Retirement
The Military Pension and Retirement Asset Allocation
Jonathan Clements is one of my favorite authors. As a prior financial columnist for the Wall Street Journal and current author of the Humble Dollar blog and money guide, he doles out common sense advice on a regular basis. One of his tenets of personal finance is to take a holistic approach to your financial life and include everything you’ve got and will receive when deciding on your asset allocation and risk tolerance.
In 2017, he published a blog post discussing how he values future income, Social Security, and pensions. If you stick around the military long enough to get an inflation-adjusted pension, his approach and the security of the pension would allow you to take on a lot of additional risk, more than many traditionalists would recommend. He and I discussed this very issue in the comments section, so do me a favor and read the post.
My comments to him were:
I am a huge fan of your writing AND the beneficiary of an inflation adjusted pensions if I stay in for 20 years, which is quite valuable. You advocate for including the value of social security (SS) and pensions in your overall asset allocation, but the other side of the camp would argue you should not because you can’t rebalance with SS or pensions. The present value of SS and an inflation adjusted military pension can be quite large, and with your approach would likely represent all of a person’s “bond holdings” unless they were very wealthy or extremely conservative.
For example, if a retired military member wanted to generate $75K in annual income, and was going to get $15K/year from SS and $35K/year from his/her military pension, that would leave $25K/year they need to generate income from. Using the 4% rule, they would need about $625K in investments.
If they wanted a 50/50 stock/bond portfolio, using your approach they might own all $625K in stocks. They’d have nothing to rebalance with when the stock market soared.
Using the argument of those who don’t agree with your way of allocating assets and don’t include SS/pensions as bond-like, they’d own $312.5K of bonds and $312.5K of stocks. They could easily rebalance.
Does the case of someone with a very large, inflation adjusted military pension change they way you’d approach retirement asset allocation?
His reply:
What you describe falls firmly into the category of “nice problems to have.” If I had $50k guaranteed every year and needed another $25k from investments, I’d set aside $125k of my $625k portfolio in cash and short-term bonds, to cover the next five years of required portfolio withdrawals. And then I’d probably put much or all of the remaining $500k in stocks.
How to Easily Figure Out the Dollar Value of Staying In vs Getting Out of the Military
Here is a table from the 2019 Statistical Report on the Military Retirement System:
Just by looking at this table, you can very easily learn a few things including:
- The dollar value of staying in for 20+ years and receiving a retirement pension.
- The incremental value of staying on active duty for additional years once you are retirement eligible.
The Dollar Value of a Military Pension
Let’s say you are an O-4 who has the option of resigning/separating at the 12 year mark. You think if you stayed in until 20 years you could make O-5, but you’re not sure just how valuable that military pension really is. You can figure that out by looking at the table above, and you can see that a 20 year O-5 pension has a dollar value of $1,458,837. You can reduce this value by about 20% ($1,167,070) if your are in the Blended Retirement System and would only get 80% of the full pension. That is what you’d be giving up by getting out at the 12 year mark as an O-4 and not staying in long enough to get the pension.
The Value of Staying Additional Years Once You are Retirement Eligible
Let’s say you are a 20 year O-5 who is weighing an extra 4 year commitment, and you think you could make it to O-6 if you stayed until 24. What is the dollar value of sticking around when it comes to your retirement pension?
We already mentioned that a 20 year O-5 pension was worth $1,458,837. If you stayed in another 4 years and made O-6 the value of your pension would have increased by $526,879 to $1,985,716, an average of $131,720 per extra year you stuck it out.
The Bottom Line
There are a lot of factors to consider when you are making the decision to stay in or get out, but by looking at the table above you can pretty easily quantify dollars values associated with:
- Staying in for 20+ years and receiving a retirement pension.
- The incremental value of staying on active duty for additional years once you are retirement eligible.
The Easiest Way to Get Rich in the Military – Take the Leap and Just Stay In
Because of the value of the government pension, staying in is the easiest way to get rich. And when I say “staying in” I’m not talking about becoming the Surgeon General of the Navy. I’m talking about doing a reasonable job as an officer for at least 20 years. Let’s look at the most common scenario.
A 20-Year O5
Let’s assume that an officer was commissioned in 1999 at the age of 22, and stayed in 20 years until 2019, making it to O-5. According to the DoD actuarial tables, the value of a 20-year O-5 pension is $1,458,837.
Yes, just by staying in for 20 years you are already a millionaire and you’re only 42 years old. Depending on how much you saved in the TSP, you could be a multi-millionaire or darn close to it.
You Can’t Screw It Up
People try to time the stock market, wind up buying and selling investments at the wrong time, take loans from their retirement accounts, don’t save/invest enough, and find all manner of ways to screw their finances up. But when it comes to the military pension and the value it provides, the best thing about it is that you can’t screw it up.
Stay in for 20+ years…do a reasonable job and promote at the normal times…you’re rich. It’s that easy.
Throwback Thursday Classic Post – What is the Obligation for Accepting Promotion? What if You Don’t Want the Promotion?
Question: What is the obligation for accepting promotion?
Answer: There is no obligation if you end up resigning. If you want to retire, though, the additional obligation is:
- 2 years for LCDR
- 3 years for CDR and CAPT
This can all be found on page 5 of OPNAVINST 1811.3A. Or you can read one of my other posts called “You were accepted for promotion to O5 or O6 – should you accept it?” where I break it all down for you.
Question: What if you want to decline the promotion? The promotion NAVADMIN that comes out every month tells you how to decline it in paragraph 2:
2. If a selected officer does not decline promotion in writing prior to the
projected date of rank (noted above in paragraph 1), that officer is
considered to have accepted the promotion on the date indicated. An officer
who chooses to decline promotion must submit the declination in writing to
COMNAVPERSCOM (PERS-806) within 30 days of the release of this
NAVADMIN. Limited duty officers declining appointment to lieutenant will be
reverted to enlisted status within 90 days of projected promotion date.
Skillbridge Program for Separating Service Members
The DoD SkillBridge program provides an opportunity for Service members to gain valuable civilian work experience through specific industry training, apprenticeships, or internships during the last 180 days of service. SkillBridge connects Service members with industry partners in real-world job experiences.
For Service members SkillBridge provides an invaluable chance to work and learn in civilian career areas. For industry partners SkillBridge is an opportunity to access and leverage the world’s most highly trained and motivated workforce at no cost. Service members participating in SkillBridge receive their military compensation and benefits, and industry partners provide the training and work experience.
SkillBridge is an excellent benefit for installation and Unit Commanders who have members nearing military separation. SkillBridge can help Service members bridge the gap between the end of service and the beginning of their civilian careers. Commanders can greatly ease this transition to civilian life by supporting their reports’ interest in SkillBridge. When mission permits, Commanders who support SkillBridge participation are helping their personnel transition more seamlessly from service to a civilian career with a trusted employer.
Separating Service members can be granted up to 180 days of permissive duty to focus solely on training full-time with approved industry partners after unit commander (first O-4/Field Grade commander in chain of command) provides written authorization and approval. These industry partners offer real-world training and work experience in in-demand fields of work while having the opportunity to evaluate the Service member’s suitability for the work.
The link below will take you directly to the DOD SkillBridge webpage, which will provide you with additional information:
https://dodskillbridge.usalearning.gov/program-overview.htm
**NEW** Amazon is now officially a DoD SkillBridge provider, meaning they can take in active duty military members into Amazon for internship opportunities and upon successful completion they can extend them full time offers to become Amazonians! Military Affairs is launching internship opportunities this year in select operation sites. Service members can apply now for these opportunities by typing in “Amazon Military SkillBridge” on amazon.jobs and they are hosting a webinar today with more information about this cohort (flyer attached). Please spread the word to your active duty friends and family members. If they have any more questions about Amazon Military SkillBridge (AMSB), feel free to direct them to militaryskillbridge@amazon.com.
A short video about this cohort:
Military Times 2020 Guide to Military Benefits
Here’s a link to this on-line guide that covers Basic Pay, BAH, retirement, family support, VA loans, TRICARE, and educational benefits. It is a great resource if you have questions about how something works:
Expanded Opportunity for Retire/Retain for Officers with Pending Statutory Retirement
Anyone with an upcoming statutory retirement that would be interested in staying on active-duty should read the NAVADMIN below. Statutory retirements include retirements required by law for age, years of commissioned service, years of active service, or pursuant to twice failure of selection to the next higher grade.
This is not for people who are voluntarily retiring or separating and want to stick around for an extra 6-12 months, perhaps because you can’t travel to interview, you are not sure of the civilian job market, or you just want to continue to serve. That one can be read at this link.
NAVADMIN 105/20
PASS TO OFFICE CODES:
FM CNO WASHINGTON DC//N1//
INFO CNO WASHINGTON DC//N1//
MSGID/NAVADMIN/CNO WASHINGTON DC/N1/APR//
SUBJ/EXPANDED OPPORTUNITY FOR RETENTION ON ACTIVE-DUTY IN A RETIRED STATUS
FOR ACTIVE-DUTY OFFICERS WITH PENDING STATUTORY RETIREMENTS//
REF/A/NAVADMIN/OPNAV/212007ZMAR20//
REF/B/NAVADMIN/OPNAV/261427ZMAR20//
REF/C/DOC/BUPERS/23APR12//
NARR/REF A IS NAVADMIN 080/20, NAVY MITIGATION MEASURES IN RESPONSE TO
CORONAVIRUS OUTBREAK UPDATE 3. REF B IS NAVADMIN 089/20, VOLUNTARY
EXTENSIONS FOR ACTIVE COMPONENT NAVY MEMBERS WITH APPROVED SEPARATION OR
RETIREMENT DATES. REF C IS MILPERSMAN 1811-010, RETENTION ON OR RECALL TO
ACTIVE-DUTY IN A RETIRED STATUS.//
RMKS/1. This NAVADMIN expands the deliberate path of the Navy to mitigate
the effects of COVID-19 as announced by references (a) and (b). Due to the
uncertainty regarding the duration of the COVID-19 pandemic and the need to
maintain operational, Sailor and family readiness, this NAVADMIN will help
provide additional stability to both the Navy and our families.
2. The Navy is accepting applications from active-duty and full- time
support (FTS) officers in the rank of captain or below with a statutory
retirement date between now and 1 December 2020 who desire to be retained on
active-duty in a retired status (often referred to as retire/retain).
Statutory retirements include retirements required by law for age, years of
commissioned service, years of active service, or pursuant to twice failure
of selection to the next higher grade. The period of retention, if granted,
would extend through 31 December 2020, or earlier if requested, and is only
applicable to retention at the current command of the officer.
Officers granted retire/retain are not eligible for permanent change of
station (PCS) orders.
3. Reference (c) provides many details regarding retire/retain.
However, the limit on the authorized number of retired officers retained in
an active status and the submission time requirements for a retire/retain
request are relaxed. Requests submitted per this NAVADMIN must be received
prior to the retirement date of the officer to enable review and adjudication
of the request before retirement, but not later than 1 July 2020.
Interested, eligible officers are encouraged to submit applications as soon
as practicable.
4. Requests for retention in a retired status are submitted by the officer
via their commanding officer to Navy Personnel Command, Officer Retirements
Branch (PERS-835) by e-mail to pers_835_retirements(at)navy.mil. The
retire/retain request shall include the following information:
a. Retirement date of the officer and a request for a retention duration
ending on 31 December 2020, or earlier if desired.
b. Justification and reason for request (cite this NAVADMIN).
c. E-mail address and phone number of the officer.
5. Requests will not be approved for officers who have approved retirement
as a result of:
a. Disability,
b. Selection for early retirement by a selective early retirement board
(SERB), or
c. Secretary of the Navy direction for misconduct.
6. Notification of approval or disapproval will be provided to officers via
their chain of command.
7. Questions regarding retire/retain should be referred to PERS-835 at
pers_835_retirements(at)navy.mil.
8. Released by Vice Admiral John B. Nowell, Jr, N1.//
Voluntary Extensions for Those Separating or Retiring
Provided below is a new NAVADMIN announcing the Navy is accepting applications from officers and enlisted personnel who desire to delay their separation or retirement. Service Members with an approved separation or retirement date before 1 April 2021 are eligible to submit a request to their Detailer to have their separation or retirement date delayed between 6 and 12 months (duration specified by Service Member). All Service Members interested in extending, are invited to apply, but priority for approval will be given to those Service Members filling sea duty and critical billets. Requests must be received by 1 July 2020. Please see below for more specifics and contact your Detailer with questions.
UNCLASSIFIED//
ROUTINE
R 261427Z MAR 20 MID110000525665U
FM CNO WASHINGTON DC
TO NAVADMIN
INFO CNO WASHINGTON DC
BT
UNCLAS
NAVADMIN 089/20
PASS TO OFFICE CODES:
FM CNO WASHINGTON DC//N1//
INFO CNO WASHINGTON DC//N1//
MSGID/NAVADMIN/CNO WASHINGTON DC/N1/MAR//
SUBJ/VOLUNTARY EXTENSIONS FOR ACTIVE COMPONENT NAVY MEMBERS WITH APPROVED
SEPARATION OR RETIREMENT DATES//
REF/A/NAVADMIN/OPNAV/212007ZMAR20//
NARR/REF A IS NAVADMIN 080/20, NAVY MITIGATION MEASURES IN RESPONSE TO
CORONAVIRUS OUTBREAK UPDATE 3.//
RMKS/1. This NAVADMIN announces the deliberate path of the Navy to mitigate
the effects of COVID-19 and maintain operational, Sailor and family
readiness. Due to the uncertainty regarding the duration of the COVID-19
Pandemic, the mandated all stop on PCS travel and the resulting effect on the
U.S. economy, the incentives and extensions in this NAVADMIN will help
provide some stability to both the Navy and our families.
2. The Navy is accepting applications from officers and enlisted personnel
who desire to delay their separation or retirement.
Service Members with an approved separation or retirement date before 1 April
2021 are eligible to submit a request to their detailer to have their
separation or retirement date delayed between 6 and 12 months (duration
specified by Service Member). All Service Members interested in extending,
are invited to apply, but priority for approval will be given to those
Service Members filling sea duty and critical billets. Requests must be
received by 1 July 2020.
Command endorsed requests to delay a separation or retirement date should be
initiated through the appropriate detailer.
a. Service Members who are separating or retiring due to High Year
Tenure (HYT) may apply for a waiver of their current HYT gate.
HYT waivers will be considered for up to an additional 12 months for enlisted
Sailors filling critical operational billets both at sea and shore. Requests
will be approved on a case-by-case basis.
Sailors will submit a command endorsed Form 1306/7 Enlisted Personnel Action
Request (ePAR) to My Navy Career Center (MNCC) via MyNavy Portal or by
emailing the ePAR request directly to askmncc(at)navy.mil.
b. Service Members who are separating at their EAOS prior to 31 December
2020 due to Physical Fitness Assessment (PFA) failures may request an
extension to their EAOS until 31 December 2020 to enable participation in the
fall PFA cycle and potentially regain reenlistment eligibility. Extension
requests under this guidance should be forwarded on a command endorsed Form
1306/7 to MNCC via MyNavy Portal or by emailing the ePAR request directly to
askmncc(at)navy.mil. Officers should contact their detailers.
c. Enlisted Sailors with an approved separation or retirement date who
are in billets that are eligible for Sea Duty Incentive Pay (SDIP) and who
are approved for a voluntary extension as described above will receive SDIP
for those extensions. Exceptions to the timeline to request SDIP and to the
length of extension for SDIP have been approved to accommodate these
requests. The latest SDIP eligibility chart can be found at
https://www.mnp.navy.mil/group/pay-and-benefits. This chart is updated
periodically so check for recent additions. For Sailors who are in an SDIP
eligible billet, a Form 1306/7 ePAR should be submitted to MNCC at
askmncc(at)navy.mil and your detailer.
d. While all Service Members are encouraged to apply, the following will
not be approved:
(1) Service Members pending mandatory separation or retirement for
age.
(2) Service Members approved for disability separation or retirement.
(3) Officers who twice fail to select for promotion and whose
separation or retirement is required by law.
(4) Service Members being separated for misconduct.
3. In addition to extensions for Service Members with approved separations
and retirements, the Navy is opening up opportunity for separated Service
Members to come back to Active-Duty.
Specifically, Service Members who have recently separated and are interested
in reentry are encouraged to contact their local prior enlisted or officer
recruiter.
4. Questions regarding delaying a Service Members separation or retirement
date should be referred to the appropriate detailer, community manager or by
contacting MNCC. The point of contact for questions regarding SDIP is Mr.
Keith Tucker, PERS-40DD, 1-901-874-3545 or Keith.Tucker(at)Navy.mil.//
5. Released by Vice Admiral John B. Nowell, Jr, N1.//
BT
#0001
NNNN
UNCLASSIFIED//
TAP Available Online for Transitioning Sailors
WASHINGTON (NNS) — The Navy has suspended all in-person Transition Assistance Program classes due to social distancing rules now in place to prevent the spread of the coronavirus.
But the Navy is not eliminating the training requirement and instead is authorizing all separating and retiring sailors to complete this requirement online, allowing them to separate on time.
Here’s what you need to know:
“Commanders must continue to ensure transitioning Service Members are prepared to reintegrate into the civilian community, especially in the challenging times we face. Vice Adm. John B. Nowell, the Navy’ top uniformed personnel official said in NAVADMIN 082/20.
Active-Duty Sailors retiring or separating are exempt from the stop movement, which means that separations and retirements will go on as scheduled, unless Sailors request and are approved to reenlist or extend
The course completion requirement is also still in place for Reserve Sailors on active-duty orders for more than 179 days as well as mobilized reservists within 60 days of redeployment and demobilization.
For those with enough time left on the books, the message recommends they simply reschedule for a later date.
Those inside their 365-days prior to separation start time or 90-days prior to separation Capstone requirement must complete their training through the Joint Knowledge Online Website. Details on the TAP virtual curriculum to include links to the training available on the Department of Defense Transition Assistance Program Website.
What’s not changed is the requirement for initial Self-Assessment Counseling, Pre-Separation counseling and Capstone sessions. These can still be done in-person using proper social-distancing protocol or telephonically by command career counselors or TAP managers.
TAP related questions can be directed to Mr. Tom Albert, OPNAV N170C, at (901)-874-4254, DSN 882 or via e-mail at tom.albert@navy.mil.
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