Should I Get Out of the Military, or Stick Around for Retirement?

“Should I stay or should I go?” Yeah, I know, I can still hear that Clash hit rockin’ Bancroft Hall’s passageways at the Naval Academy. It “encouraged” the plebes to think about their choice to quit or stay, but the tune became my personal retention anthem for most of my career.

A reader asks:

I was wondering whether it would be possible for you to write an article that discusses the financial challenges that a military member would face if they opted to leave the military and attempted to save enough on their own to equal a military pension. I’ve got a guy I work with who is contemplating getting out. He believes that he can get a job in DC that pays $75K-$90K/year and that he will come out ahead financially. He enjoys the military (if he didn’t, then I would drop the argument and not try to influence him) but he just thinks that he and his wife are falling behind their peers with regards to finances. I’ve explained that he can’t look at folks with expensive cars (because he isn’t seeing their huge monthly car payments) or their houses & vacations. But I fear that am not getting through to him. I think I must be missing something in my arguments.

The reader shared the retention pitch that he e-mailed to his co-worker:

[Nords note: I’ve added some editorial comments in brackets.]

I completely understand the desire to get out of the military, and I’ve never tried to fight anyone that wanted to get out since it is a personal decision that everybody has to make based on their own unique circumstances. That being said, I am a cheap spender who can’t imagine giving up the best pension on the planet. You talked about going into government service and buying back your time, and I would definitely recommend that as the second best option from a purely financial perspective. However, I personally think you would be better off (again, this is only looking at the financial side) by staying in for another 12 years (I promise, it will fly by) and then retiring with a guaranteed pension and dirt cheap medical insurance.

There are hundreds of links to check out, but many of them will bore you to death with a description of the different military retirement systems. However, you are a “High-Three” guy, and if you choose the REDUX option then I will personally hunt you down and [edit] the [edit] out of you, so ignore REDUX. Anyway, for your reading pleasure over the next couple of days, I present to you:

The present-value estimate of a military pension

Here’s some more links. Ryan Guina isn’t quite as prolific a writer as Nords… and he didn’t retire (he did 6+ years in the Air Force… FYI, one of his latest entries is about exploring the option to join the Guard) anyway, check out Military Wallet’s link for more on the pension topic.

[Nords note: Ryan has a huge head start on me, he’s a top-20 personal finance blogger, and he’s an exceptionally generous mentor!]

Even if you read nothing else… consider this quote from a Navy Times financial advice article:

“So, going back to the E-7 with 20 years of service, what is his military pension of $20,052 per year really worth? Most experts agree that to ensure your retirement funds will last a lifetime, you cannot take out more than 4 percent of your capital each year. If you wish to increase your retirement income each year to keep up with inflation, a 3 percent withdrawal from capital each year is a more reasonable figure. To replace an annual pension of $20,052 based on a 3 percent withdrawal rate, you’d need $668,400 ($20,052 divided by 0.03 equals $668,400).

What is the possibility of accumulating $668,400 over 20 years on your present salary? Even if you assume you can take out 4 percent of your nest egg each year and not use up your money in your lifetime, you’d still need a nest egg of more than $500,000, without allowing for annual increases for inflation.”

Ryan points out that some servicemembers can retire on their military pension.

Here’s another military retirement example.

Here’s yet another example: yeah, yeah, I know… neither of us is a doctor, and this guy is going to earn way more than either of us…but still, his math shows that even on an extremely high civilian salary that it is tough to save enough to equal a military pension.

And lastly, a calculator link to let you dream… spend some time plugging in numbers…then scroll to the bottom of the results page to see how much you would earn just by sitting on your couch drinking beer for the next 40 years.

Another blog I recommend (but not completely safe for work due to strong language) is Mr. Money Mustache… it is an irreverent blog about a guy who retired in his thirties by saving a crapload of money and being very frugal. I really enjoy his blog and look forward to every new post from him.

Anyway…enough of me…go and read. I’d love to hear what you decide, and I’ll obviously support whatever decision you and your spouse make…and I’ll still drink beer with you even if you become some filthy rich civilian contractor. I just want to make sure that you can afford to buy some good beer for us to drink in your old age after we are both retired.

Take care,

I have to be fair– it could be a good idea for your friend to leave active duty for the Reserves or National Guard, or for a civil-service job, or to be a complete civilian. That’s a quality of life perspective, which is a very difficult decision to quantify. It’s an intensely personal decision, too.

In retrospect, I’ve regretted clenching my jaw and gutting it out to 20 for a military retirement. It looks pretty good from this side of the finish line, but the stress (and the depressed immune system, and the respiratory infections, and the pneumonia, and the elevated blood pressure…) was tremendous.

I apparently figured out how to survive it, but I may have just been lucky. I was pretty rough on a few people along the way, but I’ve made it up to them. Today my health is the best it’s ever been but I’ll always wonder if years 11 through 20 of my career left me overdrawn on my karma account and ripped a few pages out of the back of my Book of Life.

The main reason I stayed until 20 was… ignorance. I was highly compensated to focus on my career, overwhelmed on staff duty with daily administrivia, and too busy to “waste” my time learning about alternatives. Even though I was surrounded by Reservists and civil servants and defense contractors and entrepreneurs, it never occurred to me that I could change my life. I just kept doing what I thought I was good at, and I never explored the options or ran those other numbers.

Today, I know that I could’ve resigned from active duty, joined the Reserves, taken a civil service billet, and earned more income than I did on active duty. I would have had a much smaller Reserve pension at age 60, but I would have piled up the savings to bridge the gap until that pension started. More importantly, my quality of life would have shot way up and I might even have found a family-friendly occupation that I enjoyed.

I’ll never know what I might have been able to pull together. It’s better to lay out the financial challenges of the decision, and then discuss the physical/emotional aspects. Servicemembers can make an informed choice instead of being suckered by the retention money or by the defense contractors. Your friend might see a whole new big beautiful world out there, and all we need to do is to put the tools in his hands.

But while he’s plotting his escape, it should certainly include a bachelor’s degree and at least some graduate study or professional certification. Otherwise, he’s only going to earn $45K/year and spend a few more years hauling himself up the salary ladder before he hits $75K. I get a lot of those e-mails and Linkedin posts from servicemembers too.

Please keep us posted, and let us know the decision!

Military Retention Update: “Should You Stay or Should You Go?”

A few months ago a reader asked me to help persuade another servicemember to stay on active duty to earn their righteous military retirement benefits and achieve financial independence.

I think my response surprised at least two people: I suggested that his buddy might be better off leaving the service if it made him happier, despite the possibility probability that it would make him poorer. I took some heat from a number of reader e-mails and the “Contact me” feedback, but I’d feel much worse if someone ruined their mental & physical health trying to gut it out to 20.* The retention decision is a personal one, and the best we can do is make sure their choice is an informed one.

The reader got back to me last month with an update:

He has decided to stay in the military on active duty. He is now planning to re-enlist for four more years. I appreciate your help, and the forthright opinions that you expressed in your email and the subsequent blog post. I am glad that he got a chance to hear from the other side of the argument, and I can rest easy knowing that he heard equally valid reasons for getting out.

His parting comment to me today was that he was glad that he had taken the time to read your blog (and the others) since he now has a better appreciation for the value of a military pension. He had underestimated its value in the past, and I think it is a huge benefit for someone to come to that realization at this stage in their career. Ideally, he will now be bitten by the savings/investing bug and will begin to ramp up his own efforts in those areas to supplement an already generous pension.

Therein lies my parting thought. I understand and respect the advice you gave him…but I still respectfully disagree that he (or most others in that situation) would have the financial acumen (and discipline) to save an adequate amount to compensate for the loss of a military pension.

I think that websites like (where I’ve also followed your comments) and Bogleheads fool those of us who do invest regularly into believing that everyone else is equally committed to a long term saving/investing strategy. I think that the contributors and readers of those blogs represent a tiny percentage (unfortunately) of the U.S. population.

I’d love to believe otherwise, but everything I’ve seen firsthand tells me differently. I’m trying to spread the word in my own tiny sphere of influence… therefore, I am truly thankful that you (and your fellow personal finance bloggers) are out there encouraging others with a much greater reach than I am able to achieve. Thank you again for all your help and your great work on the blog.

I’m glad his buddy made an informed decision– one enlistment obligation at a time.

I agree that most people (let alone most servicemembers) lack the long-term commitment toward saving & investing. If they’re not hard-wired for investing then they have to push themselves to save, and the constant effort causes ego depletion with a nasty case of decision fatigue.

Eventually, however, something changes their life and helps them find the motivation & determination. It could be hitting rock-bottom on consumer debt, or finding a career they love, or having a health problem that scares them straight. It could be the crisis of a relative or a close friend. It could be as innocuous as reading a military personal finance blogger’s 350th post (*ahem*) on the subject.

“When the student is ready, the teacher will appear.”  — Buddhist proverb

The best we can do is stand by until someone has had the epiphany, and then show them how to catch up. Judging from those discussion boards, I suspect that most people don’t get tired of the “more month than money” syndrome until they’re in their late 20s… and some are perhaps in their 30s before the hemorrhaging stops. (A few are even older.) Luckily the math takes the same amount of time whether you’re 20 years old or 50.

I can also share a dirty little secret from the military retention boards that I used to sit on in the 1980s-90s. When a relatively new servicemember enters the room to discuss their career options, you can’t just play “Anchors Aweigh” on the speakers and have the re-enlistment contract laying on the table for their signature. I think most servicemembers are looking for validation of their emotional response toward their current job before they’re ready to sign up again. I’ve never met anyone who admitted to re-enlisting out of patriotism or because they were just having so darn much fun. Instead, I think we’re all looking for some sort of confirmation that we’re a valued member of the team or that we have a chance at the next promotion. And to a few of us (me included), nothing says “valued member” like a big bonus check.

Once we’ve shown someone all sides of the issue, their emotional responses are an important part of the decision– just like their logic and their family discussions. When I was sitting on those retention boards, a re-enlistment lecture (with financial admonitions on the value of a pension) was a guaranteed way to shut down the servicemember’s feedback. However, we’d get a feel for their situation by asking questions about college, family, career skills, the Reserve/Guard, civilian options– and the closer “What would it take for you to re-enlist?“. The freedom to consider the alternatives can be enough verbal jiu-jitsu to nudge a fence-sitter toward a new contract.

Speaking of feelings, I think that re-enlisting with gritted teeth and clenched jaws is a recipe for a stress-related health disaster. None of us really know our breaking point until we’ve gone past it. However, I’d suggest that pneumonia or Lisinopril are pretty good warning signs.

Your experience will affect your opinion. When you’re in uniform then it’s probably better (for both you and the servicemember) to suggest that re-enlistment is the right option. (Your XO probably has a few strong opinions on that subject too.) If you’re a wild, carefree retirement rebel not on active duty (or thinking about leaving it yourself) then maybe the conversation can cover getting out, going Reserve/Guard, or making sure that they really understand the value of the pension. Maybe it’s an illusion of choice, but people still want to feel that they have a choice. Once they’ve had the freedom to openly discuss all their options, they usually make the right choice.

Now that his buddy has four more years, I hope the re-enlistment decision includes plans for a college degree and maybe a commissioning package. If you’re still in uniform, then what about you? A commission is an intensely personal choice, but a college degree means that it’s good to have choices.

It’s a big, scary drawdown out there, and frankly these days the retention boards might not be meeting very often. However, I’ve been through the post-Cold War drawdown, and I know exactly how it feels. If you’re facing a retention decision, try to find a mentor who had to deal with a similar situation– or share your story here!

*  In the 1990s, the Army distributed a documentary on stress reduction techniques. Their Pentagon staff had experienced a rash of lieutenant colonels who reported for duty, started plugging away in a high-stress environment, and within a few months had heart attacks. Most of them survived, but the trend was alarming. If these senior officers with 15-18 years of active duty were literally killing themselves to compete for promotion, then what could the stress do to people who didn’t even want to be in uniform?

Related articles:
Retiring without a military pension
Reserves and National Guard: Tricare Reserve Select and Tricare Retired Reserve health insurance

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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4 Responses to Should I Get Out of the Military, or Stick Around for Retirement?

  1. It’s good to hear your perspective from the other side of a 20 year career, Nord.

    It’s definitely a tough question, whether to get out early or gut it out for the guaranteed pension and healthcare coverage. I’m trying to see whether I can set myself up for early financial independence separate from the military retirement system.

    When making the stay in or get out decision at around the 10 year mark, it’d be nice to make the decision without having to take money into the equation. If I’m sick of playing the game, I want to be free to say “screw it!” without having to worry too much about financial security. But if I like where I’m at and where I’m going, maybe I’ll decide it’s worth working towards that pension. I’m not sure now, we’ll see.

    • Doug Nordman says:

      Thanks, Spencer! We servicemembers are awfully hard on ourselves, and we let ourselves believe what a difficult job market it must be out there. The reality is that we have skills, but employers aren’t always sure how to use what we can bring to their company.

      Stay in the service as long as you’re enjoying it. If you reach the 10-year mark with no debt and enough savings to handle a six-month transition, then I’d say you’re more than ready to tackle the Reserves/Guard and whatever civilian career intrigues you. The real problems start when veterans can’t afford the time/money to do a good search and to generate enough choices.

      In your case, blogging helps you figure out what you want to do and even generates some income to help support the search. As several of my former XOs would assure you, you’re far ahead of where I was in my 20s…

  2. Deserat says:

    The Reserves is not always that good – for the last ten years or so, depending on your career code, you would have been yanked out of your civilian position 2-3 times for a deployment 6 months to a year or so. Most smaller companies (as well as any you might own yourself), don’t take too kindly to that and dealing with ESGR can be disappointing at times.

    A civilian job can be rough, too, depending on how much they expect. I see the contractors around me in my Reserve capacity and it is rough on them. The demands are brutal at times for delivery, etc. In my civilian capacity I work in healthcare. That can be a very demanding industry as well. The one thing that *might* be more stable is where you live, might not move every three years, but that’s not necessarily true for all civilian positions either as many times to move up, you must move.

    Another perspective – my husband is a consultant for the oil industry…he goes out for 14-30 day jobs on rigs. I will probably not see him this Thanksgiving or Christmas. He gets paid well, but when you factor in the time away from home, the hourly rate goes down precipitously.

    So, is the military a pain? Sometimes. But all jobs/professions have their rough spots. I know of no opportunities that offer you a pension for life at 20 years except perhaps for some firefighting/law enforcement jobs. But then they are very physically and time demanding as well.

    Bottom line, it depends on what is most important to your friend. In my estimation, I’ve been able to combine the Reserves and my civilian career fairly well — with some hits to both based on what the priorities were during the last 27 years (yes, long time, I know, but I’ve had two active duty stints and the Air Force Reserves saw fit to keep promoting me) It’s been challenging and fun and I wouldn’t have had the experiences that I’ve had without the military and then being able to use the military experiences to bounce of my civilian ones and then iterate.

    I will end up waiting close to 10-11 years after I retire before I see a pension from the Air Force, but I’ve managed to leverage a lot of my years of earnings, tax deferred and after-tax saving such that I can be FI now with my husband on a fairly low yearly lifestyle cost — his active duty pension allows us to do this early while my pensions will allow us more flexibility later on.

    In any case, having a plan is the best thing…and then adjusting as opportunities arise. As for gritting one’s teeth, that will be done in any working capacity one time or another…the key is to be able to see the light at the end of the tunnel.

    Best of luck to your colleague.

    • Doug Nordman says:

      Thanks, Deserat!

      I’m going to quote a post from a Linkedin Navy Reserve thread: “You’ll know that you’ve achieved the proper work-life balance when your family, your employer, and your Reserve unit are all equally pissed off at you…”

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