How The Military Can Make You A Millionaire

By Ric Edelman
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Spring 2004

How can you get the military to give you a $1,167,448
bonus? It's simple: All you have to do is retire with
an annual pension of $35,000 at age 43 after 20 years
of service. Assuming you receive your pension until
age 85, $1,167,448 is how much your military pension
is worth in the civilian world.

We all know military benefits are pretty good. You get
mess hall and PX privileges. You can take advantage of
on-base housing and living subsidies, including
medical care. And you get a pension - an incredible
pension! In fact, it's so good that few people in
civilian positions ever get this kind of opportunity.
So let's examine the numbers behind a military
pension.

Retiring servicemen and women can expect to get 50
percent of their base pay from their pensions after
completing 20 years of service. Let's use the example
of an O4 whose monthly base pay, as of January 2003,
was $3,311.10. With an annual three percent cost of
living adjustment (COLA), that same officer can expect
to earn $5,980 a month in 20 years, or $71,762 a year.

Assume this soldier retires at age 43 with 20 years of
service but with no increase in rank. Also assume that
this soldier can also expect an annual three percent
COLA after he or she retires. In the civilian world,
you would need to have saved $1,167,448 to receive a
$35,000 pension from age 43 to age 85, and to get a
mere three percent increase on that pension money
every year. That, in short, is how much a military
pension is worth.

Now, of course, the civilian world is known for paying
higher salaries. So, let's assume we take a young
person at age 23 starting in the workforce. To have
the same benefit as you get in the military, a
civilian would have to save $1,524 a month from day
one and obtain a 10 percent average return on his or
her savings for the next 20 years. I can assure you
that this is not a reasonable goal.

But suppose you put in 10 years of service and then
leave to pursue a higher-paying profession. You will
likely earn a lot more money, but you'll also likely
have a lot more expenses, and may not be able to save
at the required rate to enjoy the same benefit a
military pension may be able to offer. Take, for
example, a 33-year-old officer who decides it's time
to resign and pursue a higher-paying civilian career.

If the officer wants to save enough to reach the
$1,167,448 target amount in 10 years, the amount
needed to equal a military pension of $35,000 a year
with a three percent COLA, he or she would need to
save $5,652 a month. That's almost four times as much
as if a person started saving at age 23 - and
virtually impossible to do. This monthly savings
figure is so much higher because so little time is
available for the money to compound. The amount of
money that has to be saved each month has nearly
quadrupled, because the time frame for saving has been
cut in half. That's how compounding works; it grows
your money exponentially.

It may seem as if your civilian counterparts are doing
better financially, because they earn more money and
can buy more things. But, in reality, you may discover
you're doing better in the most important financial
area. It's this lack of understanding that causes a
lot of people in the service to leave the military
before they're eligible to retire. They think they can
do better financially in the civilian world.

That's why it pays to look at what a military pension
can mean to you from a financial planning perspective.
By looking at the actual numbers and using some basic
assumptions, financial planning shows just how
valuable a military pension can be.

If you're thinking about resigning and moving into a
civilian profession, you may want to think again about
what you might be giving up. The safety and security a
lifetime pension has to offer may be worth a lot more
than you think. If you want to find out, talk with a
financial professional and do the math for your own
situation. You may be surprised at what you see.

__________________
CH-47 SI

They must find it difficult...

Those who have taken authority as the truth, rather than truth as the authority. --Gerald Massey

Retiring servicemen and women can expect to get 50
percent of their base pay from their pensions after
completing 20 years of service.

If I remember correctly that changed several years ago you no longer get 50% at 20 years I was thinking how glad I was that I retired befor they changed the rule. I could be wrong but I think you can retire with les than 20 now but I am not sure.

__________________
Just my humble opinion!

You are both right. Back in 1986, the law changed the retirement to 40%. A few years back the government "saw the error in their ways" and offered an option for personnel once they reached their 15th year of service. At that point you have to pick between a $30,000 lump sum and stay at 40% or switch to the 50% top three years option.

So, basically they were banking that everyone would see oooooooh $30K, I better take that. Then the money got taxed and they ended up with a nice sum, but frankly a pittance. In the beginning it was marketed that you could invest that money and make a killing, but...we all know that most wouldn't do that. The deal is so bad that support centers are now briefing young servicemen and advising them not to take the lump sum deal.

I'll be happy to take my 50% when I retire and know that it is guaranteed income for the rest of my life in hopes that I'll live to 110.

Yes, but that is not the entire story. If you stay past 20 (taking the 30,000) I can still end up retired with 75% at 30. If i stay till 23 I'm already at 50%.

There were good and bad deals that went with it. You just have to 'Money Smart". Believe me some were not.

I took the $30,000. I'm now debt free (except for a new car) I'll retire when i'm 37 at 40% (or if I stay longer my yearly 3.5% will start) and start making real money so i can have a second retirement when ever that comes.

__________________
CH-47 SI

They must find it difficult...

Those who have taken authority as the truth, rather than truth as the authority. --Gerald Massey

DOD periodically offering early retirement has absolutely nothing to do with them seeing the error of their ways for any past mistakes. You folks still on active duty should be screaming to your congress to go back to, and stick with, the fifty percent of base pay at twenty year retirement. Most military people move around their whole career and do not get the chance to build up equity in a home. Your fifty percent retirement is your house payment. This move to the TSP for active duty is nothing more than a hidden agenda to do away with the military pension, like all other pensions. Beware what you ask for, or what you think is best based on current circumstances. Millionaire? In military service? right, there is no way congress and any administration will ever let it be possible for those kinds of funds to be accumulated by active duty enlisted forces. The fifty at twenty and seventyfive at thirty pension was the best thing going and it should be fought for. Most politicians, especially those in the ruling party are expert at yelling support the troops from one side of their mouth while figuring out ways to jerk you around from the other side of their mouth and make you think it is the best thing since white bread. Benefits and retirement should be rolled back to what they were in 1973, for every retiree and veteran. Don't buy the hype that they can't afford it. Thats what makes you easy targets. You are earning the same rights to benefits that your fathers and grandfather had and only you active duty can pressure the system to bring it back to the way it was.

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Turk Quid Pro Quo

I was in 21 years. I get 52.5%. The people today on active duty should get on their members of congress. The latest rumor is stay on active duty for 20 years, but you will have to wait until you are 65 to receive retirement pay. They already did away with free medical care for life. I don't hear of any plans to change the politicians retirement plan.

That is what we have now. You just have to option to take $30,000 at 20 years or 50% at 20 years.

If you take the $30,000 at 20 years anything over 20 years you get 3.75% yearly pay raise which at 30 years will equal 75%.

If you take the 50% at 20 years anything over 20 you get a 2.5% yearly pay raise which equals 75% at 30 years. But they take your 3 highest months during your time, add those up and divide by 3 and then half that number and that is what your pay is.

__________________
CH-47 SI

They must find it difficult...

Those who have taken authority as the truth, rather than truth as the authority. --Gerald Massey

That is a rumor that will not happen, just like the 10 and 15 year retirement.

If for some reason that did pass for not recieving your retirement until 65 that would not bother anyone who is already in. It would only affect people who have yet to join.

Talk about enlistment #'s going way down if that bill passes....

__________________
CH-47 SI

They must find it difficult...

Those who have taken authority as the truth, rather than truth as the authority. --Gerald Massey