Marine Corps Offers Early Retirement – Details on the Temporary Early Retirement Authority (TERA)

Let me interrupt Memorial Day with some late-breaking news: Stars and Stripes reported last week that the Marine Corps will be offering a 15-year retirement.

The program is expected to begin this fall for Marines and officers, but the actual program details and start date haven’t been released yet.

Both the Marines and the Army experienced the greatest growth over the last decade, and both services are expected to bear the brunt of the personnel drawdown. The Marines are expected to reduce their strength by at least 5000 per year for the next four years, a total reduction of nearly 10%. Although some of this additional attrition will be handled through voluntary early discharges and selected officer retirements, an early retirement program will be part of the reduction.

The finances of the 15-year retirement are expected to be similar to the Navy program, which is taken from a DoD instruction. For those eligible for a High-Three retirement, the service multiplier will remain 2.5% per year of service. However, that total will be reduced by one percent for each year of service less than 20. (One percent, not a percentage point.) This means that a Marine with 15 years of service would receive a pension of 36.625% of the average of their highest 36 months of pay.

Actual reduction factor calculations are done in units of months instead of years, and the resulting reduction factor is taken from a table in the DoD instruction. Any fraction of a month of service for a reduction is rounded up before subtracting the result from 20 years of service, which results in slightly more retirement pay. For example, a Marine with 16 years and 10 days of service would have a reduction factor of only three years and 11 months, or 47 months short of 20 years. The reduction factor applied to the pension would be .96083 instead of 0.96, and their pension service multiplier would be

(16 years * 0.025) * 0.96083 = 38.433%.

The 1990s TERA program offered some additional benefits that aren’t included in the 21st-century version. There is no credit for entering public service after retiring from the military, so there’s no recomputation of retired pay later in life. TERA retirees will continue to be eligible for the Survivor Benefit Plan, but SBP will still be based on the lower pension amount instead of a 20-year figure.

Like the 1990s TERA program, Marines will have to apply for this 15-year retirement program. Servicemembers in critical skills or in specialties with personnel shortages may not be approved for early retirement. Once the program is offered, though, the quotas will fill up quickly. If you think there’s any possibility that you’ll be interested in the program, then calculate your pension amount now and review your finances. You want to be able to apply immediately when the program is announced.

When the 1990s TERA program was announced, some Navy officers were required to retire. O-4s who had failed to promote to O-5 had been “continued on active duty until eligible for retirement”. Before TERA, it was understood that this would allow them to serve up to 20 years. When TERA was announced, though, these officers were informed that they were now considered eligible for retirement. If you’re a Marine officer who’s failed to select for promotion but been continued on active duty until 20 years of service, it’s possible that you’ll be required to retire under TERA. Plan for being retired sometime during 2013, estimate your pension, and review your finances.

Even if continued officers are not required to retire, you may want to consider whether serving out another tour is a good idea. Those questions are discussed in an earlier post: “Retire at 17 years of service or 20?

Marines who have already accepted a Career Status Bonus (the REDUX retirement option) have an even harsher reduction to their pensions. Their service multiple is reduced by an additional percentage point (not just a percentage, but a percentage point) for every year that they’ve served less than 30 years. In the case of the 16-year Marine, that would mean that their service multiplier started at 40% (= 2.5% x 16 years) but would be reduced by an additional 14 percentage points to only 26%. (Another sample calculation is included in the TERA retired pay computation instruction linked above and also linked at the end of this post.) Even worse, a REDUX retirement means that the pension’s annual COLA is reduced a percentage point below the High Three pension’s annual COLA. The REDUX pension is “reset” at age 62 to the amount of a High Three pension, but the COLA reduction continues throughout a retiree’s life.

DoD is allowing CSB/REDUX retirees to keep the bonus. Of course, DoD is “saving” far more from the reduced pension & COLA than they’re “losing” in the $30K amount of the bonus, so they can certainly afford to be generous. The CSB/REDUX system has always been a bad financial decision for the vast majority of retirees, and for TERA retirees it’s even worse.

TERA was a popular force-shaping tool during the 1990s. Ultimately, however, the 15-year retirement program was regarded as less successful than anticipated. Annual TERA retirements only made up about 0.5% of each year’s average 10% reduction. Most of the drawdown was achieved by voluntary separations (nearly 12 times higher than TERA) and reduced recruiting. Meanwhile, TERA is much more expensive. Separations were a one-time lump-sum payment, but TERA pensions will be paid out for decades of inflation-fighting COLAs and survivor benefits.

I’ll keep an eye on the media for the formal TERA announcement, but if you’re an active-duty Marine then I’d appreciate a link to the actual message or instruction when it’s released.

Related articles:
Retire at 17 years of service or 20?
Congressional Budget Office: The Drawdown of the Military Officer Corps (page 20)

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. Interesting points! Navy O5 with 16 yrs here also. Have promoted quickly but facing very small promo groups from here on out due to drawdown.

    I had not thought to compare REDUX to High-Three to get perspective, very cool. And I can’t wait to get a degree in (something cool) while earning $20K a year after I retire!

  2. O-5 with 16 years of service checking in. One talking point that keeps coming up in the smokedeck discussions of “would you take TERA?” is that guys of my era were originally under REDUX when we received our commissions. If you went back in time to 1996 and asked Ensign Walter if I would prefer to have a 40% pension after 20 years or a 40% pension after 16 years, 7 months, it would be a no-brainer. It’s only when comparing TERA vs. our current High-Three retirement that TERA doesn’t look so good–at first glance.

    Secondly, guys that are in the 15-20 year window right now are, in some ways, the equivalent of coming into the stock market at the bottom and getting out at the top. Starting in 1996, I’ve received very generous raises essentially my entire career and it’s only now looking like the pay raises are going to flatten out. An O-5 with 16 years in today is making a lot more (even after adjusting for inflation) than an O-5 back in 1996 and this is reflected in the pension amounts.

    Lastly, don’t forget the incentives of the Post-9/11 GI Bill. Everyone (even officers) getting out today can take essentially any classes and get free tuition and a housing stipend for up to 36 months. Taking three years of cabinetmaking or welding classes at my local community college for free, plus $20K/year in housing money, is a pretty sweet way to learn a retirement hobby.

    • Excellent points, Walter, thanks!

      ’96 in the submarine force was such a small group that they’ve had a very high rate of screening for command and promotion. Quite different from the 1990s drawdown on their own commanding officers from ’79-’84.

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