Comparing E7 Retirement Pay: Active-Duty Versus Reserve

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E7 Retirement PayThis post has been updated using current pay charts, to determine E7 Retirement Pay…

E7 Retirement Pay

Consider two 18-year-olds who join the military on the same day.

The first stays on active duty for 20 full years to retire as an E-7. They’ll base their pension on 2.5% x 20 years = 50% of their High-Three retirement system. Under the current High-Three* rules, their pension would be 50% of the average of the highest 36 months of base pay.

The second 18-year-old serves eight years on active duty while advancing to the E-6 pay grade, and then separates for a Reserve billet. Over the next 12 years as a drilling Reservist, they complete their “weekend a month, two weeks a year” of drills and active duty, while also mobilizing for two separate year-long deployments.

   

They get promoted to E-7 at about the same career point as their active-duty counterpart. Upon reaching 20 years of total service (eight years of active duty plus 12 “good years”) they request retirement awaiting pay.

Both E-7s are the same age, the same rank, and subject to the High-Three rules.  However, the active-duty E-7 retires and immediately starts drawing a pension. If they retired in 2016 then this calculator sets their pension at $2,171.00/month or $26,052.00/year.

e7-retirement-calculator

My Army Benefits provides a calculator to calculate retired pay. The tool is easy to use and produces accurate results.

active-duty-e7-retirement-calculator

 

Their pension includes annual cost-of-living adjustments that are roughly equivalent to the Consumer Price Index, the government’s official measurement of inflation.  These COLAs will continue for as long as they (and their survivors, if they chose a survivor benefit plan) draw their pension.

How To Calculate An E7 Reserve Points

When the second service member joined the Reserves, their active-duty time was credited to their Reserve point count at the rate of one point for each day. Each year-long mobilization would earn at least another 365 points.

   

By serving “a weekend a month, two weeks a year” over their other 10 “good years”, they can conservatively be expected to average another 75 points each year.  These are average numbers, some Reservists will earn more points, some will earn less.

At retirement, the Reservist would have a point count of eight years of active duty, 10 years of drills, and two one-year mobilization periods.

Their total would be at least, 8×365 + 10×75 + 2×365 = 4400 points.

   

  • 8 x 365 (Active Duty) = 2,920
  • 10 x 75 (Drills) = 750
  • 2 x 365 (Deployments) = 730

reserve-e7-retirement-calculator

reserve-e7-retirement-pay

If they retired in 2016, this calculator sets their pension at $1,546.00/month or $18,552.00/year. Of course, pay wouldn’t begin until age 60.

The current instruction convert points to equivalent years by dividing into 360 (not 365). The percentage earned toward a Reserve pension would be 2.5% times the point count divided by 360, or 30.5%.

Although they were mobilized for two of their 12 years in the Reserves, at this point the Reserve E-7’s pension eligibility is only about 60% (30.5%/50%) of the active-duty E-7’s pension.

Click here to learn how to calculate a reserve retirement.

The Reservist’s pension also doesn’t start until they’re age 60– another 22 years. The good news is that because they “retired awaiting pay” instead of “resigning” from the Reserves, their pension will be calculated using the E-7 pay scale and maximum E-7 longevity in effect at age 60.

Pay Changes

It’s very difficult to predict how E-7 pay will change over the next 22 years, but it would be nice to have some numbers to refer to before making a decision to stay on active duty or to transfer to the Reserves.   One pay assumption would be that it would keep pace with the civilian equivalent of their E-7 specialty.

In that case, the military’s E-7 base pay scale would rise by roughly the Employment Cost Index. Hopefully, in 22 years, Congress and the Department of Defense will agree that an E-7’s salary should have about the same purchasing power that it has today. In that case, the ECI would roughly keep pace with inflation and the Consumer Price Index.

The reality is that it’s impossible to confidently predict future pay scales, the ECI, the CPI, or pension COLAs. However since the all-volunteer force began in 1973, the only proven way to retain servicemembers has been to keep military pay competitive with its civilian equivalent.  (Otherwise, we wouldn’t have volunteered)!

Congress has attempted for several years to raise military pay at the same rate as the ECI (even greater for some ranks) and the pension COLA calculation closely tracks the CPI. Despite the uncertainties of predicting the next 22 years of pay raises and pension COLAs, it’s reasonable to assume that future E-7 pay will have roughly the same purchasing power as today’s pay.

While awaiting retirement pay for those 22 years, the Reservist will also be credited with the maximum longevity in that E-7 pay grade– 26 years– even though they only served for 20 years.  In the 2016 military pay tables, the pay for E-7>26 is over 13% higher than E-7>20.

So although the Reservist’s pension eligibility only had about 60% of the equivalent active-duty pension when they retired awaiting pay, by the time they’re drawing that retired pay their longevity pay scale has risen another 13%.

The result is that by age 60 the amount of the Reserve E-7 pension has risen to nearly 70% ([30.5% x (1+13%)]/50%) of the active-duty E-7’s pension.  If all of the pay assumptions are reasonably correct (and that’s a mighty significant “if”), then in today’s dollars they’d receive approximately $1850/month or $22,200/year.

Now that we’ve gone through the calculations the hard way, you could build your own spreadsheet to tinker with various ECIs and CPIs.  Or you could try out your own assumptions with one of the pension calculators here.

Difference  Between Active Duty & Reserve

The biggest difference between active-duty and Reserve pensions is that the active-duty E-7 immediately started drawing their pension at age 38 at 50% of their High-Three pay average in effect at retirement.

The Reserve E-7 would have also retired at age 38 but had to wait 22 years for their pension, calculated at the maximum longevity and pay table in effect during the year they turned 60.

If their pension at age 60 preserved its purchasing power at least as well as the active-duty E-7’s pension, then their first pension payment would be almost 70% of the active-duty E-7’s pension payment– even though the active-duty E-7 has been receiving a pension for over two decades.

When the 60-year-old Reserve E-7 finally starts drawing their pension, that income stream will continue to rise with the same annual COLA as the active-duty E-7’s pension. Their pensions will be one component of a retirement made up of tax-deferred accounts, taxable accounts, and any pensions from other (civilian or civil-service) careers.

The next post will show how to plan a retirement with multiple streams of income.

[*A couple of final notes for the expert reader: we could make this post a lot more complicated by having these E-7s choose the REDUX retirement plan, but I’m saving that analysis for a separate post.  For now, let’s just say “Don’t do it.”]

[** This post assumes that the Reservist’s deployments did not make them eligible for an earlier retirement.  Under current legislation, if those deployments had happened in 2008 or later then they may have been eligible to start receiving their pension as early as age 58.]

Related posts:
The Reserves and National Guard
Mobilizing with the Reserves and National Guard
Retiring from the Reserves and National Guard

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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.

28 Comments
  1. Reply
    Elizabeth Burrows May 3, 2018 at 7:56 AM

    What if I joined active duty, went reserve for 5 years and finished my career active again. Would I have to do 25 years to immediately draw pension?

  2. Reply
    Roger Fairley May 27, 2017 at 9:13 PM

    Here how mine works out:
    At 17 yrs old join AD Army for 6 yrs to 19 yrs of army reserves (pension $27,000) Plus 20 yrs as state law enforcement (pension. $32,000) at 44 yrs of age. Now I’m working a GS-10 job making $52k + $32k = $84k! This is not even including the fact I’ve done Part-Time substitute teacher gigs of $1100 a month for the past 20 yrs. Not too many retired enlisted AD personnel is this motivated… From the looks of things you can accomplish much more capital as a Weekend Warrior

  3. Reply
    Mike E-SixWithTwentytwoYears October 18, 2016 at 2:10 PM

    Two E-7’s, joined at 18 both with 20 years of Service, one with Active Duty retirement, one with a “reserve” retirement. The active duty guy gets 50% of his “high three” years or approximately 26,000/year, the Reservist gets nothing until age 60. Both die at 52…who wins then, the guy who could supplement his civilian pay by 26,000/year plus his MGIB, or the guy who never collected a dime of what he earned, and his MGIB eligibility expired at 10 years in the Reserves? Pay and points are proportional….just let the Reservist start collecting at the same time as his active counterpart. The amounts aren’t the same, but they both obtain instant benefit proportional to the amount of earned retirement under the current system.

    • Reply
      Doug Nordman October 19, 2016 at 12:36 AM

      I appreciate the sentiments, Mike, but I doubt that type of Reserve retirement reform is on any legislative agenda… especially in a drawdown.

  4. Reply
    Rick Medeiros April 6, 2016 at 10:22 PM

    I did 10 years in the Navy and got out at 27 years old, went in the Navy at 17. Sure wish I had joined the reserves or maybe even did my 20. I’m 63 years old and have a miserable social security retirement that is very hard to live on.

    Not only that I really miss that military life style, I had a freaking blast.

    OS1 Rick Medeiros, USN

    • Reply
      Doug Nordman April 8, 2016 at 12:21 AM

      Thanks, Rick, I get that comment from a lot of my “more experienced” readers!

  5. Reply
    Doug Nordman January 23, 2016 at 10:00 AM

    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:
    http://www.publichealth.va.gov/exposures/camp-lejeune/

    Here’s the proposed expanded list:
    https://www.va.gov/opa/pressrel/pressrelease.cfm?id=2743

    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:
    http://www.publichealth.va.gov/exposures/agentorange/benefits/registry-exam.asp

  6. Reply
    carl January 22, 2016 at 3:31 PM

    Besides my illness with service connected , they denied my type 2 diabetes.i was station in camp lejune the same time they said the water was contaminated.is there any links for the type 2 diabetes with water contamination in camp lejune?

  7. Reply
    Doug Nordman January 21, 2016 at 5:32 AM

    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. (https://www.benefits.va.gov/pension/) However that’s a separate program from the Department of Defense.

  8. Reply
    carl January 20, 2016 at 4:24 PM

    I served 2 years in the marines and 6 years in the army, i had been honorably discharged on both, .i developed a leg problem and started receiving disabiliy pension. I am now 60 years old. Am i still qualified to receive a retirement pension at the age of 60?

  9. Reply
    Doug Nordman January 18, 2016 at 5:32 AM

    Jan,

    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:
    https://the-military-guide.com/sanctuary-in-the-reserves-only-on-active-duty/

    Unless you’ve met the requirements to claim sanctuary, your Reserve pension is calculated using all of your points:
    https://the-military-guide.com/calculating-a-reserve-retirement/

  10. Reply
    Jan January 16, 2016 at 7:43 PM

    I have been a reservist for almost 36 years and have earned enough active duty for a 20 year active duty retirement. When calculating my active duty retirement, will my total retirement points be used for calculating my retired pay or will it be calculated using only the active duty points?

  11. Reply
    Michael December 8, 2015 at 5:41 AM

    I spent 9 years active Army and 11 years Navy Reserves. I deployed in Desert Storm, Had a break between services. I just retired this past November 2015. I never did a mobilization as a reservist. Does my retirement pay come any earlier than 60?

    • Reply
      Doug Nordman December 9, 2015 at 4:54 AM

      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.

  12. Reply
    Bill September 17, 2014 at 5:12 AM

    I’m planning on retiring in 2019 with 9 years AD and 11 years as a reservist as an E7. Could you give me an estimate of my monthly income? I’m 50 years old.

  13. Reply
    Jim May 5, 2014 at 11:41 PM

    Hi Doug, I found this article very eye opening. I am currently an O4 with 13 yrs and considering going ANG. I am unfortunately been passed over for O5 but may be promotable to O5 if I join ANG. I will supplement my income by going GS or work at the VA. A few questions:

    1. Would I be financially ahead at age 60 with a high 3 O4 active duty retirement or a O5 ANG retirement?
    2. Should I consider converting my AD credit into the GS/VA system?

    Thanks!

    • Reply
      Doug Nordman May 7, 2014 at 6:29 AM

      Jim,

      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:
      http://gubmints.com/2013/03/26/gubmints-comprehensive-military-service-credit-deposit-guide/#.U2pbXoFdXh4 and
      http://gubmints.com/2013/07/18/new-ebook-maximize-your-service-computation-date/#.U2pbYYFdXh4
      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!

  14. Reply
    Mike Ipsen February 26, 2014 at 8:55 PM

    Glad I got out after 4 years. The military ‘pension’ plan only gives you poverty wages after 20 years of service. Working for a private company my pension will be over 6 figures annually. Plus I never get shot at, a MUCH better deal if you ask me.

    • Reply
      Doug Nordman February 28, 2014 at 4:44 AM

      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!

  15. Reply
    Alan Smiley November 20, 2013 at 1:35 PM

    14yrs/20yrs = 0.70

    $1,350mo/$1,957mo = 0.69

    The reservist served 70% as much active duty time as the RA soldier and
    ended up with a monthly pension that is 69% that of the RA soldier. Sounds pretty equitable to me.

    • Reply
      The-Military-Guide November 20, 2013 at 6:49 PM

      Thanks, Alan, that might be more coincidence than correlation– but the symmetry is interesting.

  16. Reply
    Howell October 11, 2013 at 4:54 AM

    Lately I have been looking into how my military reserve retirement combined with my civilian pension will work in my retirement years. If by getting a handle on that number. I can decide to maybe change careers from the stressful hight paying job early and not take a huge hit since my reserve retirement will make up for those years I didn’t continue working my civilian job to max out on their retirment.

    • Reply
      Doug Nordman October 12, 2013 at 4:50 AM

      Thanks for your comment!

      Your Reserve pension at age 60 also means that you’ll need less pension income and savings from the rest of your assets after age 60. You’ll be able to spend some of those assets before age 60 to bridge the gap after you leave your job.

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