Military retention: “Should you stay or should you go?”
“Should I stay or should I go?” Yeah, I know, I can still hear that Clash hit rockin’ Bancroft Hall’s passageways at the Naval Academy. It “encouraged” the plebes to think about their choice to quit or stay, but the tune became my personal retention anthem for most of my career.
A reader asks:
I was wondering whether it would be possible for you to write an article that discusses the financial challenges that a military member would face if they opted to leave the military and attempted to save enough on their own to equal a military pension. I’ve got a guy I work with who is contemplating getting out. He believes that he can get a job in DC that pays $75K-$90K/year and that he will come out ahead financially. He enjoys the military (if he didn’t, then I would drop the argument and not try to influence him) but he just thinks that he and his wife are falling behind their peers with regards to finances. I’ve explained that he can’t look at folks with expensive cars (because he isn’t seeing their huge monthly car payments) or their houses & vacations. But I fear that am not getting through to him. I think I must be missing something in my arguments.
The reader shared the retention pitch that he e-mailed to his co-worker:
[Nords note: I’ve added some editorial comments in brackets.]
I completely understand the desire to get out of the military, and I’ve never tried to fight anyone that wanted to get out since it is a personal decision that everybody has to make based on their own unique circumstances. That being said, I am a cheap spender who can’t imagine giving up the best pension on the planet. You talked about going into government service and buying back your time, and I would definitely recommend that as the second best option from a purely financial perspective. However, I personally think you would be better off (again, this is only looking at the financial side) by staying in for another 12 years (I promise, it will fly by) and then retiring with a guaranteed pension and dirt cheap medical insurance.
There are hundreds of links to check out, but many of them will bore you to death with a description of the different military retirement systems. However, you are a “High-Three” guy, and if you choose the REDUX option then I will personally hunt you down and  the  out of you, so ignore REDUX. Anyway, for your reading pleasure over the next couple of days, I present to you:
The present-value estimate of a military pension
Here’s some more links. Ryan Guina isn’t quite as prolific a writer as Nords…and he didn’t retire (he did 6+ years in the Air Force…FYI, one of his latest entries is about exploring the option to join the Guard) anyway, check out Military Wallet’s link for more on the pension topic. [Nords note: Ryan has a huge head start on me, he’s a top-20 personal finance blogger, and he’s an exceptionally generous mentor!]
Even if you read nothing else…consider this quote from a Navy Times financial advice article:
“So, going back to the E-7 with 20 years of service, what is his military pension of $20,052 per year really worth? Most experts agree that to ensure your retirement funds will last a lifetime, you cannot take out more than 4 percent of your capital each year. If you wish to increase your retirement income each year to keep up with inflation, a 3 percent withdrawal from capital each year is a more reasonable figure. To replace an annual pension of $20,052 based on a 3 percent withdrawal rate, you’d need $668,400 ($20,052 divided by 0.03 equals $668,400).
What is the possibility of accumulating $668,400 over 20 years on your present salary? Even if you assume you can take out 4 percent of your nest egg each year and not use up your money in your lifetime, you’d still need a nest egg of more than $500,000, without allowing for annual increases for inflation.”
Ryan points out that some servicemembers can retire on their military pension.
Here’s another military retirement example.
Here’s yet another example: yeah, yeah, I know…neither of us is a doctor, and this guy is going to earn way more than either of us…but still, his math shows that even on an extremely high civilian salary that it is tough to save enough to equal a military pension.
And lastly, a calculator link to let you dream…spend some time plugging in numbers…then scroll to the bottom of the results page to see how much you would earn just by sitting on your couch drinking beer for the next 40 years.
Another blog I recommend (but not completely safe for work due to strong language) is Mr. Money Mustache…it is an irreverent blog about a guy who retired in his thirties by saving a crapload of money and being very frugal. I really enjoy his blog and look forward to every new post from him.
Anyway…enough of me…go and read. I’d love to hear what you decide, and I’ll obviously support whatever decision you and your spouse make…and I’ll still drink beer with you even if you become some filthy rich civilian contractor. I just want to make sure that you can afford to buy some good beer for us to drink in your old age after we are both retired.
I have to be fair– it could be a good idea for your friend to leave active duty for the Reserves or National Guard, or for a civil-service job, or to be a complete civilian. That’s a quality of life perspective, which is a very difficult decision to quantify. It’s an intensely personal decision, too.
In retrospect, I’ve regretted clenching my jaw and gutting it out to 20 for a military retirement. It looks pretty good from this side of the finish line, but the stress (and the depressed immune system, and the respiratory infections, and the pneumonia, and the elevated blood pressure…) was tremendous. I apparently figured out how to survive it, but I may have just been lucky. I was pretty rough on a few people along the way, but I’ve made it up to them. Today my health is the best it’s ever been but I’ll always wonder if years 11 through 20 of my career left me overdrawn on my karma account and ripped a few pages out of the back of my Book of Life.
The main reason I stayed until 20 was… ignorance. I was highly compensated to focus on my career, overwhelmed on staff duty with daily administrivia, and too busy to “waste” my time learning about alternatives. Even though I was surrounded by Reservists and civil servants and defense contractors and entrepreneurs, it never occurred to me that I could change my life. I just kept doing what I thought I was good at, and I never explored the options or ran those other numbers. Today I know that I could’ve resigned from active duty, joined the Reserves, taken a civil service billet, and earned more income than I did on active duty. I would have had a much smaller Reserve pension at age 60, but I would have piled up the savings to bridge the gap until that pension started. More importantly, my quality of life would have shot way up and I might even have found a family-friendly occupation that I enjoyed.
I’ll never know what I might have been able to pull together. It’s better to lay out the financial challenges of the decision, and then discuss the physical/emotional aspects. Servicemembers can make an informed choice instead of being suckered by the retention money or by the defense contractors. Your friend might see a whole new big beautiful world out there, and all we need to do is to put the tools in his hands.
But while he’s plotting his escape, it should certainly include a bachelor’s degree and at least some graduate study or professional certification. Otherwise he’s only going to earn $45K/year and spend a few more years hauling himself up the salary ladder before he hits $75K. I get a lot of those e-mails and Linkedin posts from servicemembers too.
Please keep us posted, and let us know the decision!
Retiring without a military pension
The military drawdown and benefits cuts
Military careers and retirement at risk
Military pay & benefits cuts
Military drawdown brings new career, pay, and benefits changes
Reserves and National Guard: Tricare Reserve Select and Tricare Retired Reserve health insurance
Does this post help?