The Biggest Benefits of a Military Retirement

All retirees have to accumulate the resources to last for the rest of their lives, but early retirees (before age 65) have two daunting challenges: paying for healthcare and contending with decades of inflation.

Health insurance is largely a workplace benefit, and many civilian workers feel “locked in” to their jobs by it. Health insurance can be hundreds of dollars per month without an employer’s subsidy, and it’s difficult to obtain individual coverage for pre-existing conditions. The American healthcare system is the main reason that traditional retirees stay in the workforce until age 65, when Medicare starts to cover much of their health expenses. Even after age 65 retirees still have to contend with rising insurance premiums, higher prescription medication costs, and long-term care concerns.

Inflation is far more insidious. While a health crisis can wipe out a retiree’s finances, inflation is at least as deadly because it’s hard to notice the corrosive long-term effects. At just four percent a year, a decade of inflation can raise retiree expenses by nearly 50%. Retirees in their 60s may only have to contend with two or three decades of inflation, but retirees in their 40s will have to survive four or five decades of inflation that could easily triple their expenses.

The Biggest Benefits of a Military Retirement

The military’s pension system beats both of those obstacles.

Unbelievable as it may seem, Tricare is among the nation’s premiere affordable healthcare systems. It covers far more for active-duty veterans (and their families) than civilian health insurance– while charging far less. Unfortunately, many veterans don’t learn this fact until they leave the service, while others with pre-existing conditions may feel locked into military or civil service in order to be able to afford their healthcare costs. In 2010 an active-duty retiree pays less than $40/month for comprehensive Tricare family coverage that, for civilian retirees, would cost hundreds or even thousands of dollars.

As good a financial deal as Tricare may be, the military pension is even better! Military veterans can earn a defined-benefit pension in an era when employers are moving toward defined-contribution 401(k)s. Despite the risks that we bear to qualify for that government pension, it’s paid by one of the world’s best-funded institutions with the power to raise its own money.

Not only is the federal government likely to pay military pensions long after corporate pensions hit the skids, that pension includes a cost of living adjustment (COLA) for inflation. This is extremely rare in the business world. Federal pensions (as well as Social Security) rise each year by the inflation rate measured in the Consumer Price Index (CPI). That index may have its own flaws and detractors, but there is no better measure of the nation’s inflation. You may experience a personal inflation rate that’s smaller (or perhaps bigger) than the CPI, but veteran’s pensions will keep up with inflation far better than any other system.

How has the pension kept up over the years? The answer is “pretty well for everyone, better for some”.

About Doug Nordman

Author of "The Military Guide to Financial Independence and Retirement" and co-author of "Raising Your Money-Savvy Family For Next Generation Financial Independence."
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