Military Financial Independence

Book review: “Lean Body, Fat Wallet”

Posted on November 14, 2013 by Doug Nordman

Lose weight and keep it off. Save money and keep your wealth. How hard could those be?!?

Each concept seems so simple, but millions of people struggle with their weight and their net worth. Even if we manage to lose 10 pounds or save $1000, our efforts are wiped out by the same old symptoms that caused the problems. A few lifestyle changes are derailed long before they turn into lifelong habits. It takes months or even years to make progress, but it seems like only a few weeks before it’s all lost– or even worse, before we’re deeper in the hole.

So many people are trying to achieve these two goals that huge consumer industries have grown up around them. Nothing seems to work for very long, so we keep trying one “system” after another. Endless streams of experts and celebrities promote and endorse their products. Crowds of unhappy customers surge from one to another, hoping ever more desperately that this time they find the magic techniques to finally get it right. These problems have persisted for centuries, and modern life has only made things worse. Tasty foods and shiny new consumer products are everywhere, and modern marketing has made the temptations irresistible. We’re losing the battle: now you can gain weight faster than ever and destroy your finances at the same time! If it makes you feel depressed, then cheer yourself up with a few cookies and a beer. They’re yummy. Don’t worry, you can pay for them later…

Change Your Behavior

Among all of this failure, why would a writer think that they’ve found a better solution? Why should it really be different this time? Even worse, why would two authors think that they could fit everything into one book?

It turns out that the two challenges have much in common, and the solutions do too. It would certainly make these struggles a lot easier if you could learn how to keep weight off, and then turn around and use the same skills to build your wealth. It makes sense to combine the techniques and accomplishments into a single book, especially if it saves the readers a little money.

Luckily for us readers, the answer is not “Just do it.” It took a long time for these little bad habits to grow into big problems, and it could take months to get rid of them. However, each of them grew out of small behaviors that became bad habits, and their solutions are also rooted in small behavior changes that will grow into new good habits. As you make progress you’ll feel relieved, energized, and happier. Those victories encourage you to keep going until you reach your goals. There are no easy answers, but there will be steady improvement.

The book teaches you to change your thinking. It’s not what you think, but how you think about it.

I first met Ellie Kay a couple of years ago at a USAA blogger conference. She’s a force of nature with tremendous focus and drive, and this is her 15th book in 15 years (this time with Danna Demetre). Ellie is “America’s Family Financial Expert” (and a military spouse) who’s personally lifted herself out of debt and raised a large family on a military paycheck. She’s earned several national awards for her dedication to military families and she’s been consulted in hundreds of media appearances.

Danna Demetre is a former registered nurse, a marketing manager for a financial company, and a fitness professional. More impressively, she struggled with binge eating and bulimia for well over a decade before finally finding the keys to change her reactions and her behavior. She moved to a healthier lifestyle, lost weight, and has kept her peak fitness for over three decades.

They have the credibility to make these claims, and they didn’t have to write a book just to promote their achievements. Each has already succeeded in life, and they’ve already overcome tremendous adversity to get there. They have the financial independence and the fitness to prove it. To put it bluntly, these two have the decades of experience to show that the changes are sustainable. Their book celebrates their accomplishments while showing you how to join them with your own successes– and how to stay there for the rest of your life.

These authors figured out how to change their habits– and yours. It’s straightforward, but it takes the effort. Each behavior change needs several weeks just to start turning into a new habit, and then many more weeks to strengthen and maintain the progress through life’s speed bumps. The good news is that they only changed four things in their lives, one at a time. I’m giving away all the book’s secrets here!

“You are what you think”: replace your negative thoughts with positive self-talk. They present the research and show how to use the behavioral-psychology techniques.
“3D: Determine, Distract, and Delay”: determine how you’re going to react to a tempting situation, distract yourself from it, and delay the gratification.
“In and out”: pay attention to what you eat and spend– and how much. Reach a balance between the calories and dollars that you take in, and the calories & dollars that you spend.
“Sustainable lifestyle”: replace the quick fixes and drastic measures with small adjustments to your daily routine. Eat a little less, exercise a little more, spend a little less, save a little more. Small steps and steady progress.

Maybe I didn’t really give away the book there. If you could change your life just from reading those last four bullet points, then you would have probably already done it. The real value in “Lean Body Fat Wallet” is their analysis of the research and the specific tips to maintain each of those habits. The authors show the tools and the techniques. Every chapter is also filled with the success stories of those who’ve overhauled their bodies and their net worth.

The best part of the book is being able to apply the same techniques to two different lifestyle challenges. When you start to succeed in your finances or your fitness, you’ll be able to do the same in the other area. I already appreciated the money parts of the book, but the eating & exercise sections caused a major epiphany at our house. I’d already (finally!) found the commitment to lose the weight, but now it’s staying off. No quick fixes, but no drastic measures or drama either– just small changes and more self-awareness.

The book gives you two lifestyle changes in one volume, and that’s also its biggest challenge. Collaborations are always a huge coordination effort, but these authors have the editing & publishing experience to pull it off. The book introduces each concept and builds on them to reach success, but it switches back & forth between food and finances. There’s not a simple path from start to finish, but rather two lanes on the highway. While you’re reading it you’ll have to learn to switch from one to the other without losing your focus, and then a few pages later you’ll have to switch back to the other subject. You’ll find yourself flipping through the book and marking the pages. I found it much easier to work through on an e-reader where I can search for keywords and highlight the text. This is a challenge to read in hardcopy, although you’ll figure it out after the first few chapters. If you’ve been seeking an excuse to buy an e-reader, this is the book.

Ellie and Danna discuss the book in this video:

Posted in Investing & TSP, Reviews | Leave a comment

Options For National Guard And Reserve Retirement

Posted on November 7, 2013 by Doug Nordman

I get several e-mails or “Contact me” questions every day about how to handle service in the National Guard and Reserve. Most of them I can answer on my own, and they’re good questions that deserve to be discussed in their own posts. Occasionally I’m stumped by a question and I hope that you readers have seen a similar situation.

Retirement now or later?

First up is Lisa’s question about going back on active duty to qualify for a Reserve pension:

I have 10 years of just Reserve time. I’m planning on going back on active duty to complete another 10 years. If I do that, will I get my retirement when I complete my 10 years of active duty time or will I have to do more time to get my retirement right when I retire?

The answer is “Yes”: you can get either one.

For the vast majority of servicemembers, 10 “good years” of Reserve or National Guard duty is halfway to a retirement. When you add another 10 years of active duty to that Reserve record, you’ll reach 20 good years and have over 4000 points. At that point you’ll be eligible for a Reserve/Guard retirement (and get a big boost toward financial independence).

Your Reserve retirement doesn’t start right away, but it will start no later than age 60. (For every 90 days of qualifying service that you mobilize during a fiscal year then your retirement age will be reduced by 90 days.) When you’re part of the active-duty services then your personnel branch may not know to send you a Notice of Eligibility for a Reserve/Guard retirement. You’ll have to query your Reserve/Guard force headquarters to produce a NOE before you leave active duty for “retired awaiting pay” status. You can read more about leaving active duty for a Reserve retirement at this post.

If you want an active-duty retirement then you’ll have to stick around for 20 years of active duty or a Temporary Early Retirement Authorization at 15-20 years (these are generally only used during drawdowns). Medical or disability retirements are another possibility but way beyond the scope of your question.

You could also separate anytime between 10-20 years of active duty and still enjoy the extra points on your Reserve retirement, but if you take any separation incentive payments (to leave active duty) then you’ll have to repay them once you start receiving your pension.

Definition of Active Federal Service

Next up is a question for a military lawyer:

A friend is trying to straighten out his Active Federal Service (AFS) time as an Army Reserve AGR officer. He’s looking for the regulation that defines AFS and specifies what the calculation includes. As this deals with pay and thousands of folks have gone through this process (and the DOD being a bureaucratic beast) I’d imagine this is spelled out in detail. At stake is whether he’s forced to a mandatory retirement date or gets to retire. Could use some help! Thanks, Chris

I’m not a lawyer, and your friend definitely needs the services of one.

Lawyers know how to sort out the federal law’s revisions, amendments, updates, and other minor changes. They also have the tools to research previous cases for legal precedents that might not be reflected in the actual text of the law. As you say, I’m sure that there have been many lawsuits in this area over the last few decades, but I’m not sure how to find them.

The definition of active federal service starts in Title10 of the U.S. Code, parts 101(d)(6) and (7). In the “Notes” tab of the Cornell law website it says “In clause (22), the definition of “active duty” is based on the definition of “active Federal service” in the source statute, since it is believed to be closer to general usage than the definition in 50:901(b), which excludes active duty for training from the general concept of active duty.”

That’s generally the contentious issue: ADT and AT (or anything else with the word “training” in it) does not count as active duty for Reserve/Guard sanctuary. Even if it involved a mission supporting active-duty forces (for example, flying fuel tankers for refueling jets flown by active-duty pilots) it’s still “training”. This is how Reserve servicemembers can still conduct drills and AT/ADT (for points and credit toward “good years”) without exceeding 18 years of active duty service and reaching sanctuary.

Army National Guard active duty could also occur under Title 32 of the U.S. Code, which allows states to mobilize their Guard members with federal funds. It’s generally used to for homeland security missions but may have different definitions of “active federal service”. I’m going to have to defer to the lawyers and your friend’s state law on this one.

In general, under Title 10 anything less than 30 days is considered “training” and anything 30 days or more (when a new ID card is issued) would be considered “active duty” no matter what federal law is cited in the orders. I’m not sure about Title 32 limits.

To further confuse the issue, your friend’s orders could have mistakenly referenced the wrong federal law codes. If personnel branches cite the wrong clause in your friend’s orders then that error can’t be held against the military for pay or retirement purposes.

Your friend could contact their unit’s lawyer or base legal officer or even see if they can find someone in their unit who has a civilian practice. Just about any lawyer or paralegal should have the tools to research the law and the case history, although a military lawyer will be more familiar with recent precedents.

Go Individual Ready Reserve or retired awaiting pay?

Regina Roundtree asks:

I have my 20 year letter (15 years 10 months of which was active duty) and 6 years in the reserves (22 years 4 months total). I’m not sure I want to completely end my career, but I want to get out for now (stop drilling monthly). Should I go IRR or Retired awaiting pay?

Your service and your unit may give you several options. The first two are your choice. The last two options depend on the size of the unit, its mission, and your travel distance to the drill site.

“Retire awaiting pay”. You’re completely done and just waiting to start your pension. You also have your service’s Reserve benefits (base access, commissary) while you’re waiting to start your pension. Your longevity in your rank will continue to accrue to the maximum pay for that paygrade.
Transfer to the Individual Ready Reserve and continue to complete correspondence courses for points and “good year” credits. (You are unlikely to select for promotion.) IRR gives you the option to apply to return to drill status but you can also retire at any time. Your longevity will continue to accrue either way.
Reschedule your drills to conduct three consecutive drill weekends at your supported command during a six-day period each quarter. This is greatly appreciated by the supported command (your Reserve funds are paying you, not AT funds or the supported command) but your Reserve unit does not get any support from you. It is possible to remain competitive for promotion.
Take an occasional authorized absence and skip a drill weekend. Be sure to reach the minimum criteria for a good year and receive the minimum number of points. You’ll also have to continue to complete your unit’s scheduled evolutions like physical assessments, medical/dental readiness, and any other mandatory training. You’re still competitive for promotion.

Personal-finance blogger and financial planner Rob Aeschbach also says:

I don’t know what service Regina is in, so I’ll answer about my service, the Marines.

One of the biggest downsides of leaving a Reserve unit and transferring to the IRR is losing Tricare Reserve. Even if you transfer from one unit to another, if you spend a day in the IRR you will be bumped out of Tricare Reserve. You should do a direct transfer if you want to move to another drilling unit or an IMA.

Once you’ve completed 20 ‘good’ or ‘sat’ years, you only need to keep getting good years to avoid being bumped off the Active Status List to the Inactive Status List, or being forced to retire. There are waivers available, and I’m not sure if how quickly they bump you depends on current personnel needs.

At this point your points only serve to increase your retired pay. Regina has a lot of active duty time. I estimate her total points to be 5800-6000. That converts to a retired pay multiple of about 42%. That would be about $2314/month for an E-8 or $3625 for an O-5 (all in today’s pay). The IRS life expectancy for a 60 year-old is 25.2, making those retirement checks worth a total of about $700,000 or $1,100,000. Every point Regina continues to earn in the Reserves only adds between 30 and 60 cents a month to her retirement check. Drilling a full year (48 drills and 13 days AT) would add $280 to $440 to her annual retired pay.

If you’re thinking about transferring to the IRR, it’s probably because you need a break to clear your head or to focus on other priorities in your life. That’s a good, acceptable reason. If you get recharged after a few months, or a couple of years, go back to the Reserves and do something you enjoy. If hanging up the uniform feels better, then retirement’s the answer.

To give yourself more time you could try to front-load a good year by working full-time at the Reserve unit for a few weeks. Here’s an example (with higher than average degree of difficulty):

Say your anniversary date is coming up soon, say 14Dec2013. You already rate 48 drills for FY 2014 (1Oct13-30Sep14), and you have until 13Dec14 to earn 50 points. You take some time off your civilian job and get approval to work full-time at the unit, Mon-Fri, in January. You work 18 weekdays earning 36 drill points. Add your 15 participation points and you have a sat year with 51 points; then you can transfer to the IRR by 29Jan14. Your next deadline is then almost 2 years away, 13Dec15.

Reader testimonial

And finally, a totally unsolicited comment from reader Les:

As a 6-year vet of the U.S. Navy, I just wanted to say “Bravo Zulu”! You are doing a great thing here. I wish I’d had the foresight in my military days to open up a retirement account and work the magic of compound interest way back then. On the contrary, I was one of those young, dumb squids who

(a) cashed his check at the mobile check cashing vans charging 3% that would line up outside the base gates every payday (always staffed by pretty young women),

(b) lived “like a sailor” paycheck-to-paycheck, and

(c) got suckered into the predatory “no money down” loan scheme so prevalent and readily available in military towns.

I smartened up a little about a year before leaving the service, selling my car (that I was still making payments on) and saving enough money to pay for my first year of college. 23+ years.

Later, with a B.A and a J.D., I’ve smartened up quite a bit (though even now looking back I realize I’ve made many mistakes along the way), and have made the best of my opportunities. I’m in a Federal law enforcement officer position now, with five years to go until retirement eligibility. I bought my six years of military service toward my FERS pension, and I have saved aggressively into my TSP for 15 years now. Bolstered by the information I’ve found on your site, as well as MrMoneyMustache.com and others, I’m really looking forward to Early-ish Retirement/FI at 55. And I’ve been preaching the good news to my fellow co-workers, as you do on your website (and books).

Anyway, just wanted to let you know I enjoy your site and your presence as a commenter on other FIRE blogs as well. Thanks for sharing your story and helpful strategies.

Thanks, Les!

Posted in Military Retirement | 6 Comments

Reader Question On Veterans Group Life Insurance

Posted on October 31, 2013 by Doug Nordman

A reader writes:

My ex-spouse has in the divorce decree that they’re the sole beneficiary from my VGLI. Do you know if I can get another policy under the VGLI for my new family?

The answer is complicated because there are so many limits on how much VGLI coverage you can have and when you can buy it. Please keep in mind that I’m not an insurance expert (I don’t even carry life insurance). You’ll need to confirm your options with the VA’s Office of Servicemembers Group Life Insurance and with your financial advisor.

You’ll also want to check prices with other insurance companies because they may be able to tailor their policies to your situation. You might even be able to buy civilian insurance for less than the VGLI premiums. This is especially true if you decide that you want a single-premium policy or if you’re only carrying the insurance for a limited period.

First the dollar limit: you can have up to $400,000 of VGLI coverage. The VA used to also limit your VGLI coverage to no more than the amount of the SGLI you carried before you separated from the service. However, since April 2011, veterans have been able to raise their VGLI coverage up to the $400K limit.

The good news is that this can be done without additional medical underwriting, but unfortunately this can only be done in $25K increments every five years. (This additional purchase opportunity also stops when you reach age 60.) You might prefer to use this option to buy more insurance with your family as the beneficiary instead of your ex-spouse.

You may be able to convert some of your previous SGLI coverage to VGLI, but that option expires in one year + 120 days after you separate from the military. If the conversion is more than 240 days since you separated from the military (but still less than one year + 120 days) then you’ll have to meet the VA’s health requirements and answer a health questionnaire.

Let’s walk through an example. assume you leave the military with $200K of SGLI coverage, and you convert $100K of that to VGLI with your ex-spouse as beneficiary. You still have one year +120 days to convert the remaining $100K of SGLI to VGLI for your new family. If you do it after the 240-day limit since you separated then you have to meet the VA’s health requirements and answer their questionnaire. After that year + 120 days limit since your separation, though, you’re done with converting SGLI.

You can still buy another $200K of VGLI for your new family, up to the $400K limit. However, now you have to wait until five years since your last conversion, and you can only purchase the additional VGLI in $25K increments. This opportunity expires when you reach age 60, and eight purchases of $25K (8 x $25K = $200K) would take 40 years. You’re probably too old to have enough time to reach that dollar limit.

If your ex-spouse is already insured up to $400K (or once you reach age 60) then you’re done with VGLI. You can’t buy any more of it for your family. However, you may still have other options.

You want to buy life insurance for your new family, but how long will you need it? Until your kids reach adulthood and no longer need your financial support? Until you retire from working and start drawing a pension with survivor benefits? Until you start drawing Social Security (which includes survivor benefits)? These are all time periods with expiration dates when one source of income could be replaced by another. When your insurance need has an expiration date then you might prefer buying term insurance from a civilian company, not just the VA. I recommend that you consult USAA life insurance or CFP, military veteran, and life insurance expert Jeff Rose.

If you want to insure your new family for the rest of your life then you could buy a single-premium policy. However, this is a bet with the insurance company that you’re going to live longer than if you had invested the premiums for your family for a certain number of years. If you’re in good health then it might make more sense to self-insure by investing that premium in a diversified balanced portfolio, or by boosting your savings rate. This is not an easy decision to calculate (and your beneficiaries may be skeptical) so you should check your spreadsheet with both the life insurance company and your financial advisor.

Perhaps your best option would be to buy out your ex-spouse. Maybe they don’t need the life insurance coverage anymore and would be happy to modify that aspect of the divorce decree in exchange for more money from you now. In that case the price of buying out your ex-spouse would have to be less than the expense of buying new insurance. You’d also need to verify with the VA’s Office of Servicemembers’ Group Life Insurance that you’re able to switch the beneficiary.

Does this post help?

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Book Review: “Give and Take”

Posted on October 10, 2013 by Doug Nordman

Ever since I retired and stopped working with a lot of people, I’ve had the time to read and learn how to be much better at working with a lot of people.

I wish I’d read Adam Grant’s “Give and Take” before the Navy unleashed me upon my unsuspecting shipmates. It’s fantastic leadership training for anyone who works with a team. (For today’s unsuspecting active-duty servicemembers, my daughter will be commissioned next May. She’s already reading this book and will soon learn everything there is to know about leadership. You’re welcome!) Instead of karma psychobabble or simplistic homilies like “Take care of your troops“, Grant walks us through the latest behavioral psychology research on group dynamics. He explains exactly why we gain by taking care of our troops, and how we can be confident that we’ll also benefit from our generosity.

Behavioral psychologists have divided group behavior into three classes: givers, takers, and matchers. Givers are always happy to lend a hand, even when it means that they’ll fall behind on their own work. Takers, of course, are happy to take whatever they can get from anyone else – especially givers. Matchers are more concerned with balancing the books. They’ll display giver behavior when they can see a payoff, but they’ll be takers if they see an opportunity.

It turns out that I spent most of my military career being a sucker giver. In my case it’s more of a personality trait (or a family culture) than a learned skill, but I was lucky. I still would have appreciated understanding its conscious and deliberate application. Everyone who’s ever had to work with a group can learn to be a giver, and it turns out that giving is far better than playing a zero-sum game. Of course being a giver is much easier when you’re financially independent, but it also appears that being a giver will help you reach financial independence that much more easily. Instead of fighting over a small pie, givers learn how to grow the pie so that everyone gains a larger share.

Grant shows that “givers” can rise to the top of the performance charts when compared to “takers” and “matchers”. Unfortunately givers can also be at the bottom when they’re exploited by takers, especially when they’re working on their own separate projects and not part of a team. Grant uses research studies and many personal stories to show how givers eventually prevail. They may start out at the back of the pack, but their progress will accelerate and even leapfrog their counterparts. They may not place in the 100-yard dash but they will win the marathon.

Grant also explains how to be a giver without being… taken. When you begin building a relationship with a team you’ll get to know the people, their jobs, and their challenges. As trust builds and the work proceeds, eventually your assistance will be reciprocated– or not. Your communication among the team members and your giver behavior will reveal the takers and matchers, although eventually, you may inspire them to also start giving. Grant also explains how to figure out whether a “taker” is sucking up to you while treating peers and subordinates in a completely different way.

I learned the most from Grant’s chapter on “powerless communication”. You might expect that a military organization favors a dominant and forceful command, but that’s not always necessary. A discussion should end with a decision and an order, but before that point, it’s better to ask open-ended questions and to invite debate– even dissension. Asking for opinions and really listening to people’s concerns will persuade them to contribute and even help solve the problems. “Powerless communication” can also convince the team to take ownership of the problem and to help each other avoid mistakes. People will speak up when a problem comes along instead of letting the boss figure it out. Navy submariners are quite accustomed to having their orders challenged with a new report or a recommendation, and that “forceful backup” has kept a lot of submarines off the rocks.

The personal stories cover the business and academic worlds from lawyers, MBA programs, doctors, venture capitalists, senior military officers, Silicon Valley, teaching, philanthropy, banking, the professional basketball draft, and even Hollywood. Givers learned to succeed everywhere with their techniques.

250 pages later, it turns out that the answer is still “take care of people”– not just your people, but everyone you encounter. Instead of playing a zero-sum game, focus on mutual goals and on building relationships. Negotiate from the other person’s perspective, not just yours. The more you clear away the obstacles from people’s jobs and help them get things done, the more they’ll support you when you least expect it (yet most need it). The more you share with a team, the more the team will help you succeed.

I know: I was also skeptical when I started reading. But by the end of the second chapter, I was ready to learn from the research, and each personal story taught a new technique in developing “giving” into a life strategy instead of simply a sacrifice. “Taking” is a short-term tactic, not a winning game plan. Even “matching” will only work for a limited time. Grant’s book will have an impact on every high school, college, leadership program, and group project.

Want to see “giving” in action? Take a look at certified financial planner Jason Hull’s free eBook about “Four Places Your Monkey Brain Should Never Live”. He’s not only giving it away, but he’s also throwing in a 52-week game plan of one short weekly e-mail for an entire year. You’ll read about the same concepts of behavioral psychology described in “Give and Take”, and you’ll get bite-size weekly doses of financial advice that you can act on. If you like what you read then consider signing up for Jason’s “Winning With Money” course. If you’re paying interest on credit-card debt or fees on actively-managed investments then I think you’ll recoup the course’s expense within the first six months. If you’re not happy then Jason will give you your money back.

You can start your own “Give and Take” movement, too. Buy the book, read it, and pass it on to a friend or donate it to your local library. You’ll be happy that you did.

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National Guard and Reserve Retirement at the Maximum Pay

Posted on September 30, 2013 by Doug Nordman

A reader writes:

I need some clarification regarding your article that describes the calculation of a Reserve/Guard retired pay benefit. I’ve relied on this description in the past, but am troubled by one aspect of the calculation/description.

Assume a Guard member has the requisite 20 “good years” to qualify for a retired pay benefit at age 60. Let’s further assumed this individual will receive his/her benefit under the “High-3” formula. And finally let’s also assume this individual leaves the Guard at age 45 with 20 years of seniority.

Your article says that this individual’s retired pay benefit will be calculated using the “maximum pay” for his/her pay grade. Is that accurate? Am I reading that correctly? Someone who leaves with 20 years seniority will have his/her benefit calculated using the maximum pay for the pay grade? (Which could be 30 years of seniority.)

Is the determining factor whether the individual at age 45 resigns or retires awaiting pay?

Thanks for asking the questions– that post is the most popular one on the blog, yet many servicemembers overlook the importance of the benefit behind “retired awaiting pay”.

You’re absolutely right: you use the maximum pay column for that paygrade. And you’re also absolutely right about the determining factor: it’s because the individual chooses to retire awaiting pay instead of resigning.

That determining factor means their retirement pay is calculated by assuming that they’ve been on active duty the entire time between their retirement application and eligibility age (age 60 for most). Even though they applied for retired awaiting pay at age 45, DoD assumes that their years of seniority in their retired rank continue to accumulate until age 60. This means that they effectively end up using the maximum longevity (and maximum pay) for their rank.

That maximum column of the paytable is a great advantage of “retire awaiting pay”, but it pales by comparison to another advantage: using the pay tables in effect at age 60. 15 years of inflation (between ages 45 and 60) at 2% per year could reduce the buying power of a pension by nearly 35%. Congress has spent most of the last decade linking military pay raises to the Employer Cost Index (for wages), which is different than the Consumer Price Index (inflation) but is reasonably close. Each year’s pay raise may be different than the actual rate of inflation, but the net result after 15 years is that the pay tables at age 60 have largely kept up with inflation and boosted the value of that pension by nearly 35%. Even if the pay tables lag inflation by 1% per year, that still reduces the difference from 35% to 16%.

Why is DoD being so nice to us? It’s because “retire awaiting pay” also makes you eligible for recall to duty during a full mobilization. The last time the country did a full mobilization was WWII.

For some ranks, it’s even better. In 2007 DoD expanded the military pay tables to 40 years. Most of the columns top out at 20-30 years but these days E-9s, W-5s, and flag officers/general officers get pay raises between 30-40 years. That was intended to motivate them to remain on active duty, but it also gives the Guard members of those ranks a nice retirement boost.

The 20 years of seniority (or 22, 24, 26, or 30) may still be the maximum pay for your rank, even though the pay tables go out to 40 years. However, the pay tables that count for “retired awaiting pay” are the ones in effect at the age that the pension starts, and nobody knows what those will look like.

The High Three pension rules mean that the “retired awaiting pay” retiree uses the maximum pay columns of the pay tables in effect for the 36 months before turning age 60. (Or before whatever age their pension starts, if they deployed for at least 90 days to a combat zone after 28 January 2008.) I’ve done this calculation for a couple of people, and it’s so miserably complicated that everyone either uses their service’s online calculator or asks DFAS to provide the estimate.

I’ve only seen one situation where a servicemember “resigned” instead of “retired awaiting pay”. They were caring for her elderly father (who had dementia) and had been unable to muster with their Guard unit for drills. The situation deteriorated to the point where instead of applying for retirement (or transferring to the IRR), the unit discharged them. The Guard member wasn’t familiar with the system and just signed the papers. It will probably take an appeal to the corrections board (and perhaps a lawsuit) to recharacterize the “resignation” as “retired awaiting pay”, but the member had told the unit that they were not available for mobilization due to caring for the father.

“Resigned” or “discharged” means that they’re no longer subject to a full mobilization. Their pension still starts at age 60. However, it starts at the pay tables and seniority in effect at the time of their discharge, not when they’re age 60. Their longevity pay in their rank does not accrue and their pay tables are frozen for 15 years when they reach age 60. Right away their pension has been eroded by inflation, and they’ve missed out on all the longevity pay during the years between being discharged and starting their pension.

That’s a high price to pay to guarantee that you won’t be recalled to duty during a full mobilization.

The reader responded:

Thank you for the very thorough and thoughtful response to my question.

I wanted to be sure that I understood the calculation as I am often called upon to determine the accrued retired pay benefit of Guard members.

I can tell you (assuming your explanation and analysis is correct) that there seems to be a fundamental lack of understanding of how this benefit gets calculated, even on the part of persons who otherwise counsel Guard members on this issue.

That’s the first time I’ve ever met someone in that position, and I wanted to give them more references for their skeptical audience. I’m not a lawyer or a financial advisor. However, my first confirmation of that “retired awaiting pay” question came over a decade ago from a magazine issue of the Association of the U.S. Navy (which unfortunately does not seem to be available online without membership). AUSN has plenty of lawyers and financial advisors on their staff, and their members include thousands of happily retired Reserve members whose pay is based on the maximum years of service in their paygrade.

Because AUSN’s reference is not easily available I’ve always used the DoD website on military compensation, where their Reserve Retirement page says:

“A unique feature of Reserve retirement is that the pay base is determined as though the Reserve member were serving on active duty immediately prior to retirement, thus the years of service continue to accumulate even after the member has entered the Retired Reserve and continue until they actually begin receiving such pay (usually at age 60).”

I decided to try to find the specific words of the reference.

I finally found it in the DoD Financial Management Regulation (DoD 7000.14-R). (Newly revised in March 2013!) Again I’m not qualified to interpret federal law, let alone review DoD’s interpretation of federal law, but I believe the source of the “maximum pay column for that paygrade” is in Volume 7B paragraph 030105.A.2 at the bottom of page 3-10:

Nonregular Service Retirement (Table 3-1, Rule 13)

The retired base pay for a nonregular retirement is determined as follows:

For a member who entered service after September 7, 1980, the retired pay base is determined as prescribed in subparagraph 030101.A. The high 36-months of such a member are the 36-months for which the pay was the highest, whether or not consecutive, out of all the months before the member became entitled to retired pay or would have become entitled to retired pay. This will generally be the 36-months immediately preceding receipt of retired pay even though the member may not have been in an active status during such time.

Subparagraph 030101.A says:

In the case of a Reserve component member, this is the total amount of basic pay to which the member was entitled during the member’s high 36-months or to which the member would have been entitled if the member had served on active duty during the entire period of the member or former member’s high 36-months.

Following the note in Table 3-1 Rule 13 (page 3-28) leads to federal law in Title 10 U.S. Code section 1407(d)(1)(A):

“… the total amount of monthly basic pay to which the member or former member was entitled during the member or former member’s high-36 months (or to which the member or former member would have been entitled if the member or former member had served on active duty during the entire period of the member or former member’s high-36 months)…”

In other words, when a Reserve or Guard member chooses to “retire awaiting pay” (and be subject to recall during a full mobilization) their longevity (years of service) continues to accumulate until they’re drawing retired pay. For the vast majority of “gray area” servicemembers, that longevity reaches over 30 years.

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