Guest post: Advice to Stretch Your Military Retirement Pay

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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.


During Retirement

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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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.

  1. 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.

  2. One challenge with military retirement is that when one reaches retirement age, the pay is pretty good and family members are often reaching prime spending years. Children are often close to or in their teen age years and life has become fairly comfortable. Retiring means making a major stylistic left turn in life and the unknown as the military member heads out into the civilian community. Housing must also be factored into the equation; especially if the member is living in base housing. Signing a lease after retiring could present some issues in that credit checks reveal that the member is currently unemployed.

    As as the previous commenter stated, additional years in the military generate less productive years left in the civilian world. Another issue is that each additional year in the military adds another year of age to the retiree and we know how challenging it can be to find work as we get older.

    My point is that the more planning and analyzing that can be done within the last couple of years prior to retiring from the military the better.

  3. This is a great post. One thing to remember, though, is that working those extra four years will also involve the opportunity costs of four more years of your life plus whatever earnings and advancement you might have earned in those four years if you are working after retirement.

    Comment? Question? What's on your mind?