the IRR) serving as a recruiting officer for a military academy.
Thanks, Ryan, that’s all great advice!
Thanks, Deserat, you’re a textbook example of how to save & invest for financial independence!
Thanks, Gerald, I agree on the timing!
I hope the new blended retirement system follows through on its promise of mandatory TSP enrollment (like the federal civil service system) and then also makes the default contributions go to the L2050 fund instead of the G fund.
I’m sorry to read about this, Jessica, and I hope the new doctor can help. Ideally they’d do a fresh examination without depending on the other doctor’s records.
You need to consult a lawyer, either a military lawyer or one with experience at filing suit for military medical malpractice.
Thanks, Peter, that’s exactly right: investing expenses do matter.
Sure, Chu, great question!
It’s in DoD 7000.14-R, Financial Management Regulation volume 7B, paragraph 010202.B on page 1-8.
“010202. Service Creditable for Regular Voluntary Retirement – Enlisted Members (Table 1-1)
The following is service creditable for regular voluntary retirement for enlisted members:
A. All active service in the Uniformed Services; and
B. Service as a cadet or midshipman at Service academy.”
It’s online at http://comptroller.defense.gov/Portals/45/documents/fmr/Volume_07b.pdf
Thanks, Forrest, I appreciate passing on what I’ve learned so that others can avoid repeating the mistakes…
James, in general a servicemember has to reach 20 years to be eligible for a pension. The services have occasionally offered a Temporary Early Retirement Authority program for as little as 15 years, but not to Reserve/Guard members. There are also medical retirements, but that’s a different program for permanent disability.
Thanks, Deserat, it’s an important conversation that nobody wants to have.
It didn’t work very well in the submarine force, and the surf lineup is not impressed either!
I just got the word that the VA has all the info they need, and the claim is with their rater for adding up the math. The decision should be made before August.
Your best option is to talk with a VSO. Find one in your area from the VA’s website, or contact your local American Legion, Disabled American Veterans, or MOAA chapter. They’ll start with your big-picture questions and move into a review of your medical records. Their advice about what works (and what doesn’t) will save you a lot of what another reader calls “discovery learning”…
Thanks for asking, George! I think we need a nasty bear market before we gain enough data for a good followup post.
My biggest concern about P2P lending is that we still can’t tell whether investors are being adequately compensated for their risk. If anything, the large corporate lenders are encouraging more risk by snapping up loans and encouraging lower interest rates.
Small P2P lenders still haven’t loaned enough money to tell whether their lending criteria are better than random chance. It takes thousands of loans (and hundreds of thousands of dollars) to distinguish skill from luck.
We haven’t had a bear market in the last three years, so we don’t know how borrowers will behave when they lack the money to pay an unsecured loan.
The only “evolution” has been in the growth of the lending platforms. I haven’t plowed through any Lending Club or Prosper 10Ks or 10Qs lately, but I bet they’ve added more knobs & levers to allow investors to “analyze” borrowers. I also suspect they’ve made it even easier for lenders to give money to borrowers, despite the trend of large corporate lenders to snatch up the loans faster than the smaller investors. I’m sure that their future growth rests more in creating more loans rather than in creating “better” loans.
I also suspect that the large corporate lenders have the experience (or at least the loss reserves) to survive the next bear market (and P2P lending defaults) better than the smaller lenders.
I think borrowers would only do better with a P2P loan if they possess the assets to pay off the debt in such a short term. I think it’s better to use debt counseling and consolidation services (and changing their money behavior) rather than paying high funding costs for what is probably going to be a subprime loan rate.
I think the average investor is still much better off in a classic passively-managed index fund with low expense ratios. P2P lending could be 5%-10% of their asset allocation for “shoot the moon” investments (or at least a testosterone-poisoned outlet) but I think a healthy degree of skepticism is still appropriate. Until an investor’s 10% asset allocation grows to fund thousands of loans with a six-figure dollar commitment, they’re simply speculating.
Tim, the recruiter is the first stop in the screening process. Unless you’ve been personally contacted by your service’s personnel branch, the recruiter has to figure out whether there’s a mobilization billet for your skills. The next step would be determining whether you’re medically and physically qualified, perhaps including an overseas duty screening. After that there’s the actual mobilization process.
It’s a highly individual situation, and it depends more on the needs of the service than on your interest in serving. The best way to figure out your next step is to contact the recruiter.
“Discovery learning with the VA bureaucracy”… that sums up the problem quite nicely, doesn’t it? I just got the word from the VSO’s office that my C&P exams are finished and the VA is now rating the claim. I sure hope I’m not waiting for 15 more months, but I’ve already waited 14 years.
Thanks for the “reconsideration” tip– I’ll keep that in mind. And of course as soon as the claim is back I’ll request a copy of the file.
Good point about the dental work and the DD-214!
Good question, Thomas, and we get it a lot! You can calculate your pension right here using one of the blog’s most popular posts:
If you want a second check then feel free to e-mail me your inputs.
The online calculators have generally moved behind the service’s firewalls, requiring a CAC login or a DoD account. I think the reason for the move is so that they can access your point count records directly to make sure you have at least 20 good years. However it makes access difficult for IRR servicemembers and gray area retirees.
The best place to start with a service verification is the state adjutant:
You might also find a better e-mail address or phone number through a unit website:
Good question, Chad, because it can seem a little too amazing to be true.
The SCRA law applies only to debts (and accounts) incurred before starting active duty. (This includes Reserve/Guard mobilizations as well as joining the military.) However the card companies in this post have been going above and beyond the SCRA requirements.
When you contact them and explain your duty status (including the applicable dates) they may still decide to voluntarily comply with the SCRA requirements– even though the law might not apply to your particular account situation.
There’s no deceit or manipulation. It’s just the financial companies doing a good thing for servicemembers & families.
Thanks for the tips, Sean! Not having to tell your employer about being a military spouse skips over the whole issue, and perhaps they don’t even care as long as they can get someone of your skills.
You make a good point about the employment companies. If you’re comfortable with sharing the name by e-mail or our Facebook group then I’ll revise the post.
Tom, it’s possible that this could be a malpractice claim, but you really need to talk to a military lawyer or consult with a civilian malpractice lawyer who’s familiar with the military’s Feres Doctrine.
Thanks, Rick, I get that comment from a lot of my “more experienced” readers!
It’s possible, Dan, but the recruiter will have a doctor do a full evaluation during the entry physical as part of granting the waiver.
After that it depends on what specific skills the military is seeking and what you’re willing to sign up for. The best way to sort out the options is to visit the recruiter and start the conversation.
Good points, James!
Sometimes it’s blissful ignorance. In one unit a number of the senior members were waiting until they’d crossed the next big pay raise for their years of service (>22, >24, >26) without understanding that they would receive the credit anyway. Once they’d been trained on how “retired awaiting pay” and the pension are calculated, over a third of those members immediately applied for retirement.
You’re right about the rest– they’re still feeling challenged & fulfilled, or collecting pay, or working on a promotion… perhaps all of the above. It’s not necessarily about the drills, either– if you can score orders to an overseas exercise for a few weeks (perhaps tacking on additional vacation time around it) that might help you meet all of those objectives.
Jeffery, it’s true that federal law requires military servicemembers to retire at age 60 (unless Congress grants an extension). However most services will only grant age waivers up to the late 30s, and they may be reluctant to grant both an age and a disability waiver. Trauma surgeons and linguists may be in demand, but unless you have a critical skill then the military will be more interested in younger and healthier vets.
The path is indeed difficult, but it still starts with the recruiter. You may have better luck with a Reserve or National Guard recruiter, but keep searching until you find one who’s willing to work with you.
Congratulations on your retirement, Ruth!
A frequent cause of this problem could be that the Army Reserve is not aware of your National Guard pension eligibility. The Guard may have transferred all of their responsibilities for your pay record over to the Reserve HQ, who may not realize that you’re ready to start your pension.
Start by forwarding your Guard “Notice of Eligibility” (20-year letter) to Reserve HRC headquarters. (https://www.hrc.army.mil/TAGD/Reserve%20Component%20Retirements) Use that website’s mailing address and phone number to make sure they have your current address and bank info to do the paperwork and start the deposits.
I’m sorry to hear about your son’s marriage problems, Sandra.
Everything he wants to do with his bank and his pay deposit should be started by talking with his sergeant at jump school. One option would be establishing a new checking account and arranging for his future paychecks to be deposited there. While he’s working out the issues with his spouse, he’d also have to set up an automatic transfer of the correct amount of money in spouse/child support to his original bank (for her to use her bank card). Much of this can be done online (after banking hours) instead of losing training time.
He should also consult with a military lawyer to make sure that he and his spouse understand their options. Part of the sergeant’s or lawyer’s recommendations might include financial advice through the base’s family support services or Army Emergency Relief.
I was thinking of your example when I wrote about remote work and taking care of distant customers…
I’m sorry to hear about the surgery, Crystal. Please start by seeing a different doctor at your medical clinic to document the problems and decide how you want them to be fixed.
I still recommend seeing a lawyer to start the legal inquiry process. If there was negligence (or even misconduct) then the JAG can help protect your rights and make sure the process is followed.
Thanks, Peter! It’s a highly individual decision, and it can change over time & circumstances.
Brandon, I can’t tell whether you’re saying that you have a total of 19 good years or a total of 25 good years (“six years of active duty plus 19 good years of Guard/Reserve time”).
If you have a total of at least 20 good years then you can apply to retire, and when you retire then the years of commissioned service can be waived down to eight years. You’d be able to retire as an O-3.
If you have a total of 19 good years and you stayed until 10 years of commissioned service, or stayed until you reached 20 good years, then you’d be able to retire as an O-3. Again, when you retire you can apply for a waiver to retire as an officer with as little as eight years of commissioned service.
If you have 19 good years now and resign your commission before reaching retirement (20 good years) then your next rank is decided by the policies of your new service.
It’s possible that I’m mis-interpreting your questions, so if this doesn’t answer them then feel free to add another comment or send me an e-mail.
Thanks, Michael, good question!
This is only for combat deployments as a Reserve or Guard member, and some Guard mobilizations for domestic responses such as natural disasters. The legislation also started on 28 January 2008. If you never did this as a Reservist, or did it before that date, then you’re not eligible for the earlier pension.
Those savings really compound, and after a few promotions the extra pay tremendously boosts a savings rate.
Steve, if your buddy has retired then he has a retiree ID card and a retiree record in the ANG system. He can obtain his latest DD214 from the archives (https://www.archives.gov/veterans/military-service-records/). He might also be able to get a copy from his last ANG unit or the ANG personnel HQ.
He can also get much more help with the VA by contacting a Veteran Services Officer with a local vets group like the DAV, MOAA, American Legion, VFW, or IAVA.
Great questions, Kelly!
First I’d suggest finding a career field that interests you and signing up for one obligation. When you approach the end of your first active-duty obligation, that’s a much better time to decide whether you want to stay on active duty for 20 years. Your experience will help you decide whether to shift to the Reserves or the ANG.
I would not make a career choice based on the pension options. Join the military for the personal challenge, to achieve your potential, to be a part of something bigger than yourself, and to work with incredible people. If you’re having fun and feeling fulfilled then you’ll reach 20 years and a pension as the icing on a well-earned cake. But if you join the military to spend 20 years earning the pension and realize that you don’t enjoy the daily experience, then you’re holding yourself to an unreasonable commitment which will affect your physical, mental, and emotional health.
It’s possible to earn both a federal civil-service pension and a Reserve/Guard pension. I’m not familiar with the details of the dual status technician career, but it’s a very small program compared to all of the other ways to earn those pensions. You may find yourself competing for limited opportunities with very few options in location or type of work. However many military retirees find bridge careers with federal or state civil service (while collecting a military pension) and even more go on to do the same in civilian careers (when the corporation has a pension plan). Again, find careers that fulfill and interest you. Don’t make yourself a hostage to a pension plan– you can save enough assets to fund your own financial independence.
Don’t base your choices on the downsizing, either. The media focuses on the 10%-15% of servicemembers who are leaving (or who are asked to leave) but the other 85%-90% are still on the job. The best way to stay in a military career is to find a challenging field that interests you and has room for you. Learn all you can and do the best job you can do. The military will always need people who are good at their jobs, good with a team, and good at leading teams. You’ll practice those skills every day when you’re enjoying the work.
The real value of a federal pension is in its inflation-fighting COLA and cheap healthcare. But instead of depending on a federal pension to fund your retirement, make it part of a diversified plan. In addition to the COLA and longevity insurance offered by a federal pension, you can also reach a high savings rate. Build your own investments in passively-managed equity index funds (in your Roth TSP, your Roth IRA, and taxable accounts). When you can maintain a savings rate of 40% for about 16-20 years, then you’ll reach financial independence even without a federal pension.
Thanks, Deserat, and I don’t miss it a bit!
If it’s any consolation, I thought of your medical engineering every time an IV stand beeped at me for no good reason.
And I think you buried the lede:
Congratulations on your retirement! I know you’ve already figured out what you’ll do all day…
I lifted that word straight out of the biopsy report. I had to look it up first, and I hope I never have to use it again!
Three hours… yikes. Let me get started.
Many of the Navy’s entrance (or re-entrance) requirements can be waived, but I don’t know whether the Navy would be willing to waive your age or your break in service. It depends on how undermanned the service is for the skills you have, and also on what other undermanned specialties you’d be willing to serve in. I’ve served with a submariner who had a 16-year break in service, but he was willing to convert to a new rate and re-enter at a lower rank.
If you haven’t done so already, I’d recommend visiting your local Navy recruiter in person, and ask them about drilling in a Reserve unit as well.
Thanks, Andrew, that topic causes a lot of confusion!
You can read more at these two posts:
and use their links to contact Eddie Wills at Gubmints.com.
Thanks for asking about an update, Michael!
This is not about me– this guest post was brought to the readers by an Air Force officer who indeed picked up O-5 in late 2013. You can read more about her (and perhaps contact her through a private message) at Early-Retirement.org. Here are two of the posts:
Since you’re approaching 20 good years for a Reserve retirement eligibility, you should contact your Reserve personnel staff for a Notice of Eligibility letter to confirm your good years (and your point count). This post has more info:
Good advice from Bogle, Mel, thanks!
I keenly remember JDSU and Sun– as well as Nortel. I’m done picking stocks.
I’ve never attended a Berkshire meeting (the crowds on Omaha’s infrastructure are ridiculous) but I read all of BRK’s reports and I follow the meetings on social media. I’ve also read all the Buffett & Munger biographies and other books (a very worthwhile project). I have no succession concerns, especially after following names like Abel and Rose over the years. Buffett has also surrounded himself with the next generation: Weschler, Combs, Howard Buffett (and perhaps someday his son), Cool, and board member Bill Gates. However I think Berkshire will spend the rest of my life trying to beat the S&P500 without racking up any more 25% annual returns.
The best part about having BRK in a portfolio is the investor education that comes with the purchase research plus the tracking responsibility of ownership. It’s immunized me against a bunch of mistakes that would’ve seemed like good ideas at the time…
I’m going to get my water aerobics with a longboard… or, maybe this winter, with a stand-up paddleboard.
Shelly, I’m sorry to hear that your son’s injuries haven’t received the proper help. There’s still a possibility of recourse but you’re going to need a civilian lawyer who has dealt with this sort of military malpractice. They’ll probably want to do additional exams or scans to compare their diagnosis to the original exam, and then proceed with a lawsuit.
Depending on the characterization of your son’s discharge, he may also be eligible for disability benefits from the Veterans Administration. You could start that process either with the same lawyer or with a local chapter of a veteran’s support organization like the American Legion or the Disable American Veterans.
Finally, you could try sharing this on the PEBForum.com. It’s intended for servicemembers who are facing a Physical Examination Board to stay on active duty, but it was founded by a lawyer and it has many members who are experts at navigating the legal and medical aspects of the disability system.
Exactly– a lifetime of fitness, and now this?!?
I’m sorry that it’s happening to us, but I bet we’re each relieved to learn that we’re not the only ones…
Great comment, Glen, and thanks for the compliment! I really wish that I’d had the time or the personal bandwidth to learn this info when I was in uniform.
Yes, you can transfer to the IRR and obtain your final four good years through correspondence courses and other duties. However the majority of the servicemembers who make that choice eventually fail to reach their goals for a number of personal and bureaucratic reasons.
I’m not sure whether drilling or IRR would be better for your situation, but there are two issues with going to the IRR: the IRR grass looks greener when you’re drilling, and once you go IRR it’s very difficult (especially in a drawdown) to get approval to return to drill status. Many Reservists and Guard members in the IRR tell me that they find themselves challenged to get the points for a good year. Before you make the leap I strongly recommend that you network with as many of your local Guard IRR members that you can track down, and ask them how they’re doing on IRR points.
First there’s the logistics of the correspondence courses. Can you find enough courses (approved for Guard IRR credit) in the current catalog to total up 4 x 35 points? Will you have the access (CAC card or secure login) to reach the website? Will you have to do the courses on a secure network at your local armory or even revert to paper? The Navy in particular has cut way back on the approved correspondence courses for IRR points, and they’ve largely removed CACs from their Reservists. The Guard may have other unexpected obstacles.
Will you need to explore other point options besides correspondence courses, such as funeral honors or service as a USNA Blue & Gold Officer? Does the Guard offer other IRR programs for points?
Next there’s time management. Will all the other demands of your life derail your best of intentions with your correspondence courses? Will you be able to make the time to plug through the courses every week and finish 1-2 per month, or will you find yourself frantically cramming them in during the last two months before your anniversary date? Will all of the online courses take fewer hours per point than a drill weekend, or will some take more?
Are the demands on your time all year round, or do they peak in certain months? Instead of going to the IRR, would you be able to take authorized absences from 2-3 drill weekends per year? (You’d still earn at least 36 points.) If money’s not an issue then would your command let you waive your AT (or other training duty) and still qualify for a good year?
Finally there’s the business side. I spend time with entrepreneurs and startup founders and I appreciate the challenges. If your business is booming, can you delegate or outsource or partner with someone who can get you through the busiest times of the year (or the next four years)? Should the Guard be your higher priority? Can you compare your business’ current opportunity cost to the present value of a lifetime O-5 Guard pension (with Tricare and Tricare For Life) starting at age 60?
In order to retire with your O-5 rank on your retirement certificate, you’ll need to serve at least three years in that grade. (Under federal law, the service secretaries frequently waive this to two years during drawdowns.) However your High Three pension is based only on the highest 36 months of pay during your career. You’ll complete (at least) 2-3 years of O-5 time in grade to reach 20 good years and then you’ll “retire awaiting pay” at O-5 rank. While you’re in gray area you’ll continue to accrue years of service at the O-5 rank as though you’ve been on duty up through age 60. In other words, your High Three calculation will include the pay tables in effect when you’re ages 57, 58, and 59. It’ll also include your longevity up through age 60, so your O-5 longevity column on the pay tables will be at the years of service when you’re those ages. For most Reserve/Guard members, that will be the maximum pay for your rank.
We don’t have the pay tables for the 36 months before you turn age 60, but the best way to estimate your pension in today’s dollars would be to use your total point count at retirement (including your four years in the IRR) and the maximum pay column in the O-5 row of the 2016 pay tables.
Please let us know how it goes. I’ve heard the joke many times: you know that you’ve reached work/life balance when your personal business, your Guard unit, and your family are all equally annoyed with you. I’d love to share some IRR success stories with the readers.
Thanks for your comment, Mandy!
The military only pays a very few student loans directly, and that’s mostly for doctors. However military service qualifies for a number of other programs that help reduce the payments or even forgive the loan itself. The requirements are tedious, bureaucratic, and maybe even a little treacherous. The details (and the links) are in this post:
Good question, Rebel, and you didn’t miss it!
The USFSPA is a federal law that allows the states to treat military benefits as property to be divided during a divorce proceeding. That’s all it does, and it leaves everything else up to the state laws. Any minimum marriage time would be part of your state’s law and the divorce negotiations.
There are two other time limits to be aware of. One is the 10/10 rule, which means that DFAS will comply with a court order to send the ex-spouse’s share of the military pension to them directly.
The other is the 20/20/20 rule, which entitles the divorced spouse to Tricare benefits. This rule is explained in more detail (along with many other military divorce issues) at this link:
This is a controversial section of federal law, and you need a military lawyer.
The issue is that a few lawsuits have been filed over requiring a servicemember to waive their sanctuary rights. Plaintiffs have claimed that they cannot be required to waive these rights and should be awarded an active-duty requirement. As far as I know, however, this claim has not been upheld. It may not be ethically just to require ANG members to sign sanctuary waivers, but (so far) it appears to be legal.
Another good question, John, but I’m not sure about the answer. I’m familiar with today’s Reserve retirement rules, but not the changes from earlier years. As far as I know, every point earned at drills or on orders or even through the IRR counts toward a pension. Even if a Reservist didn’t make enough points to earn a good year, those point would still count for pension credit.
If you have a point-count summary that lists a reason or reference for points that don’t “count” then I could try to research it. Another option would be contacting DFAS to make sure they’re using the correct point count total.
One recent change has been removing points earned through midshipman summer training. After a legal review of legislation, DFAS is actually recalculating pensions and planning to recoup overpayments. SECNAV has asked that the recoupment be waived for amounts under $10K.
Good question, John, and one of the most confusing issues in the Reserves and Guard.
Since you joined the service before 8 Sep 1980, you’re eligible for the DFAS Final Pay formula:
Monthly Pension = Points / 360 x 2.5% x Base Pay.
However the “base pay” part is where most of the confusion comes from.
The pay table is the one in effect when your pension starts. If you began receiving your Reserve pension in 2015, then you’re using the 2015 pay tables.
The rank is the rank you retired at, but there’s a catch. When you “retire awaiting pay” instead of discharge or separation, then the longevity column is the years of service that you’d reach as if you’ve been on active duty the entire time up until your pension starts. For the vast majority of Reserve retirements, this is the maximum pay at your retirement rank (usually the >30 column).
Your “point value for rank and years” number is simply a calculation used by the services to determine roughly how much money a point is worth. It has nothing to do with the actual calculation of your retirement pay. The DFAS number is different from your number because they’re using the proper formula.
If you want to dig into the nitty-gritty of the calculation then it’s in Chapter 3 of Volume 7b of the DoD Financial Management Regulation:
starting with paragraph 030205 at the bottom of page 3-9.
Ha! 13 years of retirement and I’m still figuring that out…
Bill, according to this FAQ page at the NPC (BUPERS) site, you might be able to appeal the letters.
Sorry about that comments glitch, Jim. While I’m looking into that, here’s a link to another post on the same subject:
In your case, the key is making sure that your current service has a complete record of your officer service. As a pre-1980 servicemember with greater than 10 years of commissioned service, you’re still eligible for a “Final Pay” pension at the highest rank achieved.
Thanks for your comment, Kelli. I’m a little confused about your military status– and that might be a problem.
If you were discharged from the Air National Guard before reaching retirement eligibility then you’re a military veteran, but without commissary or BX privileges. Congress has proposed awarding commissary and exchange privileges to veterans, but no laws have been passed.
If you completed 20 good years with the ANG and have a Notice Of Eligibility letter that you’re eligible for retirement, then you may have retired from the ANG. However there are two types of Reserve/Guard retirements: retired awaiting pay (also known as “gray area”), and resigned (or separated or discharged).
If you’re retired awaiting pay then you could talk to your local ANG unit or to the personnel office at your nearest military base. With your retirement orders and your DD-214, they should be able to issue you an ID card for base access (and commissary/BX access).
If you were retired by being discharged then you will not be eligible for commissary/BX access until your pension starts, which for most Guard retirees is age 60.
Thanks for your questions, Ralph! Everybody wonders about this.
Military pensions (like military salaries) are paid in arrears. You’ll receive your first pension deposit on the 1st of the next month after your 60th birthday. As you suspect, it’ll be pro-rated. Subsequent pension payments will be deposited to your account on the 1st of the month. The reason that some of these deposits show up at the end of the previous month is because some financial institutions will credit your account a day or even two days sooner.
Some Reserve/Guard servicemembers deployed to a combat zone after 28 January 2008 (or, in the Guard, for certain national emergencies). Their pension starts three months sooner for every 90 days in the combat zone during a fiscal year, and it’s paid under the same terms. However Tricare coverage still starts at age 60.
Direct deposit information goes to the Defense Finance and Accounting Service through either your myPay account or by mailing in a form:
It’s not what the reader wanted to learn, but at least we seem to have covered the available options.
Rodney, you’ve certainly researched the issue (thank you!). I see you’ve also found the other posts which discuss the parameters.
It’s difficult to speculate on the reasons for non-promote. It could be age or errors/omissions in a record. It could also have little to do with you and everything to do with downsizing issues and end strength requirements.
If you haven’t already done so, your first step should be to sit down with a JAG to discuss the federal law (with these blog comments) and whether you have any other options. You and the JAG could craft a waiver request to permit you to continue on active duty to reach eight years’ commissioned service due to the critical skills you’re providing in your billet. The point of the request is to force HRC to issue a formal letter response to your waiver request, not to let them discourage you from submitting the request. You want a written response, not just a verbal “We can’t do that”.
You could also contact your elected representatives, because several senators were involved with last year’s OSBs. That tactic might not be popular with HRC or your chain of command, but again you have nothing to lose from starting a Congressional inquiry. Regardless of when or why the “10 years commissioned service” law was passed, only Congress can change it.
I’m not going to hold out false hope. Even if your commission could somehow be backdated to your initial AECP acceptance, you’d still have less than 10 years of commissioned service. Perhaps the best you could hope for would be that your situation calls attention to the need to change the law.
Even if you’re forced into retirement at an enlisted rank, the military may feel that you’ll eventually be “made whole” at the 30-year point. You and the JAG should take a look at 10 U.S. Code § 3964. Here’s the text:
Higher grade after 30 years of service: warrant officers and enlisted members
(a) Each retired member of the Army covered by subsection (b) who is retired with less than 30 years of active service is entitled, when his active service plus his service on the retired list totals 30 years, to be advanced on the retired list to the highest grade in which he served on active duty satisfactorily (or, in the case of a member of the National Guard, in which he served on full-time duty satisfactorily), as determined by the Secretary of the Army.
I’m not a lawyer, and I don’t understand whether Section 3964 means that your retirement pay is also recomputed. Your JAG may be able to find the applicable rule in the DoD Financial Management Regulation manual for military retirements:
Table 1-2 on page 1-33 lists the rules for mandatory retirements, and Rule 6 probably applies to your situation. It doesn’t advise whether your retirement pay is also recomputed when you reach the 30-year point. However section 090401 on page 9-5 says:
Reduction In Pay Due To Advancement
There is no absolute requirement that a member of the Armed Forces be advanced on the
retired list. If advancement and recomputation results in a reduction of retired pay for the member
and is based solely on administrative determination, then, prior to the advancement, the member
should be consulted by the military service and advised that the member’s retired pay would be
reduced if advanced.
A. Enlisted Member. If an enlisted member is, in fact, advanced on the retired
list, then retired pay must be recomputed, even though a reduction of retired pay would result.
To my unqualified interpretation of the FMR, it seems pretty clear that at the 30-year point you could apply to be advanced to O-2 on the retired list– and then you could apply to have your pension recalculated at the O-2 pay scale instead of the E-6 pay scale.
Your former High-Three pay base derived from E-6>22 ($3,724.20) would be switched for a High-Three pay base of O-2E>2 ($5,418.00). Keep in mind that those columns are just the starting points and not the actual dollar amounts. You’d have to calculate the average of the highest 36 months of pay at those ranks. DFAS can help you with the calculation.
Finally, Section 090302 on page 9-4 says you’ll also need an Army determination that you served satisfactorily in your O-2 paygrade. That appears to be handled by an Army Grade Determination Review Board, and it’s up to you and the JAG to ensure that happens during the next few months. You definitely want to get this done while you’re on active duty, because it’ll take months to make it happen after you’re retired.
I know this doesn’t make the situation right, but I hope it helps. Please let me know how it turns out.
Great points, VG23! You’re right about rolling over the Roth TSP directly. Very convenient.
I was surprised at how quickly our conversion time “ran out”. In your case you may be facing the 28% tax bracket sooner than you expected, especially if political risk boosts the tax rates for high earners. I think it’s also smart to do the partial withdrawal now and do a full withdrawal when that conversion is finished.
As for those financial “reigns”… in retirement, everything can be re-negotiated!
Thanks, Deserat, it’s a lot more complicated in the Reserves/Guard than I appreciated…
And, yes, it’s best to consult a CFP or a CPA whenever there are multiple tax-deferred retirement accounts. Good problems to have.
Thanks, Deserat, and that’s a very good point about the Reserves!
Thanks, Deena, great question!
I’m not familiar with the age-limit rules for each service, but you’ll probably need a waiver from your service to do any drills or other point-earning activities after you turn age 60.
A better option would be for you to complete all of your drills and AT before you turn 60 so that you qualify for a good year in 2023, even though the good year would not be awarded until after February 2024.
You’d receive your Notice of Eligibility after February 2024 and immediately file for retirement. You’ll almost certainly have to work closely with your Reserve chain of command to make sure that there are no delays in determining your retirement eligibility and executing the process.
Thanks, John, good to know! I didn’t realize the call-in feature had limited locations.
I’d love to have a retiree CAC, let alone access to the long-range schedule, but I don’t have either. That link was passed to me by an active-duty servicemember who does a lot of Space-A flights with his family.
The first place you could try is the personnel branch at your old Reserve/Guard unit. They’ll be able to look you up in the system and track the status.
If you’re not near a military base (or a Reserve/Guard drill site) then you could e-mail or phone your service’s personnel HQ. You may need to send them a copy of your 20-year letter or your retirement application.
Another option would be to contact the Defense Finance and Accounting Service. If your branch of the Reserve/Guard has already processed the paperwork correctly then DFAS will be able to check on your start date. The easiest way to check that (or to contact DFAS) is through a myPay account. If you don’t have a myPay account (or it won’t let you log in) then try contacting DFAS through these phone numbers:
Welcome home, Mel, and congratulations to your spouse on her retirement! Let me know if you have lessons learned (or new surprises) to share.
Space A: most of the passenger terminals and their 72-hour departures are on Facebook, and they accept signup by e-mail. For $8 you can automate much of the process (and consolidate all the contact info) from the “Take-A-Hop MilSpace-A” app. It’s the first app I’ve ever paid for, but it’s worth it.
Thanks for the melatonin tip– we’ll give it a try during our next trip.
I asked our mail carrier about the 30-day hold, and he said he’d take care of us. (I doubt he bothered to mention this to his supervisor.) Apparently past 30 days we’re supposed to rent a P.O. box or use a forwarding service as a “virtual mail box”.
It took me 13 years of retirement to decide to try a Quicken break– no need rush into this! So far so good. However some items on my Quicken calendar (estimated federal taxes, property taxes) are going to have to be even more automated with EFTPS and the state or moved to Google Calendar.
Elizabeth, if you’re looking for the DFAS direct deposit form, it’s at
The link to that SF-1199A is at the DFAS pay & benefits forms page:
The information that your bank or credit union provides to DFAS is also on your paper checks. The instructions for the form show where the account and routing transaction numbers are printed on your check.
Good points, Peter, thanks!
Thanks for your question, Michael!
There shouldn’t be any changes to your Tricare insurance coverage.
When you reach age 60, you’ll continue on your Chapter 61 medical coverage. You’d have the option to switch to Tricare (Prime or Standard) but you’ll want to keep your current Tricare insurance. When you turn age 65 then you’ll sign up for Medicare and Tricare For Life.
Tricare Reserve Select is intended for drilling Reservists who have no other access to health insurance, although the ACA has put more competition into the healthcare market than COBRA.
Tricare Reserve Retired is intended for Reservists in the “gray area” (retired awaiting pay) who would otherwise be paying higher rates for health insurance. But again the ACA has hopefully reduced the price of buying insurance on the exchange marketplace.
Thanks, Miguel, I appreciate why you feel homesick!
Almeria’s on our list for this fall. And next time you’re in Granada, I highly recommend contacting Jed at Bucking-The-Trend.com for a beverage at the neighborhood bar.
Great poster name, Drillbit!
I share your concern about selection– when I was on active duty, I was passed over twice and continued until 20 years.
First, you should ask your personnel branch for the latest policy by your service secretary and chief of staff. (You’ll be working with personnel anyway to make sure your service record is complete and up-to-date.) I’m not familiar with every individual service change, especially those affecting the Reserves during the drawdown. There may already be a letter or instruction for the promotion board with guidance regarding those who fail to select.
Second, if you’re not happy with the answers from your personnel branch, then consult a JAG for a review of federal law and Army policies.
However I think you can depend on the Army to do the right thing and let you get to 20 for your Notice Of Eligibility… after a record review and possibly a continuation board.
When the enlisted ranks reach 18 good years, they’re protected from discharge until reaching 20 years. (https://www.law.cornell.edu/uscode/text/10/1176) Active-duty officers are also protected by federal law. (https://www.law.cornell.edu/uscode/text/10/637) Until at least 2018, all of the services have the authority to use TERA to retire their active-duty members after 15 years.
If you fail to promote for the second time then it’s likely that the Army will continue you to 20 good years, as long as you meet all of your unit’s drill and other performance requirements. It’s possible that you might be required to vacate your drill billet and transfer to the Individual Ready Reserve, but in the IRR you could continue with correspondence courses and other events to obtain enough points for a good year. To be safe, though, after the anniversary date for the end of your 19th year you should try to get your next batch of points as quickly as possible at the start of your 20th year.
Please let us know what other instructions and policy you hear about!
When you reached 20 good years and retired awaiting pay, your service longevity continues to accrue on the pay tables as if you’ve been on active duty until your pension starts.
This means that your retired pay will be calculated using the pay tables in effect when you reach the starting age for your Reserve/Guard pension (typically age 60) and at the service longevity as if you’d been on active duty up through that age.
In your case, in 2015 you’re already considered to be over 25 years of service for pay purposes and you’ll go over 26 years of service next year. If your pension starts in 2017 and your retired rank is SFC, then DFAS will calculate your High Three pension’s pay base from the 2017 pay tables for the rank of E-7>26. That High Three average will be the average of the highest 36 months of pay for the pay tables of E-7>26 in 2017, E-7>26 in 2016, E-7>24 in 2015, and E-7>24 in 2014.
Then your pension will be calculated from the formula:
[High Three base pay average] x [# points] / 360 x 2.5%.
I’m sorry to hear about the surgery, Nicole. The first step of a malpractice suit is contacting a lawyer. I’d start with the JAG on your base, review all of your medical records with them, and then decide the best way to proceed.
You’re absolutely right, Mark, and it’s an important point. You not only have to have the ID card during those years in the IRR and ANG, but you also have to get the minimum number of points for a good year and meet all of your service’s other requirements (like physical fitness and deployment readiness).
Your record of service (including point count and good years) is online but you might not have the account access yet. If you have contacts with a local Reserve/Guard unit for your service then I’d start there. Ask them if they can look up your record, or find out who to call at your personnel branch HQ. If that doesn’t pan out then visit your local recruiter and explain the situation. They’ll have to look up your record anyway, and you can verify the numbers against your DD-214s.
Almost every veteran I’ve known in their 50s (or older) tells me that they wish they’d made the effort to get to 20 years of service. It’s going to be difficult to rejoin during a drawdown, and you may have a tough time getting enough drills/duty to qualify for a good year, but if you have the opportunity then it’s worth the effort.
Excellent guidance, Deserat– thanks for the details!
Great question, Ann. I’m pretty sure the answer will be “officer”.
The last board allowed most officers to extend until they reached eight years’ commissioned service. A few officers were given waivers by the Secretary to retire as officers. Those special cases didn’t get a followup by the media, but I also didn’t get any unhappy e-mails.
My impression is that HRC has learned that it’s less hassle to do the right thing and enable you the opportunity to reach eight years’ commissioned service. (It’s certainly better than dealing with my blog posts, the New York Times investigative journalists, and Congressional inquiries plus legislative initiatives.) If HRC thinks an extension is too long to reach the eight years then you’ll probably get a waiver to retire as an officer.
I’d suggest that you make it easy for the Army to help you get to eight years’ commissioned service. Review your service record with someone who’s seen them at promotion boards. Find an assignment officer at HRC who will review your official record (not a local copy) for any gaps or issues. Make sure your official photo is professional and flawless, because the Army humans on the board will respond to impressive recruiting-poster images of other Army humans. Send in the corrections now (e-mailed or faxed and perhaps by overnight mail), and make sure the corrections get added to your record before the board reviews it.
If you’re worried about being forced to retire, then worry constructively. Attend your service’s transition seminar and think through what you want to do after you retire from the military. Whether you do it on the Army’s schedule or on your schedule, you will eventually retire. It’s always worth investing a little preparation time now, even if you end up staying on active duty for a few more years.
Great question, Minnie!
You’re in the window to hear from your service. Forgive me for preaching to the choir about this, but ideally you’ve already received your Notice of Eligibility and filed for retired awaiting pay (gray area) status.
If you have an online account then log in to check for any notifications. (Not many gray-area retirees have an account.) If you’re near a Reserve or National Guard center then I’d e-mail, call, or visit them to show your ID and check your status. (While you’re there, they may be able to do any additional admin online.) If you’re not near a military site then contact your service’s Reserve/Guard personnel command directly and ask them to update your file.
At some point you’ll be asked to log in to your MyPay account and verify your contact information. DoD requires that your pension be deposited directly in your financial account, so you’ll also need to check that they enter your account numbers correctly. If the pension payment doesn’t start on the date you were promised then contact DFAS directly about your Retiree Account Statement at http://www.dfas.mil/retiredmilitary/manage/ras.html
Good points, Alistair, thanks!
The credit-reporting agencies continue to expand their collection and reporting, and the GTCC is certainly a two-edged sword.
I’m sorry to hear about your injury, Carol. You definitely should talk with a lawyer who has experience in medical malpractice and who understands military benefits. A civilian lawyer should give you a free consultation and an assessment of whether, after the few years, you still have a claim.
Heh– thanks, Charlie.
That question is identical to a post I did in 2012, too, but I think the Clash’s “Should I Stay Or Should I Go” has been immortalized by a generation of radio listeners…
Pat, after 20+ years I think that your best bet is forwarding copies of the documentation to your service’s Reserve/Guard personnel HQ. (They may have your record online, but it may not be complete.) Your goal is to verify that you not only have 20+ years of service, but 20 “good years” eligible for retirement.
The confirmation of that will be a Notice of Eligibility letter (and their copy of your records) followed by your retirement request.
If you’re near a Reserve/Guard center for your service, you could contact them for more in-person advice. That would at least get you a solid e-mail address and phone number for the personnel HQ.
Thanks, Jennyth, glad it’s helping!
Ideally the “decision to retire” part would follow after the “seek promotion” part has played out. But when the fun stops, it’s time to leave active duty.
First, I hope he’s seeing a VA doctor or his primary care doc (through his civilian employer’s health insurance). A few servicemembers try to downplay (or even hide) the severity of their injury, and any delays in exams/treatments usually make things that much worse. Get healthy before you start working on the career questions.
Once he’s updated his diagnosis and treatment plan, he should re-apply to the VA for an update on his disability. This may not only raise his disability rating but may also open the prospect of a Physical Evaluation Board. The board decides among three main options:
– continue in the ARNG (active, drilling, or IRR) with treatment and eventually a Reserve/Guard retirement, or
– disability retirement (Chapter 61) instead of a Reserve/Guard retirement, which would start his pension payments now instead of “retired awaiting pay”, or
– Temporary Disability Retired List (TDRL) with periodic reassessments for either retirement or a return to duty.
Here’s a summary of the PEB choices:
Even when your spouse ends up with a Reserve/Guard pension (not a disability retirement), if the back injury is related to combat (or training for combat) then he may also be eligible for Concurrent Retirement Disability Pay. However the Reserve/Guard pension and the CRDP will not start until he reaches his eligibility age for the pension, which is age 60 for most Reserve/Guard retirees.
He can read much more about his VA and disability retirement options at PEBForum.com.
Good question, Chad, and I’m still seeking a good answer.
The VA administers the GI Bill program, of course, but DoD approves the benefits transfer. Everything I read about the eligibility for a benefits transfer requires being on active duty or in the Selected Reserve. For example, here’s the VA page:
the DoD fact sheet (a Word document):
It looks like your only option would be to stay in the TR or to find an IMA billet. If I understand the AF Reserve organizational charts correctly, Cat E billets are considered part of the IRR or the PIRR.
ALO duty seems to be Cat E or Cat B, and if you can find an ALO Cat B billet then you’d be in the IMA and still eligible to complete your GI Bill Benefits transfer. Here’s a Word document (including an organizational chart) from Chapter 12 of the handbook on the USAFA ALO site:
And you’ve already seen this simpler graphic at the top of this post:
Finally, this PDF from the Air University website says “Nearly all Civil Air Patrol Reserve Assistance Programs positions are Category E”:
I’ve checked with several other Reservists, but this situation does not seem to come up very often. I’m going to write this up as an “Ask The Readers” post and see if anyone else has more experience (or at least a link).
In the meantime, it appears that IMA is the safest alternative to drills.
Good question, Alex, and I get it a lot!
No, his retirement is safe. However he may be retired with a disability pension, and it may happen sooner than 20 years.
Federal law says that once you reach 18 years of service, you can only be retired– not separated. That includes 18 “good years” as well as 18 years of active duty.
If his injury results in a permanent disability then he could be retired now. The medical board could recommend an early retirement (based on his point count) or a disability retirement (based on the disability rating percentage). A military disability retirement is also known as a Chapter 61 retirement for the governing section of federal law. His pension would be based on the calculation that produces the higher amount.
Of course the medical board may also recommend that he stay on duty, continue treatment, and continue as a drilling Reservist.
He needs to make sure his diagnosis and treatment are thoroughly documented. Even if he recovers, the injury could be considered a lifetime disability (especially if it could get worse as he gets older). He should talk to a VA Veteran Services Officer to get started on a VA disability claim. He won’t need to file a claim now, but they’ll make sure that he knows what to document and how to file a claim when he does retire. Ideally he’d process the VA claim at the same time as retiring from the service, and that way he’ll maximize his VA benefits.
If the injury was related to combat, or to training for combat, then he may also be eligible for Combat Related Special Compensation.
As he works through the recovery from the injury, he may also want to read the PEBForum website for more advice from vets who’ve dealt with similar issues.
Please follow the blog on Facebook or Twitter– in a couple weeks I’ll have another post on this subject from another reader’s similar question.
I get a lot of spreadsheets from readers. They’re very detailed with great formatting, and most of the readers have better spreadsheet skills than me, but here’s the thing: they’re poorly documented. It’s very hard to dig out a list of assumptions and to follow the programmer’s logic chain.
First, I recommend that you crowdsource your feedback by posting that Dropbox spreadsheet to MrMoneyMustache.com or Early-Retirement.org. It’ll attract a larger crowd there than as a comment on this blog post.
Next, help your readers understand your assumptions. For example, how’d you determine the value of cell H39? Are you starting with $24K (after DFAS withholds 20% of the CSB for taxes) and compounding that at 10% for five years? As another example, it’s difficult to tell whether the factor “Estimated average interest rate on investment” in J18 is 7% before inflation, or 7% after inflation. The funds are probably in a Roth IRA or a Roth TSP so taxes might not be an issue, as long as that 20% withholding is enough to pay the taxes. Maybe it should be 25% withholding. Or maybe only part of the CSB could be contributed to the Roth accounts.
We could endlessly debate the projections of the TSP C fund’s future returns or military pay growth or inflation. 10% APY compounding is not as credible as annual historical returns or Monte Carlo. The key, however, is to apply the same projections to all three factors: the CSB after-tax lump sum, its smaller REDUX pension, and the High-Three pension.
When I used my assumptions to create this graph:
http://the-military-guide.com/wp-content/uploads/2011/03/graph-of-high-three-pension-vs-redux.pdf from this post:
I varied the parameters to see what combinations of returns, inflation, or military pay would make a significant difference. In nearly every case, the larger High-Three pension and its higher COLA overtook the CSB’s head start in less than a couple of decades. In almost all cases, REDUX just can’t keep up.
Let me emphasize that point: the CSB doesn’t grow fast enough to stay ahead of the annual percentage point reduction in the pension COLA.
Let me know what part of that PDF graph you feel may be a strawman.
That post was written before the Roth TSP existed, though, so perhaps the Roth TSP affords an edge. However if a servicemember had the room to put their entire CSB into a Roth TSP and Roth IRA(s), that assumes they had been putting very little income into those accounts. It’s probably more realistic to assume that the servicemember (and possibly a spouse) had to put most of the CSB into taxable accounts because they’d already been contributing to their Roths.
The one time that CSB/REDUX was a better deal was for the E-9 who served for 30 years. I’ll let the readers decide who’s confident at 15 years of service that they’ll make E-9 and stay for 30. I wouldn’t hoist that burden, let alone suggest that anyone else tackle it.
Thanks, Deserat! (She’s referring to Chapter 5 on Reserve/Guard retirements.) I can tell that readers are buying the pocket guides 20-100 at a time to hand out for individual talks or group seminars.
Readers are also starting to send me their presentations, which we post here and on the Bogleheads wiki.
You’re absolutely right, the process is the same for civilians and military– but military training, skills, and discipline make the process easier. Military benefits or even a pension make it a lot easier.
2nd, your dad must have a specialty skill that the military still needs.
Maybe his identity is wrapped up in his job. Maybe he still finds it fulfilling, complex, and fun. Some occupational experts have no reason to ever retire: doctors, lawyers, professors, accountants, and financial advisors all frequently work as long as their cognition and health permit. I think it’s fine to have a personal identity wrapped around a job as long as it does not interfere with work-life balance. That usually only happens when the occupation enables going part-time or working remotely.
I guess I should add “writers” to that list. I also retired from the military the minute that I reached 20 years, but so far I plan to continue writing for the rest of my life. (My work-life balance involves a lot of surfing, and that’s a big part of my identity too, but I’m happy with it.) You and your spouse will also create your own identities when you retire– and that’s a very good thing!
Of course we’re all familiar with those who stay on their jobs out of financial fear, or financial ignorance, or because they don’t know what they’d do in retirement. I hope “The Military Guide” book helps them work through those challenges!
Outstanding question, Tom. The Reserve retirement system is tremendously confusing and I get many queries about it.
First, your time served in the IRR counts toward your time in rank, even if you don’t earn enough points for a good year. Your time in rank is only based on the date that you promote (not “select”!) and that time does not depend on drilling status or retirement credit. You earn points toward your pension (and your good years) but points aren’t related to your rank.
However all servicemembers have to serve in a rank for at least six months to retire in that rank, and the time in grade for O-4 and above is three years. In some cases (like a drawdown) this can be waived by the service secretary to two years. That’s part of federal law applicable to all the services:
Your Reserve pension is still based on your highest 36 months of pay, and here’s the really interesting part: it’s the pay tables in effect when your pension starts. When you “retire awaiting pay” (instead of separating or being discharged) then that 36 months is counted as though you’ve been on active duty the entire time. It not only includes the 36 months before your pension starts (at age 60 for most gray area retirees) but it’s also at the longevity as if you’d been on active duty the whole time. Here are the references from DFAS and DoD:
So if you’re 45 years old in 2015 and retire awaiting pay (gray area, not discharged) then your pension will start at age 60 in 2030. (If you deployed to a combat zone for at least 90 days in a fiscal year after 28 January 2008 then your pension will start 90 days earlier.) When DFAS determines your highest 36 months of pay, they’ll include all the military pay tables between 2016 and 2030 as well as the rest of your service. (This gives your Reserve pension a little protection against inflation.) For almost all Reserve retirees starting their pension in 2030, the highest 36 months of pay will be in those pay tables of 2027, 2028, 2029, and 2030.
Not only will your High-Three pension be calculated from the pay tables in effect when your pension starts, but (because you’re “retired awaiting pay”) it’ll be determined from the longevity in your retirement rank as though you’ve been on active duty the entire time. If you retired awaiting pay as an E-7>20 in 2015 then your High Three calculation would include the E-7>35 column of the pay tables. E-7 pay tops out at >26 in the 2015 pay tables, but that could be different by 2030. Although you retired as E-7>20, your pension is calculated on at least E-7>26 pay. The difference is even bigger for an O-6, where pay tops out at >30.
This means that as soon as you reach time in rank (in the IRR), you can retire awaiting pay (gray area) at that rank. Your longevity will continue to accrue, and you don’t have to hang around in the IRR waiting to go >24 or >30.
Excellent question, Mina! That policy seems to vary by service (especially for the Air Force, not so much for the Navy) but it’s possible. Talk to your local Reserve/Guard unit about the options– especially presenting military honors for veterans’ funeral services.
Thanks, Deserat, great points– especially about consulting!
Great question, Jim, and a very confusing issue.
The short answer is “No.” Once you’re medically retired under Chapter 61, you stay medically retired under Chapter 61 for the rest of your life. You do not “switch over” to a Guard/Reserve retirement at age 60.
For example, see the response by Jason Perry, former Army JAG officer and the founder of PEB Forum, at this link:
What does change at age 60 is your potential eligibility for Concurrent Retirement and Disability Pay (CRDP). The first requirement for CRDP is that you’ve reached Guard/Reserve retirement age. The full paragraph says “… retiree with 20 qualifying years of service, who has a VA disability rating of 50 percent or greater and who has reached retirement age. (In most cases the retirement age for reservists is 60, but certain reserve retirees may be eligible before they turn 60. If you are a member of the Ready Reserve, your retirement age can be reduced below age 60 by three months for each 90 days of active service you have performed during a fiscal year.)”
So at age 60, if your VA disability rating is at least 50%, then you can also start receiving CRDP. But you’re still medically retired under Chapter 61 (for rank).
I’m not sure which calculation is used for CRDP, but I would suspect that it’d be the points system. If you’re facing a VA disability rating of at least 50% then you should confirm the CRDP calculation with Jason Perry at PEBForum.com and with DFAS.
Finally, note that there’s a difference between CRDP and CRSC:
Tabitha, you’ll need to discuss this one with DEERS. Since your sister-in-law is not considered immediate family, they might not deem her eligible to be your dependent. Even if she’s considered your dependent by tax law, she still might not be eligible for Tricare benefits.
As you probably already know, the IRS allows you to declare someone a dependent on your tax return if you’re paying for at least half of their upkeep. (They’re dependent on you.) For DEERS to consider your SIL your dependent, though, you might have to be her guardian or even adopt her. The best way to parse those requirements would be to visit the personnel office on a military base near you, or contact DEERS directly through the Defense Manpower Data Center at https://www.dmdc.osd.mil/milconnect/faces/faqs
A better solution might be your state’s Medicaid office or community mental health facility. If your SIL does not have her own health insurance and doesn’t have the income to support herself then she might be able to obtain health insurance (and treatment) via that system. The mental health facility might figure out a way for her to obtain benefits through the state. But again this is not an easy answer.
Excellent feedback, Tin Man. Thanks for a good TERA success story and the advice!
Thanks, Pat, great analysis!
I’m not sure there’s any amount of money worth taking a horrible set of orders… but the discussion will certainly help people figure out what’s important in their lives.
You’re welcome, Mike!
You’ll want to keep performing at your best, but also make sure that your personnel office has an accurate record of your Reserve service as well as your active duty. Even if you don’t promote there’s the possibility of being continued on active duty until you’re eligible for an active-duty retirement, not just a Reserve one.
Either way you’re winning the game– now you can keep running up the score as long as you’re enjoying it.
Margarita, every state has different divorce laws, and the federal law only says that a military pension can be divided as marital property.
The terms of that division are handled during the divorce agreement. I can’t predict whether promotions or more years of service would boost your payments beyond the divorce agreement. The best advice I can offer is to read through your divorce agreement with a lawyer who understands military pensions and your state’s divorce laws. This post will also remind the lawyer of some of the potential issues.
I think “leave active duty when the fun stops” is the best advice, and financial independence makes the choice much easier. But leaving active duty for a bridge career is still a better choice than gritting one’s teeth and hanging on for a (bigger) pension.
I think SBP is a good program for the spouses of many military retirees, especially those who have sacrificed their own careers (and human capital, and 401(k)s opportunities, and pension prospects) for the servicemember’s career. If divorce should happen then it’s a very effective asset for settlement negotiations. For retirees with disabled children, SBP is one of the few federal programs for establishing a lifetime special needs trust.
For people who want this type of longevity annuity, the subsidized premiums mean that the price is unbeatable. I doubt that the MCRMC will be able to replace SBP with a better insurance annuity.
DFAS’ conduct, however, is wrong and borders on criminal negligence.
Thanks for your comment!
It’s especially worrisome that DFAS didn’t see fit to discuss this change in public. I hope the corrective legislation is quickly passed, but I’m skeptical.
Thanks, Rob– after the excitement of a military career, “boring” is good!
Thanks for your question, Shawn!
Your 16 years of points and 16 “good years” have earned you credit toward a Guard “non-regular” (Reserve) retirement. You would only be eligible for an immediate active-duty pension if you retired via the Temporary Early Retirement Authority (TERA) program (or via a medical disability retirement).
Now that you’re in the Guard, you’ll have to earn at least four more good years to be eligible for a Guard/Reserve pension. Once you receive your Notice of Eligibility (your “20-year letter”) then you’re eligible for a pension that begins at age 60.
As noted in the second paragraph of this post, if you deployed to a combat zone for at least 90 days during a fiscal year after 28 January 2008, then you’re eligible to start your pension 90 days earlier. The 2015 National Defense Authorization Act modified that “fiscal year” legislation to stretch across fiscal years after 30 September 2014. Even if your combat deployments qualify you to receive your pension earlier, your Tricare benefits will still start at age 60.
Drilling in the Guard for four more years may seem like a colossal pain. However I frequently hear from veterans in their 50s who wish that their younger selves had invested the time and sacrifice in getting the minimum number of points for the minimum number of years required to receive that pension.
I think that it’s worth sticking around for four years of drills (and perhaps a deployment) just to earn the benefit of all the time & effort that you put into the first 16 years.
Absolutely– here are a couple of links to get you started:
Those posts also link to Gubmints.com, who has the most thorough and up-to-date advice for this situation.
Great question, Omar!
In almost all cases, you should continue drilling until your retirement request has been approved and you have the effective date. This way you’re still a drilling Reservist in good standing– just in case the chain of command (or your Reserve HRC) has delays or mistakes in processing your request.
Each service and unit has their own policies, and you may be able to stop drilling sooner. For example, it may be possible to take six months of authorized absence (AA) before you’re transferred from the “drilling Reservist” category to “retired awaiting pay” category. (Ask your chain of command or your Reserve center.) Your unit may also authorize you to be absent from one or two drill weekends per year upon your request. That’s between you and your chain of command.
Congratulations on your career, and let us know how the retirement process goes!
First, Dave, congratulations! I’m glad the Army finally got your retirement right.
Second, I hope none of the readers ever need the form, but I’d appreciate a copy to keep on file in case someone sees this post. Thanks!
Thanks for your question, Gilbert!
You seem to be willing to give up a High Three pension opportunity in exchange for what might be the more realistic hope of a REDUX retirement. I can understand the attraction.
However you still have other options, and REDUX should be last on that list. Even if you take the CSB and commit to 20 years now, there’s still no guarantee that you’ll get to retirement. The military could cancel its side of the contract, recoup the CSB (or even forgive it), and release you at 17 years 11 months.
Here are other options to consider.
As an E-6, your high-year tenure is 20 years. If you don’t promote to Gunny then you’ll still be eligible to continue through the end of your enlistment contract. In fact if you continue to maintain your promotion eligibility, you’ll be considered for E-7 promotion boards all the way up to retirement. (I’ve seen E-6s be selected to E-7 just a few months before retiring.) Don’t give up your chances– stay as competitive as you can until you sign your DD-214 retirement papers.
When you reach 18 years of service, federal law protects your opportunity to reach a 20-year retirement. (https://www.law.cornell.edu/uscode/text/10/1176) This ensures that you are not involuntarily discharged when you’re nearly vested in a pension and your other retiree benefits. (Of course you’d still have to stay on active duty and serve the remaining two years.) Because of that law, your goal is to reach 18 years of service.
The most straightforward way to reach 18 years would be to re-enlist. (As you’ve pointed out, the small defect would still be taken into account when you apply.) However you might not want to re-enlist if it obligates you to stay on active duty past 20 years.
Another option would be signing an extension on your current contract. Here are some reasons you might consider incurring additional service:
– to be eligible to transfer your GI Bill benefits to your spouse or kids
– to receive tuition assistance for college classes
– to qualify for advanced technical or leadership training schools
– to comply with a minimum tour length at a new duty station (at least two years)
– to comply with the minimum area tour to be relocated at a new duty station (2-3 years)
You might qualify for other Marine Corp programs that would require you to sign an extension.
So for example, if your next set of PCS orders begins after your 15-year point, then you could also sign an extension on your current enlistment contract to have three years of service remaining at your new location. The extension qualifies you for the next tour of duty, but it also gets you past the 18-year mark.
Even a one-month extension (for any reason) would take you past 18 years and give you the protection of serving to 20.
REDUX is not a guarantee that you’ll serve to 20 years, but it does guarantee that you’ll give up a lot of the High Three pension that you’ll be able to earn through other means. In your situation, I’d look at signing an extension. While you’re pursuing that option, continue to give your best performance so that you can mitigate the small defect in your record and maximize your promotion chances.
Good to hear from you again, Jon!
From your previous comment, you said that you already have your Reserve retirement Notice of Eligibility (your 20 year letter). Hopefully you’ve compared your Army Reserve record of your point count and your good years to make sure that Army Reserve HRC has all the information. It’s quite possible that they do not have any record of your 1977-80 Marine Corps service, your 1985-92 USAF active duty, or your 2001-06 USAF Reserve duty. They need to have that information in your Army Reserve personnel database in order to give you the right answers.
You also appear to have at least 10 years of commissioned service, and Army Reserve HRC needs that information as well in order for them to understand that you’re qualified to retire as an O-3. That’s in federal law as Title 10 Section 3911 (https://www.law.cornell.edu/uscode/text/10/3911). However in order for HRC to comply with the federal law, they need to have the documentation of your commissioned service in their records.
As you’ve said, you’re also eligible for a Reserve pension under the “Final Pay” system. In order for the Defense Finance and Accounting System to correctly calculate your pension, Army Reserve HRC has to have your Marine enlistment in the personnel database.
Your Notice of Eligibility should include the point count and the good years in the Army Reserve personnel database. If that information is not correct then your first step is getting all the data into the system and verifying that with a new report. Ideally your NOE will have the contact information for this project. If you’re not getting a response then it’s worth calling a department head or the Commanding Officer’s office.
I recognize that you may not be able to access your Army Reserve personnel records online if you don’t have a Common Access Card or an account. If that’s the case then Army Reserve HRC may also be able to set you up with an account login and password.
I realize that you’re IMA, but you should also pursue these issues up your Army Reserve chain of command. If that’s the same people you’ve already tried then I’d talk to the personnel branch at your nearest Army base. If you’re still in Korea then you’d still start with your local Army personnel branch to get a good name, phone number, and e-mail address.
Once your record of service is correctly reflected in the Army Reserve database, you’re ready to submit your retirement request. That should include a printed copy of the information in the database, and ideally the Army Reserve would approve it as a Final Pay O-3.
Once you have an approved retirement then you’re ready to ask DFAS to confirm the start date and the point count/retirement rank of your pension.
I’ll also publish your comment as a blog post asking the readers who you should contact. In the meantime I’d start with your NOE, your Army Reserve chain of command, and possibly the personnel branch at the Army base nearest you.
Thanks, Deserat, and let us know how you like Galicia!
Thanks for commenting, Julie! My French skills were dormant for over 30 years, but this year they came roaring back… in Spain. When I hear French conversations in the street I can immediately understand the accent. I think you’ll have a similar experience, and I think Rosetta Stone will give you an expanded vocabulary. You’ll make yourself understood.
Akaisha Kaderli (a perpetual traveler for over two decades) says that language skills go through a series of plateaus. It’s important not to get frustrated and give up. As long as we accept the ebb & flow of our skills, we’ll keep learning. More importantly, we’ll make ourselves understood.
I really enjoy long walks around Andalusia, and I think you’ll enjoy your hiking tour. One word on nutritional supplements for extended hikes: ibuprofen!
Great question, Jeremy!
I’ve never heard of this before. Before you pursue transfer to the IRR, ask to see the applicable instruction (or message) for this “demotion”. If you can get a reference from your service’s personnel branch then I can research the issues.
It’s possible that your IRR transfer is being confused with a retirement request. (Federal law requires at least two years’ time in grade for certain officer ranks.) However it’s also possible that a new rule has been added to your service’s National Guard policies, which frequently happens during a drawdown. If that’s the case then I’d like to figure out whether it conflicts with federal law.
Although it’s possible to obtain points and good years in the IRR, you may already have enough good years to be eligible for a pension. Verify that your statement of service does indeed give you at least 20 good years, and make sure you have your service’s Notice of Eligibility before you go to the IRR. It’s difficult to get enough points in the IRR to have a good year, and most servicemembers in the IRR only complete correspondence courses or other special duties for a few points per year.
You do not need to be in the IRR to obtain additional longevity (for higher pay) in your rank. Reserve/Guard members who “retire awaiting pay” will attain longevity in their rank as if they had been on active duty the entire time until they started drawing their pension. For the vast majority of servicemembers, this means that their pension is calculated using the maximum pay scale in the pay tables at their rank– and using the pay tables in effect during the year when they start their pension.
Good points, Kate!
I’m with Steve on clamshells, and I rarely even carry a cell phone on Oahu. But no-contract service is indeed cheap, and I’m happy to ramp up the monthly fee for GPS mapping during travel.
Thanks for your question, TC!
The 2008 National Defense Authorization Act enables early Reserve retirements for combat deployments exceeding 90 days during a fiscal year. The 2015 NDAA fixed a glitch in the 2008 Act and now lets those deployments cross fiscal years.
Between 28 Jan 2008 and 30 Sep 2014, you had to mobilize and deploy to a combat zone for at least 90 days during the fiscal year. (That could be one deployment or the sum of a series of shorter deployments.) After Sep 2014, those 90 days can accumulate across fiscal years. For every one of those 90 days (or more) that you’re deployed to a combat zone (or mobilized for certain national emergencies) then your Reserve retirement starts the same number of days earlier.
To qualify for this eligibility, your mobilization orders have to cite federal law– either Title 10 or Title 32 sections 12301(a), 12301(d), 12301(h), 12302, 12304, 12305 or 12306.
Another issue is “combat zone”. Those designated areas have changed significantly over the last few years so your mobilization may no longer be eligible to qualify for an earlier retirement.
I’m not sure of the Army meaning of the phrase “TPU soldier”. (In the Navy that acronym means “Transient Personnel Unit”.) However if you’re injured during a mobilization for combat duty under these conditions (either in training or in the combat zone) then your time in a Warrior Transition Unit also counts toward the 90 days. Let me know if “TPU soldier” is a different subject.
Although your Reserve pension may start earlier, the NDAAs do not address Tricare health insurance. That still starts at age 60 regardless of deployments to combat zones.
Thanks, Jason, I’ll look into it!
As conservator for my father, his district probate court will only communicate with me by postal mail. I’m reduced to occasionally phoning the clerk and hoping that they’ll tell me whether any letters have been sent to me, and maybe even read their contents. Even for this relatively short trip, it’s been a challenge.
Thanks, Rob, apparently I’m still young enough to learn new tricks!
I can affirm that slow travel should be done whenever you can instead of waiting until you’re older. I had a great meetup this week in Granada with another blogger who’s already decided to stay there for a second year… and his family is happy with the schools & neighborhood, too. They’re touring Europe during school breaks and having a wonderful life experience.
Great question, Drew!
First, before you make any moves from your drilling Reserve status, make sure that you have 20 good years and your Notice of Eligibility for your retirement. Once you go into the IRR, it’s difficult to return to drilling status (and then it could take months). Recheck your good years and point counts and get the Army’s confirmation. It takes a long time to correct any errors, and you don’t want to be stuck in the IRR if you need one more good year.
Second, while you’re in the IRR, you still have to conform to the Army’s requirements. That includes physical readiness as well as complying with any training requirements like an annual muster. If you exceed height-weight limits or don’t comply with annual status checks then you could find yourself being forced to retire. Others have also found the IRR’s minimal requirements to be more than they’re willing to handle (especially if they’re also coping with family or elder care), but you could always retire from the IRR.
Third, you might bump into a high-year tenure limit for your rank. There are no point requirements while you’re in the IRR, but you might be required to retire (from the IRR) when you reach the maximum number of years permitted at your rank.
Finally, the Army has the approval authority on whether you can go to the IRR or retire awaiting pay. Their policy is generally shaped by force manpower targets. Although it might make perfect sense for you to be in the IRR, the Army might want to reduce the ranks by pruning the IRR roster.
I’m not personally familiar with the Army’s latest IRR policies. (Readers, any help here?) You may still have an opportunity to earn points, particularly for burial services. Before you make the leap, see if you can learn more from your XO or anyone in your unit who’s transferred to the IRR. You could also ask the members of RallyPoint about their IRR experiences, and I’m pretty sure someone will chime in.
Thanks for your comment, Kevin!
IRS Form 8606 (and most tax software) will track the basis on the rollover IRA as it’s converted to a Roth. Ideally last year’s tax-exempt money was not counted in the basis, and you’ll be watching for that this year.
And, of course, if last year’s conversion was a big overpayment then you could file an amended return.
Good point. There is political risk, but it’s just a proposal and not legislation.
Even if it did pass both houses of Congress, you’d still be grandfathered on the tax you paid and would not have to pay additional tax. If you did not do the Roth conversion then you’d still be subject to RMDs, taxes, and perhaps even early-withdrawal penalties.
Good news, Dave, thanks for passing it on!
Thanks, Stefanie, “infectious” is a great word– I’m looking forward to the speaker list!
32 years ago when my spouse (then GF) was ordered to Rota, I asked for a Holy Loch submarine so that it’d be easier to visit her between patrols. That tactic seemed to pay off…
Congratulations on Germany! I think it’s a great way to demonstrate your multinational skills for a bridge career, and you should contact Deserat about that! If the euro continues its current trend, you’ll also accelerate your financial independence.
Thanks, J9! I’m sorry to say that we’ve also seen more of Andalusia in the last six weeks than my spouse saw during her entire two-year tour in the 1980s. We’re really enjoying the changes.
Carol is on the USS ROSS. You’re right about “in and out of port”– the best part about being forward deployed, and perhaps also the worst part. She’ll keep up that routine for another 14 months.
By the way, last week I donated two copies of “The Military Guide” to the base library. The librarian says she’ll have them cataloged and on the shelves in a couple of weeks. This week I’m going to give copies of the book and the pocket guide to the family service center and the Navy-Marine Corps Relief Society.
Thanks, Peter! Good points on financial freedom.
Jeff, the only way to earn a Reserve retirement is through 20 good years. I’m not sure whether your IRR years had the minimum number of points to qualify for good years, but you can check that by reviewing your point count statement– either online or with the help of your local Reserve center. You should also verify that it’s accurate.
Assuming you have 20 good years of service, you’ll receive a Notice of Eligibility with instructions on how to file for retirement. If you’re short of 20 good years then you’ll have to talk to a recruiter or your local Reserve center about returning to drill status (or reaching the minimum annual points via IRR activities).
If you’ve reached 20 years and a NOE, the retirement details are at this post:
Bill, this post title puts the phrase “present value” in quotes because this is not a traditional present value calculation. It uses estimates based on other parameters, and the most reasonable proxy is probably the rate of I bonds. However there is no typical discount rate for this calculation that I’m aware of. As usual for PV calculations, you get to tinker with the discount rate to find your own value that seems reasonable.
Thanks for commenting, Stephanie, and everyone else too!
This post seems to have made a big impact. Jamie, you’re always welcome to update us on changes and other “lessons learned”. Everyone else is welcome to comment here too, or feel free to send me a post with your story & advice!
Howard, you definitely need to contact the personnel branch of your nearest National Guard Army to discuss your pension and your VA benefits. You should also contact DFAS to make sure they have a complete record, and to verify that you’re receiving everything you’ve earned.
It’s never too late. Contact them now to make up for the lost income.
Good to see you here, Friar, and thanks for your comments!
You make excellent points from your long-term experience.
Thanks, Dave! DC has certainly been a growth area over the last 30 years, but Hawaii got hammered by military downsizing between 1990-2000. It can be a big financial risk.
Considering the frequent moves and the debt leverage of real estate, a diversified portfolio of low-expense passively-managed index funds offers a much less-risky and lower-stress way to accumulate wealth. But the key is diversification, and real estate can be a great diversifier.
Good points, Romeo, thanks!
Great question, Luis!
Although Congress has authorized the Temporary Early Retirement Authority legislation through 2018, each service uses it at their own discretion. Your best option is to contact your service’s personnel branch to determine their policy and to request TERA. However (depending on the nature of your disability) you may also qualify for a medical disability retirement. The medical retirement will not have the pension reduction that’s part of the TERA calculation, so you should see how the MEB process turns out before requesting TERA. You should also review the MEB and the TERA questions with a military lawyer. The JAG can help you verify that you’re getting due process from the MEB and that you’ll receive all the benefits to which you’re entitled.
Even if you request TERA, your service may still turn you down.
The fastest way to calculate your days of active duty is to subtract the difference between the present date and the date you were mobilized. You can do that with most spreadsheet software or using a website like TimeAndDate.com.
Thanks, Casey, sounds like a couple of tough returns.
Please keep us updated for other veterans who may be in similar situations!
Good questions, Wayne.
Just to be clear (for readers who might misinterpret your comment), I’m not a financial advisor in the CFP or CFA or CPA sense of the phrase. I’m just a military retiree who knows a lot about saving and investing for financial independence.
But in the style of those types of advisors, my answer to your question is also “It depends”. I’d encourage families to shop for their food on quality and price. If your experience is that off-base stores are cheaper then shop there. If there are better bargains on base then shop there. Or keep a price book and shop each of your favorite stores for the best bargains.
Sometimes it’s faster/easier to shop in one place or the other, or they’ll have a higher quality of some foods, or they’ll have more selection.
Personally I shop Schofield Barracks commissary because it’s only six miles from home. They have a great selection of fruits & veggies in quantities that we can buy without worrying that they’ll go rotten. However we also shop Costco because we can buy bulk staples there more cheaply than any other store on the island, and their gasoline (loss-leader) prices even beat the military base gas station. (Costco alsos has good pizza.) If the commissary has a special or a case-lot sale then we’ll buy there instead of Costco. But we also shop at farmer’s markets.
Thanks for your comment, Casey!
You need to go talk to a tax CPA, and preferably one who is an “Enrolled Agent” with the IRS. I’m not a tax professional, but here’s my opinion:
You already took a deduction for your VA disability benefits. As the IRS ruling quoted above says, you are not allowed to take a net disability exclusion (a second deduction) based on the same disability.
It’s possible that you’re one of a handful of people who are eligible to take the net disability exclusion. If that’s true (and I doubt that it is) then you should not take a deduction for your VA disability pay. It’s one or the other.
If you submit your tax return with both of those deductions then you will trigger a query letter and maybe even an audit.
There are many other things that could have caused that $7K tax bill. You should check those with a VITA tax-prep site in your area, and maybe they can help figure out the issue. But I can practically guarantee that the net disability exclusion is not the answer.
Seek professional help before you file your return.
Thanks for your comment, Wayne.
Gracias, Deserat… y vacacion es muy bien!
Thanks for your comment, Carla. I’m sorry that the VA and DoD are giving you guys such a hard time.
Thanks for your comment, Peter.
I’m happy with any Tricare change that makes Prime more appealing to doctors, but I’m skeptical that Title 10 law will be changed anytime soon. I think the current retirement system will be around for at least another decade.
Great question, Gerd!
The answer is the same, regardless of the expense ratio: you should go with the fund that makes you feel secure and happy.
If that’s Vanguard’s low expenses, or USAA’s convenience and customer service, then you should go with whichever appeals to you more.
I’d also suggest that you should convert the percentage difference into actual dollars per year. That’ll give you a concrete number to decide whether the expense ratios are a factor worth considering.
Thanks for asking, Russ!
You should have received confirmation by now. I think you need to bug DFAS and your service’s Reserve/Guard HQ. This late in February there might not be enough time to add you to the system for a March payment, although DFAS will eventually pay you everything that you’re owed.
You could start by making sure that your myPay account is accessible and your direct-deposit info on there is correct, and then e-mail/call DFAS. If they need more help then you’d go back to your service’s Reserve/Guard center to send over the data.
One issue is that the 90-day early retirement legislation initially required the 90 days to be all during one fiscal year. (This was corrected by the 2015 National Defense Authorization Act, but not retroactively.) This verification may be one reason for the delay.
Thanks for your question, Gerard!
We’ll have to confirm some details before we can work on the numbers. And first, any Guard/Reserve members wanting the Career Status Bonus would have to be on active duty at the 15-year point.
As I pointed out to David in his comment, it’s a risky assumption that the member would be able to continue on duty (active or drilling) until their late 50s. The CSB has been $30K since the program was enacted in 1999, so 15+ years of inflation have whittled it down to a much smaller amount in today’s dollars. Another issue in both the officer and enlisted ranks is the amount of pay. In general, the REDUX “gap” is the least for E-9s and O-6s (as well as flag/general officers) because of their pay raises later in their careers. However nobody at 15 years of service could confidently predict being promoted to those ranks.
In general, the $30K is not worth the money. You’re giving up much more in terms of pension and COLA than you’re receiving, even if you immediately invest the CSB (what’s left after taxes) and allow it to compound until age 62 (the REDUX “catch up” adjustment to your pension).
If you’re interested in calculating the precise numbers (and on active duty at the 15-year point), then please send me an e-mail with your dates of service (active duty and drilling) and your point count.
Thanks, David, great question!
#3 is the weak link in your assumptions. First, you’re forecasting that you’ll even want to stay for 30 years of service. When you joined the military 15 years ago, did you plan to sign a contract for 15 years or did you take it one commitment at a time? I feel it’s tremendously unfair of the CSB/REDUX creators to sucker a servicemember into thinking that they’ll want to stay to 30. By the way, the choice of staying to 30 might be pulled out of your hands by a family crisis or your health.
Second, you have no guarantee that you’ll be able to stay to 30. You may reach 20 years of service and be retired by the military due to downsizing or sequestration or some other unforeseen circumstance. Federal law says that if you reach 18 years of active duty then you’re guaranteed to be able to stay until 20, but you are not guaranteed any service past 20.
Third, you might not make W-4 rank. Despite your performance, your service might drastically curtail promotions in your specialty or downsize your entire community.
Even if you make W-4>30, you’re giving up 1% of your COLA every year until age 62. In 2013 when Congress passed the “COLA-1%” law (which has since been overturned) the smallest estimate of the lost dollars was $80K at an E-7 pension. I don’t remember the number for W-4s but O-5s were well over $100K. If you retire at age 48 and give up 1% of your COLA for another 14 years, then at a minimum you’re taking a $30K loan today and paying at least another $50K of interest on it.
It’s almost the equivalent of taking out a payday loan to get rid of your other debts.
I think that your assumption #2 is the most powerful action you can take now. Once you go through the Financial Peace University curriculum (or whatever techniques you choose) then you’ll track your spending and develop your budget. You’ll spend your money on the things that you truly value, and you’ll have cash left over nearly every month. In addition you can sell excess possessions, tackle side-hustle projects during off-duty time, or even talk to your chain of command about a second job. In other words there are plenty of ways to cut the spending (and to generate the funds) to pay off your debt without sacrificing years of retirement benefits.
I personally know a dozen financial bloggers who have paid off more than $30K of debt in a few years with their Ramsey skills. Even in their darkest debt days, they would never have taken a $30K loan with such a long-term payback.
I have two other suggestions. One would be to read the MrMoneyMustache.com forums and post a “case study” review of your debt with your income & expenses. The posters on the forum will help you spot areas where you could spend less (and pay off debt). Second, you could visit your service’s relief society for a spreadsheet analysis of your income & expenses. They do it all the time and they’ll be able to suggest many ways to cut spending and boost income.
Please let us know what you decide to do!
Good question, Jennyth. I guess the answer depends on the desired result.
A term policy would have insured the OP’s spouse while they were saving for the period starting 20 years later, but they would have had to maintain both a savings discipline and an aggressive asset allocation (to match inflation for at least 25 more years). Achievable, but problematic for some couples.
After 30 years of SBP premiums (and past age 70) the policy would have been paid in full. At that point the widowed spouse would have received a COLA annuity with zero credit risk and no management fees or investment expenses. It would also ideally be immune to investment mismanagement.
To complicate matters even further, my spouse and I elected to go without any life insurance. We have enough assets to self-insure, and we’d rather have the additional 6.5% to spend for ourselves today. OP might decide that Social Security (and its survivor beneifts) pay enough for his surviving spouse.
They’d have to run a lot of spreadsheets on the scenarios and decide how much self-insured risk they’re willing to assume. Again, achievable (especially for OP) but problematic for many couples. The relative lack of hassle makes SBP very attractive.
Thanks for a great question, and I’m sorry that you’re facing a MEB. This is a very tough question and worthy of an entire post, which I’ll summarize here.
I’m describing the different systems with caveats because each medical retirement is a highly individual situation with dramatically different payments under the various laws. I’m also reaching the limits of my circle of competence– I have little experience with medical and disability retirements and I’m weak on the criteria.
You’re either going to have a Reserve retirement (at age 60) with a disability rating, or a medical (disability) pension (possibly starting immediately upon retirement).
Your disability rating will determine how much of your Reserve retirement is awarded as tax-free compensation by the VA instead of as a DoD pension payment. In addition, if your disability rating is 50% or higher and related to combat then you may receive VA compensation (also tax-free) in addition to your Reserve pension (instead of the more typical VA offset).
If you receive a medical (disability) retirement then your pension is handled by Chapter 61 of federal law instead of the Reserve retirement legislation, and your pension amount is tied directly to your disability rating. You may be able to receive your pension immediately (instead of at age 60) but the total amount of your pension would be limited to 75% of your High-Three pay base (and could possibly be 50% of your pay base).
My first suggestion would be for you to read the PEBForum.com and post your situation there for a more detailed analysis. My second suggestion is finding a local VSO (from a local chapter of the DAV, American Legion, IAVA, or MOAA) to have them do a detailed record review. They can advise you of the various issues and results that the MEB may determine.
Another excellent resource is veteran Ryan Guina’s TheMilitaryWallet.com. Read all of his posts under the “VA Disability” tab, like this one:
Depending on the results of your MEB, you may also want to seek legal advice for an appeal. Again you may want to have a VSO rep assist you with the MEB process as well as any prospective appeal.
The MEB system is difficult to understand, and it’s almost impossible when you’re coping with health and disability issues. Find a VSO right away, and consider having a rep attend your meetings with the MEB and the VA. I know at least one servicemember who used a digital recorder (with permission) and a note-taking friend to make sure that they understood (and followed up on) everything they heard during meetings.
A decade ago I found a Herman Miller Aeron chair on Craigslist. It needed repairs, but the company offers a lifetime warranty that sends a technician to your home for free labor & parts. It’s been our best desk chair ever, especially with the mesh upholstery on a hot Hawaii day.
I’ll have to see if I can find “green” in a traditional plate lunch anywhere on the island…
Thanks for the detailed summary, Dave!
I’ve edited your comment to reflect that the fiscal year requirement has been canceled by the 2015 NDAA. Servicemembers can earn day-for-day credit for earlier retirement without having to count across fiscal years. The rest of the legislation remains in effect.
Thanks for the question, Gary!
Retiree pay is on the first day of the month, so you’ll see your first pension deposit on the first month after you turn age 60. Your service should send you a package about 6-9 months before then for you to submit updated personal contact data and to set up the deposit. If you have not heard from then by that time then contact your service’s local Reserve/Guard center or DFAS.
Here’s a link to the source: http://www.dfas.mil/retiredmilitary/apply/receive-pay.html
Jim, your civil service time will not count toward a military pension.
However your military service can count toward earning a higher civil-service pension (when you meet the requirements of the civil-service pension). It can also help you earn a higher rate on your leave.
Here are two posts with more info:
Thanks, Romeo! I think you’ve already shown that you’re one of the few servicemembers who’s hardwired to make money in real estate. However the vast majority are not ready to deal with the hassles of ownership (and the possibility of landlording from long distances).
Thanks, Mel! This one has achieved urban legend status…
It sounds like you’re doing great. At a minimum, I’d try to maximize your Thrift Savings Plan contributions (conventional TSP or Roth TSP) and maximize contributions to both Roth IRAs. After that you’d try to save even more in taxable accounts. Although you might tweak that to pay off a mortgage or to accumulate enough assets to reach financial independence at military retirement, I would not sacrifice retirement investments for college savings. Your kids can get their own scholarships (or work-study) but nobody will lend you and your spouse the funds for retirement.
If your spouse deploys to a combat zone then I’d try to maximize tax-free pay contributions to the TSP (the higher limits, currently $53K/year) and the Savings Deposit Program (a 10% APY fund).
Here’s one suggestion, and other commenters may have more:
Thanks for the question, Charles! But I’m going to have to defer to an expert.
The payments could be construed as alimony, but I recommend checking your divorce agreement to see if it’s classified as some other type. The “10/10 rule” is just part of the USFSPA, and the state’s divorce code is the governing law in these situations. Depending on how the payments are set up under state law and in the divorce decree, the payments could be alimony or some other form of support or compensation.
The 1099 rules have also changed in the last few years (especially for landlords) so you’ll want to consult with a tax CPA.
Technically, anyone at the end of their enlistment contract can be turned down for re-enlistment. Officers can also be separated for failing to attain promotion or qualification requirements. And as we’ve seen during the drawdown, anyone with less than 18 years of service can be separated as part of a reduction in force.
However once a servicemember reaches 18 years of service they’re protected by federal law to remain on active duty until they’re eligible to apply for retirement.
In the case you’re asking about, that servicemember would apply for retirement.
Dave, I’d be happy to replace this brief with a better version. When the Army posts a brief that’s free of personal information, math errors, and grammar errors, then I’ll update this edition. If they’re just trying to keep quashing the current version then I think they could make better use of their time & effort.
The current brief (with all of its flaws) offers valuable insights into the thought process of the action officers and supervisors who prepared it. These are presumably the same people who thought it was appropriate to force officers to retire on an enlisted pension even when the federal law states that it only applies for voluntary retirements.
If those HRC procedures include preparing briefs that flout personal information while “never intending for it to be leaked” then maybe the spotlight on these practices can produce behavioral change at HRC as well.
Good points, Fred.
I think the key to owning a home on active duty is being ready to turn it into a rental, and having the market analysis/finances in place to do that before buying it.
Entrepreneurial landlords have that mindset. The vast majority of servicemembers do not, and end up being “accidental landlords” with negative cashflow.
Thanks, JP, good points!
Babba, the pay charts only have a few variables: rank, years of service, and an occasional footnote. Yet you can see how many charts there are, and the special pays/allowances are even more confusing.
The “Total Pay” iPhone app was created by a Marine just to help his platoon figure out how much their paychecks should be.
Retirements have many more variables than the pay tables: High Three or REDUX, the number of years of service, an average of the 36 months of a servicemember’s highest pay during their career, active-duty or Reserve/Guard, regular or medical/disability, and traditional or TERA. The “retired pay chart” would be a three-inch binder.
Due to all of the variables, each service has a calculator on their respective websites (behind an ID card login) to help servicemembers run the numbers for their particular situation.
Of course I’m also happy to help people calculate their pension! If you have a pension question, feel free to post it here or use the “Contact me” box (http://the-military-guide.com/contact-me/) to send a private message. You can also search for keywords like “calculate pension” to read some of the other 700+ posts on this blog.
Thanks, Dave, great comments. When it’s good, it’s pretty good. When it’s bad, it’s awful. AHRN has been a particularly useful tool, and far better than Craigslist!
Every career is different, and every family grows/changes over the years. I’d say that it’s almost impossible for a military family to predict their chances of being reassigned to a post, especially if they’re staying flexible on their service obligation. For example I know one servicemember who spent over 25 years trying to return to a Norfolk duty station to live in their Virginia Beach home.
We’ve owned a home on Oahu for 25 years, and it’s been rented for 17 of them. We have three huge military bases within 25 minutes. In the 1990s it was renting for much less than the mortgage and for almost a decade was assessed at much less than we paid for it. Today, after 25 years of ownership, it’s renting for much more than the mortgage and assessed at just about the rate of inflation since our purchase price.
Its cash flow beats CDs, but overall it’s been a mediocre investment. Today its primary value is a potential tax-free gift to the next generation.
A few servicemembers are hard-wired to be landlords. I feel that they’ll succeed no matter where they buy (or live), but they’re a very small percentage of the population. For the vast majority, the downside risks outweigh the upside rewards.
Peter, your experience is different from that of many readers.
I’m working with one reader who owns a house in the Norfolk area in a neighborhood that’s gone downhill in just two years since they transferred. After a four-month vacancy, their new tenants are paying $150/month less rent than the mortgage. In other words the landlords have already lost several thousand dollars in rent and will continue to lose $1800/year before fees, maintenance, and repairs. The home was recently assessed at a 20% lower value than when they were living in it… in just a couple of years. When they sell, they’ll have to bring money to the closing.
Over the long term– at least five years and preferably longer– I think that owning a home is generally better than renting. However it makes little sense to complicate a busy military life with home ownership, especially when that ownership is leveraged with mortgage debt. Upside is great when it happens. However the downside is much worse than the upside, and statistically more likely to happen.
When a military career comes to an end, I’d hope that a family was saving and investing in assets that would produce a home down payment. That could be CDs for a purchase a few years away, or a short-term bond fund for 5-10 years away, or equities for a purchase that’s more than 10 years away. Wherever they decide to live, they’d have months to learn the neighborhoods and buy a bargain at a substantial discount. That alone would produce equity– and without years of attempting to leverage that equity through mortgage debt. It makes no sense to take outsize risks of losing money at every duty station in hopes of having equity when you hang up the uniform.
While your constructive comments are always welcome, the sentence “So much nonsense parading as economic counsel” is not constructive. We won’t read any more of that here.
Thanks for the question, Andrew! The active time (an active-duty obligation or a Reserve mobilization) only reduces the retirement age if it occurred after 28 January 2008 in a combat zone. It reduces the retirement age by 90 days for every 90 days (in the same fiscal year) in that combat zone. There’s a rumor that the “fiscal year” phrase was removed by the 2015 legislation to allow the reduction to be any consecutive 90-day period (whether or not it crosses fiscal years), but I haven’t seen that correction yet.
The earlier retirement only applies to the Reserve pension and not to Tricare. Tricare starts at age 60 regardless of the start date of the Reserve pension.
Great feedback, Kevin, and thanks for the help! I’m taking notes here…
Thanks, Gus, great question.
The DFAS website says “The SBP election you make at the time of your retirement is very difficult to change” and “Please note that this window is an exit only, not an entrance, meaning that it applies only to withdrawing from an unwanted election and does not allow retirees to begin an election that they had earlier declined.”
See their information (and contact numbers) at http://www.dfas.mil/retiredmilitary/provide/sbp/change.html
My interpretation of their wording is that between months 25 and 36 of retirement (in your case, Nov 2015-Oct 2016) you’d be able to cancel your SBP. However I don’t see any provision that would allow you to reduce it.
It’s remotely possible that DFAS would later have an open-season window to allow canceling or reducing benefits. However those have only happened four times since the 1970s, and the last time was 2005. I wouldn’t count on it happening again in my lifetime, and certainly not at a convenient time.
However it’s worth your time to contact DFAS now and explain the situation to see whether there’s a waiver or other provision for financial issues.
Note that if the beneficiary is still alive and married to you then reducing or canceling your SBP is their decision, not yours.
Thanks, Kevin, great questions.
The age-55-withdrawal provision is part of the federal tax code for 401(k)s, but that provision also has to be part of the custodian’s plan. Most civilian corporations offer that feature in their 401(k) plans, but not all of them. The military TSP does not offer an age-55 withdrawal option. I’m not an expert on the civil-service TSP, but I haven’t heard of that option there either.
The TSP also does not offer the option of rolling a military account over into a civilian account. Again that law is in the 401(k) tax code too, but that feature is not offered by the TSP.
The best way to tap your TSP accounts before age 59.5, both military and civil service, is the rollover/conversion methods that I’ve outlined in the post. Otherwise the TSP will issue a 1099-R with the codes that will trigger the IRS income taxes and penalties.
You’re welcome, Judy! I hope that I’ve experienced enough in this area…
Peter, those may be the statistics now, but they’re changing. I was surprised to see how much of today’s LTC sales info is based on 25-year-old numbers. I suspect that your facts are aging badly, too.
The industry got the premiums they asked for. I just wish they’d done a better job of estimating their expenses and not competed for market share by charging less. I want an insurance company to make a reasonable profit from my premiums, or else they’ll go out of business and not help me when I need it.
I sure hope other companies step up in an ACA exchange. We need a more liquid market for long-term care insurance even if not everyone wants to buy it.
Thanks, Kate, it’s a tough decision ,and at least you guys are talking about it now. I strongly recommend the book “When The Time Comes” along with Paula Span’s “New Old Age” blog on the NYT.
I’d like to buy a policy that’s financially sound from an insurer who I trust to effectively manage the funds. Unfortunately that product does not seem to exist yet.
Good question, Todd!
You’ll have to earn a total of at least 20 good years in order to be eligible to retire from the Reserves or National Guard.
You’ll get a good year when you earn 50 points (or whatever minimum your service requires that year), but you’ll also have to perform sufficient drills and remain current on your readiness for mobilization: medical, dental, physical fitness, and online training.
Your active-duty service counts toward good years. If you review your point count summary online, you’ll probably see a good year for every year of active duty plus another good year for your Army Reserve time. If that’s the case then you only have 14 good years remaining until you’re eligible for retirement. Your active-duty time also accrues a point for each day, so you probably received over 1800 points for those five years.
Thanks, Mike, and those are good points.
I think John Hancock is becoming the dominant corporation in long-term care insurance.
Thanks, Rob, and– ouch. That’s a topic for a whole ‘nother post.
I can’t predict your share of your ex-spouse’s pension, and I’m not sure that anyone can give you a precise number. However I can suggest some issues for you to discuss with your lawyer.
The Uniformed Services Former Spouse Protection Act only says that military pensions and benefits can be divided as part of a divorce. The federal law doesn’t specify how to divide the asset, only that it can be divided. The state’s divorce laws and your divorce decree will lay out the details.
If your share is 1051 points, then that’s 1051 / 360 * 2.5% = 7.3% of the High-Three base pay of an E-7. If that pension started tomorrow, then it would be the average of the three highest years of the E-7 pay table, which (in today’s dollars) is about 97% of $4946.70/month. Your share would be 7.3% x 97% x $4946.70 = $350/month in today’s dollars. But you won’t see that amount until your ex-spouse turns age 60, and it might be quite a bit less.
One issue is that the Reserve pension starts at age 60, and it’s based on the pay tables in effect for the three years before your ex-spouse turns age 60. It’s also at the longevity he would gain in the E-7 pay tables as if he’d been on active duty up until age 60, which is usually the maximum pay column at the E-7 rank. Nobody knows what the pay tables will be until your ex-spouse is nearly 60 years old, but 97% of $4946.70/month (today’s dollars) is the best estimate you’ll get.
However that pension amount is reduced by another factor: veteran’s disability. That’s discussed in detail in this post: http://the-military-guide.com/2013/05/06/military-retirement-and-divorce/ If he’s rated at less than 50% disabled then his VA disability compensation will reduce the amount of his pension, which will reduce the “disposable retired pay” that’s split by your divorce decree. Some divorce decrees (the ones drawn up by smart divorce lawyers with military experience) include a provision that the ex-spouse has to make up the difference, but some decrees do not.
$350/month (in today’s dollars) is about the maximum you could expect, and you’d start to receive it when your ex-spouse turned age 60. However the amount could be considerably less than that. I recommend that you have a divorce lawyer (one who understands military divorce and pensions) review your divorce decree. You could refer to the links in these two posts to consult the pension calculation methods and the pay tables to develop an estimate.
Mark, I’m having a little trouble sorting out your terminology, but I’ll give it a shot and you let me know if I’m interpreting it correctly.
It sounds as though you’re in the Reserves now, with 3500 points on your record and credit for 18 good years. All of your five years of active duty for training and your two years of deployments should already be included in that 3500 points. You can verify that by going to your service’s online record of your good years and your point count.
I’m not sure what type of duty your AGR position may be, but whether it’s mobilization or some other form of active duty for training then you’ll get one point for each day of duty. (If the orders are for more than 29 days then other benefits kick in, like Tricare.) For every year that you achieve 50 points (or your service’s requirements for that year) and meet all of the other readiness requirements, you’ll get another good year of Reserve credit.
When you reach 20 good years then you’re eligible for a Reserve (“non-regular”) pension. If you’re on active duty every day of the next two years, then at the end of that time you’ll have earned another 731 points and you’ll have 20 good years. Your point total would be 4231 and your pension would be 4231 / 360 * 2.5% = 29.38% of the High-Three average of the base pay for your rank and your longevity of the pay tables in effect when your pension starts.
Depending on the dates and locations of your deployment, your pension may start before age 60. (See the last paragraph of the post.) If you think this may apply to you then you could e-mail me the dates of your deployments and we could confirm all of the details. However first I think you’ll want to check your online records to make sure the good years and point count are accurate.
Thanks, Flex, I had a good time learning from everybody!
I’m sorry for the botched surgery. I strongly recommend seeing a JAG or a civilian lawyer about filing under the Federal Tort Claims Act.
If your surgeon is still not listening then you may want to see a Tricare ombudsman/patient advocate about a referral to a new orthopedic surgeon.
For anyone else contemplating arthroscopic knee surgery, it’s worth reading about these small studies: http://www.ncbi.nlm.nih.gov/pmc/articles/PMC3183924/ and http://www.ncbi.nlm.nih.gov/pmc/articles/PMC3183924/table/T1/ and considering physical therapy first. I’ve used it to stabilize my knees despite two torn ACLs and moderate meniscus damage. But every situation is different and I’m not a medical professional, so please do your own research.
I’m sorry about the hell, Sylvia, but it looks like you’re making progress.
Here’s a link to the basics of a TSP loan:
The TSP account belongs to the servicemember, and they could take a loan out on their own without anyone else’s permission. (It’s the same rules if they’re a DoD civil-service employee too.) The TSP account would only be divided between you if it was specifically mentioned in the divorce decree. If he took out the loan after divorce proceedings began, and if the TSP account was divided by the decree, then he would be liable for moving assets without the court’s permission. You’d be able to file a motion for recovery of your share of the TSP.
I don’t see how you’d be responsible for repaying a TSP loan. He could have taken out the loan without your signature, and I don’t think he could have added a co-signer.
You might be able to ask a court clerk to help you petition the court to enforce the divorce decree. If the court doesn’t do that then they should be able to refer you to a legal aid group that would provide free assistance. If you still have access to a military base then I’d also consult with their Legal Service Office.
I hope this works out better. Please keep us posted.
Thanks for the comment, and that’s exactly the problem the Army needs to resolve.
The Army’s legal distinction is that you’re being forced to separate, but you’re requesting retirement. Even though the request is being forced by the separation, it’s still a request made before reaching eight years of commissioned service. Legal, but not ethical.
The presentation slides in the followup post (http://the-military-guide.com/2014/08/05/leaked-statistics-army-officer-separation-board/) say that this issue is “under review” by the Army. Some officers have been allowed to request an extension to reach their eight years of commissioned service, and others are pushing for a similar extension or waiver. Congress will only get involved through Congressional inquiry letters submitted by Army officers, and possibly by public testimony through one of the Armed Services Committees.
Thanks for your comment, Fred!
There’s a constant discussion about opening membership to the types of clients who will offer the best value to all of the members. While USAA’s policy may be disappointing to elders of current members, USAA is also trying to improve its financial performance for the current members. Current member statistics show that Millennials offer the best financial performance in both the products & services that they buy as well as in the credit that they’re offered. USAA may someday change the member policy if faster growth seems like the right choice for the current membership.
We’re getting into the weeds on the FAA rules, but an alert USAA public relations exec sent me an update. Companies (including USAA) have obtained permission for environmental research and drone testing under the FAA’s guidelines. USAA’s team has worked with the FAA’s unmanned aircraft testing sites and universities for several years, and they had FAA permission for this research project as part of those groups. USAA is also planning to do more on their San Antonio campus and “private rural unpopulated” land around SA. Here’s a link to one of the press releases:
One of the FAA test sites is in Hawaii, and we’ve seen several demonstrations of the value of quadcopters and other unmanned aircraft in surveying damage sites after hurricanes. I think the FAA will appreciate the public benefit of more unmanned overflights of disaster areas. I’ll appreciate the faster disaster relief– as well as the lower cost of assessing the damage and processing the claim.
Norm, if I understand your comment correctly, the Tricare For Life insurance program serves as your Medicare supplemental insurance.
The Affordable Care Act explicitly says that Tricare serves as your essential coverage.
Best of all, you do not pay a fee for TFL.
First, congratulations on your persistence in getting back into the Navy. I’ve seen too many servicemembers simply give up and leave.
The admiral is delivering bad news from SECDEF: sanctuary has been DoD policy for over a decade. The only way for a Reservist to achieve sanctuary (and eligibility for an active-duty pension) is for the Navy to approve mobilizing those with special skills. The reason is because it costs the service a lot of money. Although DoD pays military pensions from DoD funds, the active-duty pensions of Reservists who reach sanctuary have to be paid by the individual services out of their own personnel funds. It’s literally a million-dollar decision and BUPERS does not delegate the authority.
As you’ve seen, the only way that you’d reach sanctuary and qualify for an active-duty pension would be for BUPERS to approve another mobilization. You’d have to find a medical command (or a Marine general) who would request you by name and receive BUPERS approval. The process is described in OPNAVINST 1001.27. It’s possible that you could get assigned to the Navy’s latest medical mission, but personally I think it’s unlikely.
When I say “personally”, I’m referring to my spouse. Over a decade ago she was in the same situation as you. Although her commands could not persuade BUPERS to mobilize her in sanctuary, she continued to earn Reserve good years (for over seven years) and she earned her Reserve retirement. She did not get a sanctuary retirement, but her Reserve pension starts at age 60.
You can continue to drill as a Reservist until you reach high-year tenure. Although the Navy will limit your active duty, you can still complete orders for training. OPNAVINST 1001.27 authorizes drill weekends and annual training as well as up to 29 days of ADT per fiscal year. This allows you to continue earning good years until you either reach high-year tenure or Reserve retirement eligibility.
Before you apply for Reserve retirement (“retired awaiting pay” or “gray area” status), review your records to make sure that you’ll have at least 20 good years. If you want to continue to earn points, then talk to your support center to figure out what types of duty you can accomplish. Even if you have to stop drilling for pay, you could still complete some correspondence courses or other duties for points that will help boost your pension.
You can find the latest version of OPNAVINST 1001.27 at this site:
Thanks again for your comment, and please keep me posted. If you have more questions then you can e-mail the details to me at NordsNords at Gmail, and we’ll figure out the options.
Great idea, Fred– it’s on the list!
On the term insurance question, one factor would how much you’d save on the premiums. Another issue is insurability, including pre-existing health conditions (if any) and medical exams or underwriting.
Good point, Peter, as far as I know the concept of a “veteran’s ID card” is up to the states– and not every state has one.
Thanks, Kate, and I appreciate the link from Paycheck Chronicles too!
Thanks, see you in the hotel lobby on Tuesday afternoon 4 Nov!
Thanks, Jan, that’s a disappointing mortgage experience. I’ve added your question to the list and I’ll especially point out the VA eligibility letter issue.
Good comments, Peter, I’ll add them to the list.
One general answer is that USAA emphasizes consolidated assets and extra customer service. If members are asking for help with asset management and banking then USAA will try to meet that request. However they’re not always the biggest, best, nor cheapest in that area– but consolidated, convenient, and with member service reps who understand their active-duty customers.
Heh. “Mike”, I’ve heard that rumor too– I’ll have to get back to you after I do more research…
Thanks, Kate, I’m taking notes and I’ll work through the list!
Thanks for your comment, CB, and I’m sorry the Navy has reverted to such a narrow interpretation of a 50-year-old law.
I’ve e-mailed your comment to Ford, and I hope we’ll hear from him soon.
Good point, Peter. I think schools are one of a number of factors in the base housing decision.
Your information about Hawaii public schools is controversial and generally regarded as incorrect. The national standardized tests don’t take into account Hawaii’s multicultural and multilingual students. Hawaiian ancestry has no correlation with school performance, although at least one private school (Kamehameha) offers free tuition to students of Hawaiian ancestry.
Our daughter attended Hawaii public schools from kindergarten through graduation and was accepted at several top-ten universities as well as the U.S. Naval Academy. (She chose Rice University.) Personally I think the most important factors in a child’s school performance are the parents, and perhaps the commuting distance, but I may be biased…
The annuity stream for all military pensions lasts until death. It’s the world’s best longevity insurance.
According to the latest DoD Office of the Actuary annual report (http://actuary.defense.gov/Portals/15/Documents/MRS_StatRpt_2013_July.pdf) in 2013 there were over 1.9 million retirees. Over 33,000 of them are at least 90 years old, and 274 of them are over 100 years old.
Survivor benefits also last until the survivor’s death. In fact, according to a recent Wall Street Journal article, the federal government is still paying benefits to the daughter of a Civil War veteran.
Thanks, Peter– good advice!
A lot of driver stories are starting to roll in on my e-mail and social media– I think USAA and the military have a huge educational project on their hands.
I’ve heard from OEF/OIF veterans that during their first few months at home they’re alarmed by erratic drivers and loud road noises. That would be a problem in these islands, and probably just about anywhere in the U.S.
I’m sorry to hear that, Karina. I hope the Army is continuing their review of the retirement rank for officers who are short of the eight-year point, but until that word is announced your spouse should put in a formal request to stay on active duty until his eight-year date.
That’s a tough question to answer, Tamla, especially because it was so long ago. If your Dad was in a state’s National Guard (not the federal Department of Defense’s Reserves) then his state benefits might be different too.
Many of my readers who are adult children of elderly veterans are seeking information on the VA’s Aid & Attendance program:
For a more complete list of benefits, I’d start with the Military.com benefits calculator. Its database goes all the way back to the 1950s:
Finally, here’s a list of the current benefits offered by state veteran’s service offices. I recommend that you contact your state VSO directly, or a local chapter of a veteran’s organization like the American Legion or the Disabled American Veterans, to see what other local benefits might not have made this list:
Good comment, Peter.
For the vast majority of military retirees, however, SBP provides peace of mind at an unbeatable price. Many military spouses have given up an entire career’s worth of earnings for the sake of their servicemember’s military career, and SBP is a good way to compensate for their retirement longevity risk. Over half of the premium is subsidized by the federal government, and as usual the inflation factor is more significant than the payout.
I’d love to see level term policies with the same features, but I suspect that not even USAA could replicate SBP’s cost-of-living adjustment at the same premium.
Thanks, Deserat, I think you have a handle on it!
I’ve learned that “financial independence” is a much better description than “retirement”. For example one of the founders of the “Retiree Next Door” sponsor company is definitely financially independent but does not feel the need to retire. He enjoys starting companies and will probably keep doing so as long as he’s able to.
New Orleans food was excellent! I highly recommend Huck Finn on the edge of the French Quarter. Most of my time was spent indoors with the FinCon crowd eating the hotel food, though, so the company was much more memorable than the dining.
Thanks for your comment, Carly. Life insurance is a highly individual decision, but everyone has to feel comfortable with the risk.
You’re welcome, Brandi; you asked a great question!
Your AF Reserve plan sounds good, especially with $12K/year language pay! Another rockstar FinCon blogger entrepreneur (and ANG servicemember) recommends it too– he went cold-turkey civilian after the AF and found out that he missed the camaraderie (and the benefits). ANG was the answer.
Absolutely take Monterey if you can get it. Best duty station ever, and lots more fun when you’re not “just” a student.
I think the COLA is the most important feature of the military pension. I think it also delivers more income to retirees than a federal tax break. Besides all retirees will eventually face the CPI-COLA issue when they start drawing Social Security.
I don’t know enough about the federal employee retired healthcare system to make a choice, but I have few complaints with Tricare Prime’s choice of civilian doctors. Perhaps the difference would largely disappear when both sets of retirees would move to Medicare.
You’re welcome– you do good work!
Good comments on the problems with long-term care insurance, Peter– I think it’s still at least 5-10 years away from dealing with the earlier flawed financial models.
As for the VA claim, it’s better to have it done sooner rather than during the health crisis.
Thanks, Peter– good comments on human capital!
Good to hear from you Tom, and you’d enjoy the FinCon experience!
I think the most useful way to view a military pension is as the income stream from I bonds. (It’s a flawed analogy but it covers the COLA component of the pension.) Another option would be to get a quote on an inflation-adjusted annuity from the TSP website or from Vanguard. The point of this research would be to adjust your portfolio’s overall asset allocation– if your income is heavily tilted towards bonds and annuities then the rest of your investments can be allocated to equities, rental real estate, some cash in money markets/CDs, and other assets.
Our retirement needs start with our spending budget (including taxes). We subtract our pension income from those expenses and then expect to cover the rest with our other assets. A bit more of our expenses are handled by a conservative estimate of net rental property income. Remaining expenses are covered by portfolio withdrawals– including interest, dividends, and share sales (with capital gains). The result is that our withdrawal rate is only based on the amount of money taken from our investment portfolio, although our actual retirement spending is higher. When Social Security kicks in (ideally when I turn 70) then our portfolio withdrawals (and our withdrawal rate) will probably drop.
The advantage of a pension with a COLA is the reasonable assumption that your expenses and your pension will both be equally affected by inflation. The reality is that inflation has not noticeably changed our spending because of other variables like travel, entertainment, “upgrading” to fuel-efficient cars plus less driving, and launching our daughter from the nest.
I favor the 4% SWR, and Bob Clyatt’s 5%/95% spending plan works well too. We just use those as tripwires and try to keep our long-term average spending within those limits, so we don’t worry about a lump-sum expense putting us over the limit every few years.
Calculators are getting better. Bogleheads.org has a huge list at their wiki but my favorites are cFIREsim, the venerable FIRECalc, and USAA’s easy-to-use planner. For those who really want to tweak all the parameters, a short-term paid subscription to Financial Engines can give an extremely detailed look at retirement spending.
Great question, and a very frequent one on this site!
Taks a look at this post:
It walks you through the process so that you can see where the numbers come from. Make sure that you’re getting credit for your good years, and let me know if any of your data seems missing.
Thanks, Ford– good information!
Good points, Joel. The key is to try and predict where you can pay the least taxes, and the Roth TSP is usually the best answer for most servicemembers. It’s also the least hassle down the road when RMDs rear their ugly head.
In your case, when you’re financially independent and no longer working for a paycheck, your income bracket will drop down into the 10%-15% range. That’s the time for you to consider rolling over some of your TSP to a conventional IRA and converting that to a Roth, a little each year up to the top of the 10%-15% tax bracket. That way you’ll avoid RMDs and pay lower taxes in your 70s.
Good question, JP!
I use the WordPress default subscriber list, but there are plenty of other options. I tried FeedBurner when I had BlogCrafted move the blog to Bluehost, but I had trouble configuring FB and I ended up removing it. Today I’d probably go with MailChimp or AWeber.
I think that an e-mail list is essential for marketing products. On the other hand the book sales are doing fine without it, and I’m reluctant to add a newsletter to my “To Do” list. Maybe I’ll change that decision after I finish writing the next book… or maybe I’ll spend more time surfing!
Thanks, Rob. Like Kate, I’m curious what documents the reversion to enlisted rank if you were forced to retire before eight years. Can you refer me to an acknowledgment you signed when you were commissioned, or an instruction?
I’m trying to help those who were forced to retire before reaching the eight-year minimum, and part of that help is checking the laws. I can understand reverting to an enlisted rank if the servicemember requested retirement before reaching eight years of commissioned service, but I’d like to know what the law says (if anything) about being forced to retire before reaching the minimum years of commissioned service.
Thanks, Major, a lot of the content comes from reader questions and comments like yours!
Thanks, Deserat, that Reserve chapter is one of the best parts of the book!
As we know, the books don’t write themselves. I’ll take contributions from everyone who wants to share their advice & stories on having funds to bridge the gap between retirement and age 59.5.
Thanks, Deserat! I enjoyed writing this one…
I expected this post to generate a few comments!
I saw this situation as having the guts to ask the questions that many more readers are reluctant to ask. It’s a very good review of the book, and he had the consideration to e-mail me directly instead of anonymously posting it to Amazon.com.
I also think bloggers should be willing to share the criticism of their works as well as the glowing reviews. You’d rather read it here first than on Amazon…
My submarine shipmates will appreciate that I’ve grown a very thick skin courtesy of the Navy’s Nuclear Propulsion Examining Board, which personally inspects every aspect of the Engineering Department’s training & operations. (I mean “personally” as in “the manner with which a proctologist performs a colonoscopy”.) In this case, my submarine experience also translates well to blogging and posting on Internet forums…
As for doing our own financial calculations, it’s always good to have someone check that work (in addition to a skeptical spouse) before making a life-impacting decision.
Let me know how the Q&A goes so that we can post the link!
Thanks, Ryan, it’s a great morale booster– and I have enough post topics to last the rest of 2014!
Thanks, Lee, and I’m looking forward to it!
Serg, here’s a more detailed answer (with dollar figures) at this post:
Congratulations, Serg, it looks like you’re already eligible for a Reserve retirement!
Please check the requirements at this link:
and make sure you have your Reserve Notice of Eligibility letter (confirming 20 good years) as well as an accurate Reserve point count. The Navy Reserve may not have tracked your active-duty Army time, and you may need to update their records to obtain your NOE.
If you received your first military ID card before 8 September 1980 (Navy Reserve) then your retirement system may be Final Pay. It depends on what was entered as your Date of Initial Entry on Military Service:
If your first military ID was issued after 7 September 1980 then your retirement pay base will be High Three.
Then check your service’s TERA message. If you’re passed over you may still have to apply for TERA, and there’s no guarantee that you’ll be accepted. If you meet the TERA criteria then calculate your pension using the FMR TERA tables at this link:
and consider the issues at this link:
Next, calculate your Reserve pension (assuming it starts at age 60 as an O-3) and compare it to your TERA pension. Your TERA pension may start at a smaller number but it will have an eight-year head start on your Reserve pension. I feel that the most important factor in either pension is its COLA, and your TERA pension may grow at an annual rate of 1%-2%. By the time you’re 60 years old, the COLA could make your TERA pension higher than your Reserve pension.
Finally, talk to a military lawyer who’s familiar with Title X U.S. Code for military retirement law. You want to make sure that your retirement occurs as an O-3. It’s also possible (but doubtful) that your deployments after 28 January 2008 may make you eligible to start a Reserve retirement earlier than age 60. You need solid legal advice on both of these criteria before you can count on the numbers. The Army has retired at least one other servicemember as an enlisted, despite their service at a commissioned rank, and you want to verify that your retirement references the appropriate sections of federal law.
Let me know if you want any help with the numbers, and please tell us how your selection board goes!
I think those are the right priorities, but everyone’s family is different and it’s a highly individual decision.
The surf has been small for the last couple weeks, so I had the time– and in this case it was worth it!
You’re correct on line-of-duty determinations. Even if the member was doing something dumb (perhaps related to fatigue or judgment or alcohol) there’s still the benefit of the doubt. DoD wants to avoid the perception of punishing the families for a servicemember’s mistake.
The deceased servicemember’s Survivor Benefits Plan (different from the military retiree SBP) is based on years of service and assumes a retirement at 100% disability. Here’s the applicable paragraph from the DoD Survivor’s Guide (page 11) at
“Surviving spouses and/or children of service members who die in the line of duty while on active duty may be entitled to Survivor Benefit Plan (SBP) payments. Your casualty assistance officer will schedule a meeting with a retirement services officer who is an experienced counselor and can provide information about survivor benefits and help you with the applications. SBP payments are equal to 55 percent of what a member’s retirement pay would have been had he or she been retired at 100 percent disability.”
The Chapter 61 disability retirement calculation is similar to a High-Three retirement: (High-Three pay base) x (disability %). However in this situation the % appears to be limited to 75% by law: http://militarypay.defense.gov/retirement/disability.html
I’m weak on disability retirements, and I’m going to check on that 75%/100% contradiction, but this implies that the SBP payment would be (High-Three pay base)x75%x55%, or about 35%-40% of base pay. The survivors of an E-6>10 earning $3331.50/month base pay would receive roughly $1325/month or under $16K/year. For a junior servicemember the SBP amount could be even smaller (and still subject to income tax) when compared to the income that could be generated by a $400K SGLI insurance settlement. Of course the survivors are still eligible for Dependent’s Indemnity Compensation, months of medical benefits, base/commissary/exchange access, and other compensation.
If this small SBP payment (and other benefits) would cover your survivor expenses then yes, you could cancel SGLI. The SGLI premiums (now 7 cents per $1000, plus the $1/month for TSGLI) are as much as $29 per month per servicemember. However there’s still the sleep-at-night comfort that comes from having another $400K of life insurance at a very affordable rate of less than $350/year. If your premiums are reimbursed for deployments then you’re only saving ~$175/year per person. You’re perhaps very close to financial independence (congratulations!) and I realize that (unlike most people) you’ll save/invest any SGLI premiums that you’re not paying– but you have to decide whether saving that relatively small amount is worth self-insuring for this risk.
Considering the grief and disruption that’s caused by a servicemember’s death, I think it’s worth keeping the SGLI until military service is over. Even then it may be worth keeping life insurance (VGLI or some other term policy) until the insured is completely finished earning a paycheck. Finally, military retirees may still want to use some amount of SBP or term insurance to benefit a surviving spouse (or a kid’s college fund) until you have the financial independence to self-insure for those as well. In general, if the annual cost of insurance is close to a family’s budget for a month of entertainment expenses, then in my opinion it’s probably worth keeping the insurance. However this appears to be a judgment call.
Thanks again for another outstanding and thought-provoking question. You and I may both have parts of the “right” answer and this could be a perpetual debate (like whether to pay off a mortgage). I’m going to run it by a couple of CFPs and turn it into a separate blog post.
Thanks, Mel, that’s a very useful analysis! You’ve neatly insured against your mortgage liability, and your longevity is already covered by your pensions.
That’s a great mortgage interest rate. I’d hold on to that debt, too– and these days you can practically beat its interest rate with CDs.
I think the biggest advantage of the SGLI–>VGLI conversion is being able to skip the medical exam and the underwriting, especially for veterans with possible medical issues or high-risk hobbies.
That’s correct, Jeff. The federal law says “as though the servicemember had been on active duty the entire time” until their pension starts. Reserve/Guard officers (commissioned at age 21 or older) would never reach the 40-year column. Some Reserve/Guard with combat deployments after 27 Jan 2008 are also eligible to start their pensions a little earlier than age 60. Not many would actually use the 40-year column on the pay tables.
As of the 2014 pay tables, the only ranks that see pay raises after 30 years are E-9s, W-5s, and O-8->10. However O-6s and E-8s now see pay raises at 30 years, and their pay used to top out at 26 years.
Any column between 30-40 years will give the correct result for the vast majority of Reserve/Guard retirees. I’ve corrected my answer to George to reflect the actual numbers.
Thanks for your feedback! We have to educate an entire generation of Reserve/Guard members who entered “retired awaiting pay” status before the pay tables extended out to 40 years.
I think many of the military mutual-aid associations will have lower rates than USAA, VGLI, and FEGLI. The key is verifying whether or not a medical exam and underwriting will be required, and VLGI helps avoid concerns about pre-existing conditions or anomalies on earlier physicals.
Thanks for the comment, Tim!
In a perfect world every servicemember would stay free of consumer debt, maximize their contributions to their TSP and their Roth IRA, save up to 40% of their remaining income in taxable retirement funds, and then set aside even more money for their emergency fund in a high-yield savings account.
For every other servicemember (and their families), I think a small emergency fund is perfectly acceptable. Making the emergency fund part of a Roth IRA is a great compromise if a servicemember would otherwise have to skimp on their Roth IRA contributions to build their emergency fund. If there’s no emergency, then the money compounds in the Roth IRA. That’s far better than having no emergency while the money fights a losing battle to inflation in a savings account. If there is an emergency, then the money is pulled from the Roth IRA and the end result is the same as never having made the contribution and pulling the funds from the emergency account. Having to pull funds out of a Roth IRA might even help some people think real hard about what they consider an emergency, and keeping the cash out of an easily-accessible liquid account may help others avoid temptation.
I would hope that the military is getting better about advance travel pay for “temporary cost surges”. Servicemembers could also draw interest-free advance pay for a transfer to a new duty station, but even an emergent PCS is hardly an emergency. A family would have time to temporarily cut expenses to pile up cash for the extra costs of the transfer.
I think USAA is more interested in competing on their reputation for trust and the convenience of consolidated accounts– not so much on price (which would be subsidized by members). If it’s any consolation, USAA learned their lesson after the 2011 government shutdown. In Feb 2014 they were ready to step in and cover pay for military members.
I’ve heard that all financial institutions are facing rising compliance costs, which accounts for the changes to USAA’s debit card policies and mortgage rates. They’re forcing many financial products to stand on their own instead of being subsidized by members who don’t use them.
I appreciate you pointing out the issues– I’ll add them to my list, and I discuss that every few months with one of their staff. I’ll keep everyone posted on what I hear.
I still love the base Lemon Lots!
Auto Circle works great, too, and can avoid a lot of issues with titles or undisclosed damage…
LT, you are absolutely right. That slipped by my editing– thanks for keeping me on point!
I want to make sure that servicemembers contribute as much as they possibly can to the TSP, right up until the point that they need to save up cash for their transition. But as you’ve noted, they should keep contributing to their Roth IRAs. If they need to retrieve their contributions, then they can take them back. If they don’t need the funds for their transition, then they’re already invested.
Dexter, here’s the info that James publishes at the end of the RAO Bulletin:
Lt. James “EMO” Tichacek, USN (Ret)
Editor/Publisher RAO Bulletin
RAO Baguio, PSC 517 Box RCB, FPO AP 96517
Tel: (951) 238-1246 in U.S. or Cell: 0915-361-3503 in the Philippines.
Bulletin Web Access: http://www.nhc-ul.com/rao.html, http://www.veteransresources.org, or http://frabr245.org
Office: Red Lion, 92 Glen Luna, cnr Leonard Rd & Brent Rd. Baguio City 2400 RP
TUE & THUR 09-1100
I’ve never been there, so I hope this helps!
That’s absolutely right, Gail, the pension is paid as a 30-day month. You’ll get the same payment each month for the calendar year.
The new calendar year’s first payment is boosted by its cost of living adjustment– which continues at the new level for the rest of the year until the following year’s COLA. Over my 12 years of retirement, the COLA has raised my pension by a total of 27%.
It looks as though you’ve already taken charge of your career and your financial independence. From here on it all depends on your savings rate and compounding time.
Anyone who has the guts to tackle a PhD thesis will also have no trouble being responsible for their own entertainment after they retire…
Thanks, Mike, she’s earning her sea pay now! She’s going to have to watch the next couple games from Rota or during a Mediterranean deployment.
I agree that the commutes can turn into a marathon. Apparently military families feel that it’s less important than the other criteria.
On the positive side, San Diego is the most bicycle-friendly city I’ve ever been stationed in.
Thanks, Mel! Hopefully your change to Tricare Prime is seamless, and there maybe there won’t be a switch of Tricare contractors for a few years.
You’re absolutely right about service academy cadets/midshipman: Army, Navy, & Air Force have Tricare. (I’m not sure about USCGA and the Merchant Marine.) Our daughter had to learn a lot more about Tricare management (and referrals) than a college student really wants to know (or cares to discuss with her parents). This was one of those college parent situations where us parents being service academy grads was a drawback…
Thanks, Andrea Peck did a great interview and Marco Garcia spent over four hours on the photo session!
Despite the rumors, that’s not our backyard. It’s not even my shirt… After taking photos all around our property, we drove up to Haleiwa Ali’i Beach Park for surfing pictures. Along the way we pulled off Kamehameha Hwy in one of the cane fields just past Wahiawa looking down on Haleiwa. I’m standing on the berm gazing upon the traffic crawling up the hill.
I’m going to see if Marco’s interested in selling/licensing more of the shoot for the blog and my social media accounts– and our family photo album.
Good points, Mel, it’s certainly easier if the parents make their wishes known to all the adult children at a family meeting or in a letter. But at least your spouse’s siblings seem willing to work with her, and it’s even better if she’s kept in the loop with the lawyer and the legal planning.
If it helps, feel free to forward this post to your in-laws… or print it out and send it along for a meeting.
Looking back on my Dad’s conservator/guardian filings, we should have contacted “his” lawyer. But Dad hadn’t spoken with that lawyer in over 20 years, the lawyer was 25 miles outside of Denver, and we already had a lawyer recommended by a geriatric care manager. By the time we realized the GCM’s lawyer wasn’t doing a good job, we felt we could still push through the process. In retrospect I should have hired Dad’s lawyer or asked him for a referral.
You’re welcome, Kate, and you’ll get plenty of practice at it!
Sorry to hear that, Oleditor. I think executor is far harder than conservator or guardian, especially when there are siblings & other relatives involved in the estate.
My Dad had the foresight to set up his accounts with the designations “payable on death” or “transfer on death”, so that sidesteps much of the probate process. (Conservators aren’t allowed to change these designations.) Every time my brother and I talk with Dad he asks if we “boys” have enough money, and he’s tremendously relieved to hear us reassure him that he did a good job…
Thanks, Alexandra, that was inspired by a conversation with Valerie.
My Dad’s the happiest he’s ever been, but Alzheimer’s takes its heaviest toll on the caregivers. Support groups (and care facilities) are absolutely essential.
I think the medical & financial industries started out with good intentions, but it’s being taken to extremes. It’s also intimidating and discouraging.
Absolutely, Oscar. That’s an in-service withdrawal and is explained at this link to the TSP website:
There are a couple of conditions and requirements, so check the link to make sure that you still qualify.
Keep in mind that your withdrawal are subject to mandatory income-tax withholding, so you may need to pull out $6250 to have $5000 in your hands after the 20% withholding.
Good points, Ryan– and I don’t think I’ll ever be mature or responsible enough to take care of a Corvette!
Thanks, James, that sounds like the right choice!
Thanks, Valerie, I’m sorry to say that’s an essential reason to have an emergency fund.
A family death is hard enough without debt adding to the stress.
Thanks, Ryan! I just hope we can help others avoid these pitfalls…
Thanks, Mel, I haven’t been on the CPF Barge in years! Glad to know it’s still available.
I appreciate the info on Lanikai, too. I haven’t spent much time up there– too many good beaches on the island…
My thoughts may have been edited before publication, but UHC and Tricare only heard my most professional manners. After all, I’m retired and I have the time to do this all day. They have to go without coffee or bathroom breaks until they finish answering my questions…
Thanks, Louise, we think it’s paradise too!
You’re welcome, Louise, it’s consistently one of the most popular posts on the blog!
Great point, Grunhead, and I’m sorry for the confusion. The spreadsheet formula is correct. You’re asking the right questions, but the data for that question goes in a different cell.
The “quick&dirty” assumption is that your retirement spending is going to resemble your spending during your working years. (This is surprisingly accurate for most retirees.) When you entered 0.02 in the SWR cell 4, the spreadsheet assumed that you were still keeping your spending constant because you left the same number in Expenses cell 3. However because your percentage withdrawals dropped by a factor of two while holding the spending constant, that meant that you had to double the size of the portfolio. By setting your SWR at 2% instead of 4% you wanted to be twice as safe with the same expenses, so your total investment portfolio had to be twice as big.
The “Years to Retirement” cell only went from 12.4 years to 20.1 years (instead of doubling to 24.8 years) because the extra 7.7 years added a lot of compounding to the original amount saved during the first 12 years.
Try entering 0.02 for SWR (as you’ve already done) but then enter half as much for the expenses in cell 3. (If you left it at 0.4 then reduce it to 0.2.) That tells the spreadsheet you’re significantly reducing your retirement spending (to half as much as your working years) and you want your SWR to be twice as conservative (2% instead of 4%). You’ll get the same 12.4 years to retirement.
Conclusion: if you want to be extremely conservative in retirement with a 2% SWR instead of a 4% SWR, you’re going to need twice the savings– and you have to work longer for it. If you follow the 4% SWR but reduce your expenses (to say 0.3 or even 0.2 instead of 0.4) then you’ll get to retirement faster.
The 4% rule works for 95% of retirements. If you’re trying to avoid the 5% failures then a military pension (with its annual cost of living increase) will probably protect you. (That’s been shown for fixed annuities.) If you don’t have a military pension then you can augment your Social Security with a single-premium immediate annuity, or a 4%/95% spending plan like Bob Clyatt’s “Work Less, Live More”, or by varying your retirement spending. Reducing the SWR is certainly more conservative, but as you’ve shown it greatly prolongs your working years.
… or at least it won’t be my problem!
Ironic followup: UHC just sent me a letter (in the postal mail, not a website message or an e-mail) extolling the virtues of having my Tricare premiums deducted by DFAS from my pension. All I have to do is complete the enrollment form and mail it back…
Sounds like a great plan.
You could always hope to be continued on active duty as an O-4 until you reach 20 years of service (and an active-duty retirement). However you would have very little assignment flexibility and you might end up in hard-fill billets or unaccompanied tours of arduous duty. (I speak from personal experience.) It’s even possible that the drawdown would result in your involuntary separation that could also prevent you from joining the ANG.
If you leave active duty for the ANG before your next O-5 selection board, then you have a chance of selecting for O-5 in the ANG or (at the very least) being continued to 20 years of service as an O-4 (and an ANG retirement). There’s no guarantees here either, so you need to start talking to the ANG recruiter right now.
You’d have to compare the math on the two retirements. They’re both adjusted for inflation (‘real dollars’) so you could build a spreadsheet that starts the O-4 active-duty pension in seven years (perhaps at age 42) and the O-5 ANG pension in 25 years (at age 60). You’d use the O-4 High Three average for 20 years of service and the O-5 pay scales at the maximum longevity (>22 YOS). The O-4 active-duty pension would have a big head start (particularly if you invested the money or used it to pay off today’s debt) but in your 80s the O-5 pension would be gaining. In lifespan terms it’s probably a tie.
You absolutely should consider buying into a civil service pension with your active-duty time. I recommend you start with the GubMints.com guides:
While your veteran’s status would give you hiring preference for the civil service, there’s no guarantee that they’re actually hiring. Again you’d need to talk to your service’s transition counselors or the VA.
Keep in mind that you would have hiring preference for state or local governments as well, and you could also obtain military service credit with them. They may be just as accommodating of your ANG career as the federal civil service. You should also consider civilian employers who support the Guard & Reserve– talk to your local ANG recruiter for more information about them.
Please let us know what you decide to do and how it works out!
You’re absolutely right, Don!
I’ve heard the same from a number of veterans.
Good question, Matt!
The Army tracks all of their MOSs against their expected requirements versus recruiting, and they’ll adjust the MOS openings as necessary. Summers (after high-school graduations) can be the busiest times for demand in a particular MOS. If you’re ready to go now, don’t delay. If you’re ready later, then consider a Delayed Entry Program enlistment now for your desired MOS, and keep working with the recruiter to get in shape.
Go talk to your recruiter and see how the forecast is shaping up.
You’re welcome, Jason– this relationship/financial issue is Monkey Brain at his worst!
Farnoosh is launching the book live on the “Today” show on Thursday 1 May. I’m going to record that just to hear the comments from the married couples who she’s invited on the set with her to share their experience.
Hey, Steve, great to hear from you!
You must have done very well during the staff interviews… and 32 years later, I wonder if the program was having trouble finding enough qualified (let alone motivated) people.
Thanks, Ryan! I agree with you that those in uniform now will be grandfathered. I also agree that it’ll be a political mess until the final legislation is passed…
I pass your Guard/Reserve advice on to everyone who tells me that they’re leaving active duty. Not all of them are ready to make that commitment, but they’re aware of how they might feel a few years down the road.
Good question, Ray!
To do that, you’d have to sign up for REDUX (and the Career Status Bonus) at 15 years of service. Then you’d have to leave active duty before reaching 20 years of service. So after taking the bonus you have a window of up to five years where you might decide to leave active duty for the Reserves.
However to get the CSB you had to sign a commitment to stay on active duty to retirement eligibility. I suspect that the service personnel branch would require you to repay your CSB before they’d approve your resignation, so the Reserve pension would be the usual Reserve High Three pension calculation.
I don’t think that the federal law for REDUX/CSB even addresses the possibility of a Reserve REDUX pension. I’ve never seen any mention of it in the DoD financial management regulation for calculating a pension, either.
The number of servicemembers taking REDUX is very small– I doubt that any of them have later tried to transfer to the Reserves.
Thanks again for inspiring the post! Maybe that effect should be called the “frugal thrill”.
By the way, I sold my least-favorite longboard last week. The remaining three all have their own very specific qualities, and I know that they’ll all get plenty of use!
Jason, I think most guys hate shopping for clothes. Maybe we’d all prefer to shrug off “minor” injuries, too, or at least feel that we scored a bargain.
You guys raise a great point about not fretting. Maybe it feels so good that we instinctively keep up our frugal habits long past the point of ever being at risk for that ever again?
Thanks, Kate, but I only had to write about 500 of the words in this post. These are all great comments that more readers should see.
By the way, life gets a lot better when the teens leave the nest– both for the parents and the teens. Tell yours that my daughter and I both agree on that!
Thanks for your question, Rick!
The DFAS SBP page at http://www.dfas.mil/retiredmilitary/provide/sbp/change.html says:
“If you remove your former spouse from the plan, any premiums deducted beyond the date of divorce will be refunded. If you choose to voluntarily cover your former spouse under the plan, you have until one year after the date of divorce to do so.”
I’m not sure how long they’ll reimburse the payments– you should contact DFAS right away to sort that out.
Great question, Ryan! I answer it here:
You can withdraw your Roth IRA contributions anytime, and that post goes into the details of setting up early withdrawals from your TSP.
One of the big concerns after leaving the military (or after a bridge career) is being able to tap those tax-deferred retirement accounts “just in case”. Now we finally have a thorough guide to doing it.
The conversion ladder also helps investors pay taxes in a lower bracket before starting Social Security or RMDs. I doubt that our tax brackets are going to get much lower than today’s current rates.
Thanks for your comment! I haven’t written that book yet, and I don’t plan to get to it in 2014. Maybe 2015, maybe later. The biggest challenge to a book on military divorce is that 50 states have 50 different sets of divorce laws.
The best advice I can offer here is to hire your own lawyer who’s experienced in military divorces. (It’s a bonus if they used to be in the military.) It sounds like you’re covered in the decree, but a lawyer can immediately recognize the issues and pitfalls. You can use the post above as a start to checking that everything is covered.
You’ll also want copies of the annual statements of your ex-spouse’s income from the military & civil-service pensions. Those help you check that you’re getting your full share of any cost-of-living allowances. If a new statement shows that a disability reduces your ex-spouse’s military pension (which will reduce your share too), then a lawyer’s help with the divorce decree can ensure that your share of the pension income is made up from your ex-spouse’s other funds.
Lawyers are expensive. However a few thousand dollars spent now will help you save tens of thousands of dollars over the rest of your life. The returns are worth the investment.
I haven’t put any research into Solo 401(k)s. You’re right about the huge tax hit if it’s all withdrawn at age 55. An alternative would be starting a Roth IRA conversion ladder at age 51 with most of the Solo 401(k), and then making a final withdrawal from the Solo 401(k) at age 55. That would terminate the plan at age 55 (and support spending during that year) while you’re waiting for the conversion ladder increments to reach their five-year mark for ages 56-59. Along with the TSP conversion ladder and withdrawing Roth IRA contributions, that could cover over a decade of early withdrawals.
I’m going to have to punt on the details to Jason at HullFinancialPlanning.com or Rob at MilitaryFinancialPlanner.com.
Speaking of Roth IRA conversions, Jeremy of GoCurryCracker.com just put up a great post on paying zero taxes at http://www.gocurrycracker.com/the-go-curry-cracker-2013-taxes/
Yep. Although he was a MM2 at the time, and the XO was quite willing to award him a meritorious demotion to MM3…
Thanks for your comment, Bob.
It’s easy to get distracted by a discussion of whether there are other attractive investments for the $30K. The point to focus on is whether it’s worth giving up a lifetime income stream to have $30K today. The answer to that question is “Maybe it was in 1999, but not after 15 years of inflation.”
Prospective landlords would have to compare the rental property’s income stream (and resale value) to the cost of giving up all those future pension dollars and COLAs. It might be a better return to save up $30K for a rental property from your paycheck rather than sacrificing decades of future pension income.
Good comments, Keith!
The TSP website doesn’t specifically say “uniformed services”, but the age 55 requirement comes from the tax code and not just the TSP website. I think the reason we don’t see more of this is because military retirements at age 55 are relatively rare (mostly in the Reserve/Guard) and the provision is not well-known. (It’s also only 4 1/2 more years to age 59 1/2.) It’s best to consider this option with the advice of a tax professional, or to use one of the other choices in the post.
Your state-tax example looks good. However if you’re in a state with a high tax rate then perhaps it makes more sense to avoid taxes by using the Roth IRA conversion ladder, which can be done at any age.
It might make sense to pay down a mortgage, especially if it helps people sleep well at night. It might make sense to pay down any debt that costs more than the owner could reasonably earn from riskier investments, but that depends on the owner’s comfort factor and the debt’s interest rate. The “easy answer” for that situation is to pay off debt and then keep saving more in taxable accounts. However the TSP still has advantages over taxable accounts, and this post focuses on being able to tap the TSP instead of having to give up those advantages. “Paying down the mortgage” is a highly individual decision and the answers are not always straightforward.
I’m not sure that investors should change to less risky investments as they get older/retire. (Personally, having a military pension and low spending, I’ve ramped up the risks of volatility & loss in the rest of my investment portfolio.) Researchers like Michael Kitces and Wade Pfau are writing about the “equity glide slope”, suggesting that it might even be appropriate to raise an equity allocation in retirement. Again the retirement asset allocation decision is highly individual and based on comfort as well as market risk factors.
Some gains on selling a primary residence are tax free, but there are still limits to that exclusion and other tax issues to address– especially when it’s been used as a rental property in addition to a primary residence. Not every investor is cut out to be a landlord, so it comes back to how individuals should invest their assets. I think it’s best to diversify among the options, and being able to withdraw funds early from the TSP without penalty offers more options.
Thanks, Kathy, stop by anytime!
My spouse’s parents are very much the same way. Unfortunately their distrust of the stock markets has also kept their investments in CDs, and inflation has significantly cut into their lifestyle. The next 25 years will probably find them living on their Social Security, and still trying to save money for a “rainy day fund”.
Thanks for asking, Dennis!
So far the answer appears to be “No”:
If you’re mobilized then you may be able to volunteer for a TERA program, but the general requirement is at least 15 years of active service. Your Guard time may not qualify for a voluntary TERA or an involuntary board.
It may make more sense for you to continue drilling or to transfer to the IRR for correspondence courses. You’ll do much less work (for less pay and fewer points) but you’ll reach retirement eligibility in less than four years. If you e-mail me more details then we can figure out what strategy might work for you. NordsNords [at] Gmail.
Thanks, Deserat! Excellent advice, and I’m going to quote it in a future post…
Good points, DD!
Every retiree has to track their own personal inflation rates and not depend on the CPI. The military pension COLA is not perfect, but it’s the envy of almost all other pension systems (and more sustainable than them).
In my own retirement (nearly 12 years) my expenses have dropped significantly. Retirees have much more flexibility with their spending (and the time to optimize it), so that would have happened with or without the COLA.
Our fastest-growing future expenses will probably be travel and health– not because we’re spending so much more on them, but because everything else is flat or declining.
If I remember correctly DoD subsidizes half the cost of the program, so they probably feel that this is a “fair” adjustment. It’ll be interesting to see whether any change to the program actually occurs at all.
Good points, Mel! It’s a complex problem with plenty of variables, but financial independence does take about that much time at that savings rate. The good news is that he’s considering those variables now instead of only a year or two away from the transition.
The military retirement system is in the news a lot these days, and sometimes it makes me wonder whether DoD and the legislators have really learned anything from the REDUX fiasco of 1986. One consolation among the political theater has been that Congress (eventually) and the administration (consistently) recognizes that all proposed changes should grandfather those who are currently serving.
Thanks, Clif– there’s been a great return on this investment!
Very well put, Chris! I hope the numbers remove the uncertainty around the discussion.
Waiting on TERA is no fun, and they’re probably reviewing three years of billet projections. Hang in there and keep us posted…
Thanks, Anneli, glad to help! Thrift stores & garage sales. Start your family when you feel mentally & emotionally ready.
I hope you never need this book, but we found it very helpful: “The Fussy Baby Book: Parenting Your High-Need Child From Birth to Age Five” by William Sears…
Thanks for your comment, Mike!
I guess you’d have to look at the risk/reward options. On the reward side you’d have to compare the military pension’s vesting date & starting date (and its COLA) with the private company pension’s equivalents. Getting a pension from a private company also involves bankruptcy risk, as many airline pilots have learned over the years.
Not getting shot at: priceless!
Thanks, Art, I enjoy writing & sharing my thoughts!
I enjoy the “living local” vacation much better. Apparently Thailand is quite easy to visit on a 90-day visa…
Great advice, LT. Our college daughter looked long & hard at the USAA loan but couldn’t find a low-risk way to generate extra cash.
Thanks for the update, Dave. Please let us know how the lawyer interprets the differing Title 10 sections.