Considerations for the Post-Military Route to Retirement

When you enlist in the military, it doesn’t take long to start taking advantage of perks like allowances, tax breaks, insurance and more.

One perk that requires a lot more patience to acquire is retirement. Currently, the 20-year stipulation for eligibility still stands, although there has been debate over future changes. The decision to enlist for 20 years is a big one with a lot of contributing factors—especially with the possibility of a structural change in the future.

Here are some things to think about when considering making the military an all-out career:

The Pay System as of Now

Currently, the military retirement system offers three options that vary depending on enlistment date. All three award a certain percentage of your basic pay after 20 years of service, scaling up to 100 percent after 40 years.

When calculating your potential retirement pay, you’ll need to take into account the basis for which Final Pay, High 36 or REDUX calculate the amount. Each take a different approach to averaging your highest earnings, multiplying the years of service with a certain percentage of pay as well as adjusting the amount for any COLA and Career Status Bonus.

Knowing these factors can help you determine your future budgeting approach and whether you want to find another career post-military.

Potential Changes

The federal government is considering changing the military’s retirement structure into more of a 401(k)-type system. The idea is to provide a source of retirement savings for military members who leave before hitting that 20-year mark. Still, service members would have to take into consideration that they wouldn’t receive the compensation until age 57-60.

Another option that has been discussed is to raise the requirement up to 30 years of service in order to receive full retirement benefits, but offering reduced benefits at 10 and 20 years of service. Only about 17 percent of service members stay in for 20 years.

It's also likely that retired military personnel will continue to face increased healthcare premiums over the next few years.

Regardless of your particular retirement plan, make sure to leave some flexibility in your budgeting in case disbursement changes.

Planning for Retirement

Take any counseling briefings or look over guides offered by your command, usually about 12-24 months before your separation date. That way you can discuss and review your options, learn about your family benefits and give yourself time to implement your retirement plan before you make any final decisions.

It’s also a good idea to calculate your expected retirement pay in order to get an idea of what you will need to save.