Military Career Path Decisions Part 3: Serving until Retirement

The last two posts have focused on the financial outcomes associated with discontinuing your military service and pursuing a MBA or entering the work force directly. Today’s post is the final in the series and will examine, from a strictly financial standpoint, the benefits of remaining in the military until retirement. Again, everyone has their reasons for remaining in the military or discontinuing service. This series aims to explore that decision from a financial standpoint only and does not take into account any non-monetary benefits associated with each choice.

COSTS

The costs of continued military service are essentially nothing from a financial perspective. Unlike departing the military, there is no period of unemployment, you do not sacrifice 2 years of salary to pursue additional education, and you acquire no additional costs for said education. The cost of continued service is purely subjective. Perhaps it’s moving around every few years, constantly deploying, or a poor work-life balance that you consider a cost. Ultimately, the costs are determined by you.

BENEFITS

Given that the previous posts focused strictly on financial benefits, this post will adhere to that rule as well. The benefits of continued military service for this analysis will include basic salary, BAH, and BAS. Additionally, retirement income will be considered (based on the blended retirement system for simplicity). Keep in mind that additional benefits that are highlighted in this blog still exist and should not be forgotten. DFAS actually gives a “total military compensation” evaluation on its mypay website, which is worth a look. Benefits worth considering are healthcare, commissary privileges, gym access, education benefits (ACS, TA, ACAP), and benefits such as those provided by the SCRA.

FINAL FINANCIAL VALUE

To compare the three options previously discussed, we will obtain the future earnings expected if one were to stay in the military for the rest of his or her career and earn full retirement benefits based on the blended retirement system (strictly the 40% of salary benefit). In all scenarios, the salary potential will be evaluated based on retiring at 20 years of service. While serving, the salary depicted is based on an individual living in Colorado Springs (for BAH purposes) with dependents and making normal, primary zone promotion boards. A few other rules are as follow:

1. To compare to our other posts, this post focuses on earnings past the age of 30. For commissioned officers, the assumption is commissioning at age 22 and for enlisted personnel, enlisting at 18. Commissioned officers are assumed to retire as O-5s with 4 years in grade. Enlisted personnel are assumed to retire as E-8s with 2 years in grade.
2. Salaries and retirement benefits increase at a consistent 2% per year to keep pace with inflation.
3. You have three options when you retire: do nothing, work part time or at a lower level job for $50,000 in today’s dollars, or work full time at a higher tier institution for $100,000 a year in today’s dollars.

An assessment of total military compensation for continuing to serve until retirement is depicted above. The breakdown for each total is as follows:

“Career Earnings” includes total compensation while serving plus retirement pay until age 65.
“With Part Time” includes total compensation while serving plus a job that pays $50,000 a year in today’s dollars and retirement income. “With Full Time” includes total compensation while serving plus a job that pays $100,000 a year after retiring (in today’s dollars) and retirement income. “Total Comp (65+)” is retirement pay from age 66 to 85. “Total Comp Part” and “Total Comp Full” includes all pay combined working either a part-time (50K job) or full-time (100K job) upon retiring after working a full career.

Based on the assessment depicted above, one can expect to earn approximately $9,662,825 retiring as an O-5 and working a $100,000 per year in today’s dollars job upon retiring or $7,036,446 doing the same thing when retiring as an E-8. The value of military compensation alone is approximately $3,605,349 for retiring O-5s and $1,921,238 for retiring E-8s through age 65 and an additional 2-million plus and 1 million plus for ages 66-85.

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Any accounting, business, or tax advice contained in this communication is not intended as a thorough, in depth analysis of specific issues, nor is it a substitute for a formal opinion.