At some point, even the most dedicated soldiers, sailors, airmen, and Marines will end their service. Knowing precisely when to call it a career, however, isn't always easy. That's true about any organization, but it's arguably an even more difficult judgment when deciding whether to transition out of the service.
Given the importance of making the right decision, let's examine the variables that come into play when pondering when to begin military retirement.
The Financial Implications of Retirement
For most military personnel, pension qualification is the most critical factor influencing retirement age. For those who joined in 2018 or later, you'll need 20 years to qualify for a pension benefit of 40% of your final base pay. However, those who depart before 20 years may be able to claim partially vested pensions. In addition, those with 30 years of service can earn a pension benefit of 60% of their final base pay. This relatively new Blended Retirement System means that more servicemembers will receive benefits, though the 20-year pension benefit is lower than before.
In the private sector, retirement decisions are typically made when a worker reaches the age of 60 or higher. In the military, the timing is accelerated, often occurring as early as the late 30s. By this time, many military members can embark on a more lucrative second career while still drawing their pension and possibly even healthcare benefits.
Sounds like a no-brainer, right? Not quite – the decision is quite a bit more complicated for most servicemembers.
Weighing the Merits of Staying Versus Leaving
While starting a secondary career armed with your pension and benefits certainly sounds attractive, deciding when to jump can be tricky. After 20 or more years in the armed forces, servicemembers aren't always ideally suited for a seamless transition to civilian work. This can create some uncertainty regarding securing a personally and financially rewarding second career.
If you intend to join the civilian workforce, consider potential job types, likely income, and how this may impact the tax status of your military pension. Transitioning from a military to a civilian career can take time, so consider this in your planning phase.
On the other hand, staying in the military beyond 20 years usually allows you to increase your salary and pension benefits. You'll also continue to draw a (tax-free) monthly housing allowance and have access to all of the savings programs and financial benefits the military offers.
These guaranteed advantages must be carefully weighed against the potential for even greater earnings in the private sector. This is where the decision begins to hinge more on personal factors. If you've earned an advanced degree in a high-demand field while in the military, your odds of a successful transition are higher than if you have less marketable skills. In this case, it might make financial sense to retire once you reach 20 years, as you'll want as many additional years as possible to maximize earnings in your second career.
One other thing to consider: The earlier you retire, the more marketable you'll be in the civilian job market. Someone leaving the military after 35 years – with little to no private sector work experience – will likely be less in demand than someone departing after just 20 years, as the 35-year veteran lacks the time to build a long-term secondary career.
The Takeaway
Deciding when to retire from the military is a tricky proposition. The benefits of building a second career armed with your pension are considerable. Deciding to stay, however, offers greater stability and access to attractive military benefits. Either way, careful consideration is a must.
Given the complexity of retirement planning and its long-term implications, professional advice is invaluable. A financial advisor experienced in military retirement planning can provide guidance tailored to your circumstances, helping you explore your options and make informed decisions.
Keep in mind that another benefit of the Blended Retirement System is the ability to contribute to a Thrift Savings Plan, which is similar to a 401(k) and includes matching contributions from the government. If you're currently in the military, taking full advantage of all available benefits will help you secure your post-military life – no matter when it starts.
