Congress changes military careers and retirements


The last post summarizes the latest gloomy news about drawdowns and possible changes to the military retirement system. It’s full of links covering each of the service’s proposals to cut both active duty members and civil servants.

It’s a daunting task. The question isn’t “what” will be cut, but rather “how much”. You can try out your own version of defense cuts at this New York Times calculator.  There are plenty of options, but the choices aren’t simple or easy.

Rumors have been flying that the services will offer a 15-year retirement. I can tell– for the last couple weeks this blog’s search terms have been dominated by phrases like “Army 15-year retirement“, “Navy early retirement“, and “early military retirement“.

Well, there’s a catch. The National Defense Authorization Act only mentions separation incentives in section 526, where it extends voluntary separation pay and benefits authority to the end of 2018.  Technically a military “temporary early retirement” has only been authorized by Congress. That’s just the first step– giving DoD the authority. It’s still up to each individual service whether or not they implement their own programs.

The last round of 15-year retirements started in 1993, and at first it was not pretty. All of the services had small cohorts of officers who had failed selection for promotion to 0-5 but who had been allowed to continue on active duty. Their continuation approval letters said “… until eligible for retirement” which had been interpreted as “20 years of service”. When the 15-year retirement program was imposed, however, the submarine force declared their continued officers “eligible for retirement” and gave them less than the usual year’s warning to retire.

The issue with a 15-year retirement (aside from the short notice) was that the pension multiplier was still 2.5% but a 1% penalty was applied for every year below 20.  Retiring at 15 years of service would reduce retiree pay by 5% below 37.5%.  In other words, a 15-year retirement offered only 32.5% of base pay. There were other “catch up” incentives to encourage retirees to seek certain types of post-military employment in exchange for a higher pension at age 62, but many regarded 32.5% as barely more than Social Security.  A 15-year retirement could cost hundreds of thousands of dollars of lifetime pension payments.

The 1990s 15-year retirement program wasn’t very popular with the service’s financial or personnel staffs, either. DoD issued funding regulations which obligated the services to pay for their TERA pensions up to the 20-year point.  This meant that every 15-year retiree’s pension came out of the Army, Navy, or Air Force budgets until they would have been authorized a full retirement. DoD did not boost the service’s funding for TERA and the services could not tap into the DoD retirement trust fund until the retirees had the equivalent of 20 years of service. True, the services were paying as little as 37.5% of base pay (and no allowances), but they were paying it for as long as five years to people who were no longer in uniform.

Ultimately, the 15-year retirement program wasn’t very successful.  The small pension discouraged many servicemembers from volunteering, while the funding burden deterred the services from imposing the program on many who were eligible. The services actually made most of their personnel cuts by reducing accessions. Most of those who left the service used early separation programs which paid a cash incentive, not a pension. More importantly, these programs were being offered in the mid-1990s. The Internet gold rush was in full swing so the obscenely generous salaries & benefits tempted many to seek their fortunes online.  (A few years later, many of them regretted their choices.)  These 1990s separation incentives wouldn’t be very popular in today’s shaky economy.

But, hey, a 15-year retirement could still happen.  If you’ve been aggressively saving your earnings then you might be close to financial independence, and you could retire with a lower pension.  If you have more than 13 years of service and think that you might be interested in the program, then test-drive your decision now. Review your finances, discuss it with your family, and understand the impacts. If the services announce the program they may use a first-come-first-served priority and you may need to file the application within 24 hours. Even then the services could choose by specialties and performance.  Personally, I met all the requirements but was turned down three times because the submarine force belatedly realized it had cut too deep.

Whether or not you leave the service voluntarily, you’ll have more support during this drawdown. Both the President and Congress have boosted the military’s transition assistance programs and have offered tax credits to employers who hire veterans. The private sector has committed to hiring as many as 100,000 veterans, and their “Veterans Job Bank” makes over 500,000 employment openings available online in a format that’s easily searchable.  Other initiatives provide higher limits on Veteran’s Group Life Insurance.  The NDAA also limited the increase in annual TRICARE enrollment fees for retirees & families to the annual retiree COLA percentage. This caps the rate of future increases to allow families to remove uncertainty over medical costs.

The cost-cutting news isn’t totally gloomy. There’s also a rumor that Viagra may soon return to the Tricare formulary.  It’s considered more effective and Pfizer is offering a substantial discount. [Insert joke here about the military’s size and effectiveness.]  It seems that everyone wants to support the troops…

Related articles:
Military careers and pensions at risk
Military drawdown predictions
Changing military pensions
The military drawdown and benefits cuts
DoD panel proposes new retirement system
Will Congress change military pay?
Will Congress change military retirement?

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WHAT I DO: I help you reach financial independence. For free. I retired in 2002 after 20 years in the Navy's submarine force. I wrote "The Military Guide to Financial Independence and Retirement" to share the stories of over 50 other financially independent servicemembers, veterans, and families. All of my writing revenue is donated to military-friendly charities.

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  6. Reply
    SFC Anderson April 14, 2012 at 1:18 PM

    Is there any news on the early retirement for the Army?

    • Reply
      Doug Nordman April 14, 2012 at 4:28 PM

      I hate to say it, but when you search for the term “Army early retirement” this blog is on the first page of results. In other words, the Army isn’t saying anything about the subject.

      I think the Army has decided to do their force cuts through attrition (and possibly higher re-enlistment standards) rather than early retirements. The Navy did a lot of early retirements in the 1990s without much success at shaping the force in the way they wanted. The services share this information with each other, and I think Army sees an early-retirement program as one of the last tools they’d pull out of their toolbox.

      But Congress has authorized the Army to use it if they think they need it. Articles like say that the Army hasn’t made a decision either way.

      As attractive as an early retirement offer may be to your plans for financial independence, I wouldn’t count on it for at least the next 12 months.

  7. […] fees faster than retiree pension COLAs. The 2012 National Defense Authorization Act included a requirement for DoD to limit healthcare fee hikes to the same rate as the pension COLA, so this dispute will continue in next year’s budget […]

  8. Reply
    Brent February 2, 2012 at 10:33 PM

    Doug, I’m a member and sometimes poster at the ER forum (BLS53 is my username). Just found your excellent site here;

    I was a LCPO in the aviation community during the TERA of the 1993-95 era. One thing I think you’re not considering, is that most the people who volunteered for TERA didn’t have exactly 15 years in. Most of the ones I saw had between 18-20. With the enlisted pay scales at the time, the difference in going out with 18-19 years instead of 20, wasn’t that significant.

    There were other matters at play like base closures. Some folks were facing unexpected PCS orders if they continued until 20, because their air station or squadron was being decommissioned. The rounds of BRAC in 93 and 95, eliminated a sizable number of NAS’s, so this wasn’t a small consideration.

    This was also an era when the Navy was tightening PT and weight standards, and I know some guys didn’t think they could pass for another 2 or 3 years, and were in fear of being forced out without a pension. By being allowed to retire early, they were able to forego those worries.

    Early retirement prior to 20 years isn’t always a bad idea. But I agree, retiring exactly at 15 is too much of a hit on the pension.

  9. Reply
    Jan January 27, 2012 at 6:34 PM

    What a mess. Here we go again!
    I am hoping, against hope, that the medical for retiree dependents does not disappear for at least ten years.
    My dentist just told me that he will no longer take active duty insurance. The government has moved their dental to NYMet and they pay at 1990 prices (after three or four submissions). He will take them IF they pay up front. He also said that he is getting us (his retirees) ready to be uninsured as well….he has a long term payment plan. My teeth like him- so I may be getting in his long term line.

    • Reply
      Doug Nordman January 28, 2012 at 4:47 AM

      Thanks for your comment, Jan!

      I think the programs will continue, although the next arguments will be over how fast the prices go up. Military healthcare seems to have become a proxy (and a proving ground) for the national debate.

      I guess the “good news” is that Tricare fees will probably rise as fast as military pensions, but still more slowly than civilian healthcare.

      Dental contractors keep changing, and so could their service. My spouse and I seem to have a good combination of genetics, diet, and oral hygiene so we haven’t had dental insurance since I retired. I show up for x-rays and cleanings every couple of years, and that’s cheaper than insurance. Of course I’ve avoided cavities for nearly 30 years now and my insurance feelings might change if I started running into root canals.

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