Retire at 17 years of service or 20?

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I read another good question on a Linkedin group:

I am a Marine O-4 who has been passed for promotion and is looking for some advice on early retirement. I will have 17 years  of active duty by the time I am eligible for the early retirement next year. I am a pilot with experience in operations and safety. I will also be close to completion on my MBA, DAU Level II acquisition certified and Lean Six Sigma Green Belt. Do I make the jump or stick it out?

This is the first mention I’ve seen of the Marines using the early retirement program. Congress has authorized it for this year’s defense budget, but the services can use the program at their own discretion. Please leave a comment if you’ve seen any message or other information, especially if you can link to an announcement.

Money is not the only question here. “Quality of life” is still as much of an issue as the finances. Servicemembers who aren’t being promoted but who can’t retire yet might end up being sent wherever the assignment officer has a hot-fill billet. If you’re not approved to retire then your only “negotiating option” is to resign from active duty for the Reserves. That might evade the assignment issue, but even if you’re financially independent then you’re still giving up over $500K of potential O-4 active-duty retirement income before the Reserve pension kicks in. If you’re not financially independent then it’s hard to find a bridge career which will make up for that loss. It’s also very difficult to convince yourself that “It’s only money!

Unfortunately, staying on active duty and grimly clenching your jaw to get through those years is risking your physical, emotional, and mental health. The stress fatigue can lead to respiratory infections, elevated blood pressure, higher cholesterol, and other unhealthy conditions. Being separated from family is another set of problems. Even retirees who stuck it out for 20 would advise taking care of your health before taking care of your pension.

If you’re offered a good assignment then you might be able to convince the chain of command that you should stay there until 20. Yet even at the best duty station you’re still trading some quality of life for the prospect of future financial security.

Financially, the conventional wisdom is that retiring before 20 years of service is a significant pension cut. Or is it? The “good” news is that retiring at 17 would avoid gutting out three years for a few more percent on a pension. A 17-year pension would work out to just under 40% of High Three base pay instead of 50%. An O-4 High Three pension at 20 years is just over $41K/year*, and an O-4 TERA High Three pension at 17 years would be just under $34K/year. Yes, a 17-year TERA pension is nearly a 20% reduction from the 20-year retirement. However, it’s a difference of only $7225/year. Is it worth the extra $7K/year (and three years of salary) to push for three more years of active duty? Why not take the retirement and avoid a potential hardship tour?

* (Starting that $41,167/year High Three pension in 2012 is also 1% higher than my current $40,788 Final Pay pension that has received a decade of COLAs.)

In my opinion, servicemembers can be made to suffer an inferiority complex. The military’s constant pressure to train and promote (which is good) can lead to a zero-defects mentality (not so good). High-quality personnel can be made to feel as if they’re barely capable of serving in their current rank, let alone be promoted, and in a drawdown everyone is struggling to stay competitive. When one mistake can kill a promising career, you learn to play it safe and avoid big risks or unknowns. We’re also constantly reminded of veterans encountering high unemployment in a vicious job market, and even Linkedin can leave the impression that the job search is a dangerous jungle filled with predators and pitfalls. As difficult as military service may be, it still seems a lot “safer” than the risky unknown of trying to find a civilian job. 

Yet that safety can be a trap. Aviators with these skills are quickly employed. If you chose to retire at 17 with those skills (and with a smaller pension) then you’d immediately find a job and start your bridge career in a new avocation that makes you feel challenged and fulfilled. Would you feel the same if you tried to hang tough for three more years of active duty? You’re the only one who can determine the “right” answer to that question, but I’m pretty sure that you’re going to be pelted with civilian or civil-service employment offers.

I think the real value of a military retirement comes from its inflation-fighting COLA and cheap healthcare. (It’s not easily done with TIPS, I bonds, or annuities.) TERA’s 20% reduction in the amount of the military pension– just $7K/year– is easily made up by a civilian paycheck. The safety net of financial independence is to have some “guaranteed” income from reliable sources (military pension, Social Security, TSP annuity) and some control over expenses (Tricare and Tricare For Life). These are the biggest financial challenges faced by people retiring in their 40s and 50s, and the discussion board at has tools and advice to help solve those challenges. You can save up the rest of your retirement funds from your civilian paycheck, and your financial independence might be closer than you think.

Personally, I applied for the 1990s TERA three times but ended up being continued on active duty to 20. Luckily my retirement assignment was a great billet (I’d made myself very valuable to the training community) and I worked with great people. Even so I would have happily retired for a smaller pension, a few years of a part-time job, and more family time. Staying on active duty was a major physical/emotional stress, and retirement was an immediate improvement in my health.

In retrospect I’m really glad that I didn’t learn how to surf until I’d retired, because I’m not sure I would have been able to make the right decisions every day about work versus surf…


Related articles:
Military drawdown brings new career, pay, and benefits changes
Military experience to civilian careers
Military retirement with low savings
Starting your bridge career after the military
How many years does it take to become financially independent?

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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. Thanks to Gunny at CitizenBlogger1984 for providing a link to news of the pending Marine Corps early retirement announcement:
    Marines to offer early retirement, with benefits

  2. What a great post Doug!

    Comment? Question? What's on your mind?