Here’s a summary of a conversation with a National Guard servicemember who’s contemplating moving from a drill billet to the Individual Ready Reserve. We talk through all aspects of the decision, how to deal with the IRR, and how the Guard/Reserve military pension is calculated.
At the end of the post, I’ve included several “Related links” to other posts on serving in the Reserves and National Guard. They include both drilling and in the IRR, and the challenges of getting enough “good years” to qualify for retirement.
I have a few quick questions for any of the military folks out there regarding a National Guard retirement. I’m sitting at nearly a decade years in the Army National Guard with around 1900 retirement points. I have a couple months left where I have to make the decision to either resign, transfer to the IRR, or stay in a drill billet.
Is it worth staying in the IRR for another 10 years to earn a military retirement?
This question comes up a lot (especially during a drawdown!) and it’s an intensely personal decision. I’m not taking a particular stand on this issue– just reporting the news with a little analysis.
You know you’ve reached your Guard work/life balance when your family, your civilian employer, and your military unit are all equally annoyed with you.
The military is just one aspect of the bigger problem, and other solutions would be changing your employer– or your family. Hold on to that thought for a moment.
The #1 regret of my older readers
I get a lot of reader e-mails, and the #1 regret of my readers in their 50s and 60s is that they wish they had some sort of military pension. “If I had just stuck around a little longer to get 20 good years”… In a few paragraphs, we’ll show how to put the important numbers on that benefit.
The #2 regret is that they miss the military camaraderie. It’s who you are, and if you have to sacrifice that (for family or employer) then you risk a lot of unhappiness. You could try to morph your identity into someone else, but the military camaraderie is still a part of it.
What keeps people from getting to 20 good years? What takes them away from the camaraderie, and hopefully replaces it?
Family. The biggest challenges are usually caregiving (for a spouse or elder) or a special-needs child. I agree that the best option in those situations is going into the IRR.
For a short-term family problem, you could reschedule drills or take a few months of authorized absence. You could go to the IRR for just one year (hopefully still earning a good year) and then reapply for a drill billet.
But if the issue is a spouse ultimatum about family time (or, in some cases, child custody with an ex-spouse) then your sacrifice (leaving the military) might not resolve the spouse’s ultimatum. Ideally, a more thorough discussion (or even counseling) would help bring clarity to that problem. However, every personal family situation is different.
I also know veterans who go back into the service. I think the best person to consult on this challenge is Ryan of The Military Wallet. Ryan left the Air Force in 2006 (for very good reasons) but he rejoined the Air National Guard a couple of years ago. He missed the camaraderie and he also wanted to assure his entrepreneurial financial independence with a pension at age 60. Joining the Guard took an age waiver and a significant medical exam, along with over a year to navigate the approval process. But he’s much happier in the ANG, and his military career is taking off again. Please consult him (Ryan at TheMilitaryWallet.com) before you make your irrevocable decision. *
Civilian career. If your civilian employer is not accommodating your Guard career, then find a different employer. Simple as that. Your only alternative is to give up part of who you are in the hopes that the corporate machine will uphold their end of the employment bargain. I doubt that they will, and then you’d end up changing employers anyway. If your employer is not military-friendly then they’re also not employee-friendly, and that relationship will turn sour even if you can get your good year through IRR points.
Earning retirement points in the IRR (or not)
The Guard member next asked:
Maybe the question is simpler than I’m making it, but for this to work I would need 50 retirement points a year for the next 10 years, something that could be accomplished through 150-hours of distance learning annually.
10 years * 50 points/year = 500 points
500 points * 3 hours DL/point = 1500 hours of distance learning in the next 10 years.
You’ll be relieved to learn that you’re awarded an additional 15 “participation points” when you reach 35 points of correspondence courses in the IRR. That makes it a little easier to get a good year. So technically you’ll only need to earn 35 points per year in the IRR and you’ll only exert 1050 hours of distance learning.
However, correspondence courses are not a panacea and that distance learning might involve driving some distances. Eddie at Gubmints.com has pointed out several times that the Navy has greatly restricted the courses which can be used for IRR points, and (even worse) Navy Reserve IRR members no longer have CACs. Consider whether you could handle this in the Guard if that happened to your unit.
Getting to 50 points (or earning your 35 points) per year in the IRR may be a lot harder than it seems. If you don’t have a CAC in the IRR, are you able to drive to a Guard armory where you can log into a DoD system without a CAC? Can you set aside the time in your life to make that happen? Will the Guard cut back on the “authorized” courses to the point where you can no longer reach 500 points (or 350 points) to qualify for retirement?
Losing Tricare insurance in the IRR
When you’re a drilling Reserve/Guard member you’re eligible for Tricare Reserve Select. If you transfer to the IRR– even for a single day– then you lose your Tricare Reserve Select coverage. You may be able to find equivalent health care through a state or federal healthcare exchange under the Affordable Care Act, but you’ll either spend more money than TRS or have much higher deductibles.
Healthcare should not be the only reason that you stay in a drill billet, but if you’re going to leave that billet then you need to make sure you have another source of health insurance.
Is the pension worth the IRR points?
As an O-3 I earn $0.481/month/point, so at I minimum I could collect $1154/month at age 60 assuming the rates don’t change in the next 10-years. Assuming I live for 30-years into retirement, I’ll collect approximately $415.5k.
That “pennies per point” pension assumption is flawed by its inaccuracy. If you’re making a financial choice (instead of a family/employer decision) then once you have more accurate numbers you can reframe the other issues in the discussion.
I’d suggest using your current rank in the current year’s pay tables. (If you go to the IRR then you’re probably at your terminal rank.) The federal law of the military Reserve/Guard pension system in Title 10 U.S. Code section 1407(d)(1)(A) says that if you retire awaiting pay (“gray area”) then your longevity accrues until age 60 just as though you were still on active duty. In other words, you’ll be at the maximum O-3 column of the pay tables that are in effect in the year when you turn age 60.
The first assumption is to hope that today’s military pay keeps up with inflation and the Employer Cost Index. It’s a gross approximation, but it lets you use today’s pay tables to estimate your pension amount at age 60.
Second, you’ll use the maximum pay of your terminal rank in your pension calculation. This year’s maximum O-3 pay of $6448.20/month is over 10% higher than your current $5818.80/month base pay.
If you retired at 2400 points then your pension (at age 60, in today’s dollars) would be roughly:
2400 / 360 * 2.5% x $6448.20 = $1074/month.
[Note: for the Blended Retirement System, the multiplier is 2.0% instead of 2.5%.]
You could correct that rough estimate for the High-Three average of the highest 36 months of the paytable (the pay tables in effect when you’re ages 57-59). Take ~96% of that amount or lowball it at $1030/month.
Would you take $1030/month at age 60 as the payoff for earning 20 good years? What if you kept drilling instead, and achieved up to 75 points per year? That’d be 750 points instead of 500, and 2650 points instead of 2400, and $1139/month instead of $1030/month.
If you wanted an inflation-adjusted annuity today that generated $1030/month at age 60 then you could buy I bonds yielding 1.64%/year. That portfolio would cost over:
[$1030/month x 12 months/year] / 0.0164 = $750K.
That’s the present value of the deferred compensation you’re giving up by leaving the Guard without reaching 20 good years. If you stayed drilling (and reached 2650 points) then your $1139/month would cost $830K.
I’d lose my 1900 retirement points and my only retirement benefit would be the $20,000 or so I have in the TSP.
If you go into federal civil service (and some states) then you can use your years of military service to buy extra pension credits and also accrue vacation time at a higher rate. See Gubmints.com again for the details of the military service credit deposit.
By the way, I’d leave your money in the TSP. Try not to touch it until age 59.5, or leave it in the TSP until the last minute before you convert a traditional TSP account into a Roth IRA.
Family has a higher priority than money, but I’d certainly bring up the money during the spouse discussion. And unless you have a great guarantee of employment continuity, I’d put a higher probability on the chance to earn a present value of $750K in the military than from a civilian employer.
But I might be mobilized!
Then, there is always the possibly of a mobilization. If they were to call me up right now I would just walk away (as I have no commitment). I’m not sure how I’d feel about it five years from now. In any case, If I make the choice not to mobilize when called, I’ll be discharged and lose any prospect of retirement. If America stays relatively war-free for the next 10 years, I have nothing to worry about and can complete the IRR requirement without issue.
During the last decade thousands of soldiers were mobilized from the IRR. Your risk would hopefully be relatively remote, but that depends on your skills.
The only way to drive that risk to zero is to resign from the Guard. Not IRR, and not retired awaiting pay, but resign and be discharged.
My other plan was to transfer to the Air National Guard and finish up there, but the prospect of AF flight school at age 30 wasn’t exactly appealing.
Does this line of thought seem a little… limiting? Especially compared to 10 years of IRR purgatory or the “final option” just walking away from the military altogether?
You may have already verified that the ANG wants you to go through flight school. But even if that’s the case, you’re an O-3 with far more skills than just maintaining continuity of flight. Your first choice might be to find a similar O-3 billet in a different Guard armory, even if you have to commute for drills.
But going into the nearest ANG unit with your O-3 skills might qualify you for quite a few billets that do not involve flight school. And if Ryan can do switch military specialties at age 35 with a waiver, I’m pretty sure you can hack it at age 30.
Switching military careers certainly beats ultimatums from employers & families… or even worse, switching them instead.
Is it ever a bad idea to just walk away?
Everyone that I work with in the Army thinks it’s crazy to stop at the 10-year mark and they would all stay until retirement, no questions asked. I’m fed up with everything and definitely need a break. It’s hard to figure out whether that break is a complete disconnect from the service (resigning my commission) or just a stint in the IRR.
This decision is never easy. Walking away may still be the right option, especially for caregivers and special-needs kids.
In general, the better choice has been to keep drilling.
* [Another note about Ryan: during his last trip to Oahu he was our houseguest for a week. We discussed a lot of military personal finance and the rockstar blogger life. (My spouse said that she’d never seen two adult males exchange so many words with each other.) He’s been blogging for nearly a decade and he’s a financially successful entrepreneur with a strong lifestyle business. He also has a great family. When someone like him goes through all the extra effort of returning to drill status in the Reserve/Guard, it’s a sign that our commitment to service and the military camaraderie are more important to both servicemembers and veterans than “just” the money. According to Ryan, the Tricare is pretty good too.]
Military Retirement From The Individual Ready Reserve (including more IRR links)
Navy IRR Survival Guide 2016 (Gubmints.com)
Understanding Guard and Reserve Points – How to Earn Points And Retire (TheMilitaryWallet.com)
Re-Joining The Military After A Long Break In Service (MilitaryFinancialPlanner.com)