(This guest post is brought to you by Vince Ramos and the content team for Debt.org – an online organization dedicated to helping Americans manage their finances and stay out of debt.)
Military retirement plans are arguably the best available. Military personnel can retire after 20 years of active service, and those who work for longer receive higher retirement pay. But as costs of living rise along with life spans, many military retirees are wondering if their pensions are enough to let them live comfortably.
A late 2011 study showed that only one-third of middle-class military families were very confident that they would have comfortable retirements. This was a drop of 7 percentage points from earlier the same year. The reason behind this fast loss of confidence is twofold: the economy in general was still suffering from a downturn; and increased scrutiny of the military retirement system has left many questioning its future.
Before You Retire
The growing numbers of military personnel who are worried about retirement have several options available. If you haven’t retired from your military career yet, consider keeping the job for a few years longer than you planned. It will give you a few extra years of your full income, allowing you to save up more for the future.
It will also increase your retirement pay. For example, under most military retirement plans, your pension after 20 years of service will be 50 percent of * your salary. Working an additional four years will push your pension up to 60 percent of your salary. If your working salary is $50,000, the boost in your pension would be equal to an additional $5,000 a year for the rest of your life.
*[Nords note: under a High Three system, that’s 50% of the average of the highest 36 months of base pay.]
You should also work toward paying off any existing loans before you retire. Your pension will be stretched even thinner if you go into retirement with outstanding credit card debt, mortgages, auto loans and other debts.
If you have more debt than you’ll be able to pay off by retirement, consider debt reduction strategies such as debt relief or debt settlement. While consolidation is intended to make payments easier and more manageable, settlement reduces the amount of money you owe.
If you’ve already retired from your military career, you may see your savings begin to dwindle within a few years. You may be worried about continuing a comfortable lifestyle for decades to come. While you probably won’t want to leave retirement fully, you should consider finding a new occupation. Look for part-time jobs that interest you and match your hobbies. Find a job that will both supplement your pension and enrich your life. This option is ever-increasing among military retirees, as they find their pensions simply do not provide them with large enough incomes.
If you have a comfortable amount of money in the bank and don’t need to use it right away, invest it. Sound investment practices can help ensure that the money you have now will grow steadily over several years or decades. This can help provide you with a financial cushion. Whenever your pension falls short of what you need, you can dip into your investments and their earned interest, closing the gap between your pension and the amount you need to live comfortably.
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