Surviving a Military Paycheck Error

No system is perfect. Especially complex systems managing hundreds of thousands of unique inputs and outputs on a biweekly basis. Inputs and outputs that frequently change based on dozens of different factors that can change at a moment’s notice. Of course, the system I’m referring to is the military pay system. I’m sure you guessed that by the title of this article.

Unfortunately, the military pay system isn’t perfect. Errors can and do happen. And that’s not good when people need their paychecks to pay for basic living essentials such as food, housing, transportation, utilities, etc.

Military Paycheck Error

In most cases, military paycheck errors are minor, and quickly rectified. I served on active duty for 6.5 years, and personally experienced a couple small pay issues – an overpayment on an advance for a TDY was one such occasion. I didn’t want the advance, I was forced to take it, I was overpaid, then I had to write a check to pay back the government (or they could have withheld it from future paychecks; I preferred getting it over with right away). No long-term damage was done, but it took a couple hours out of my day and took me away from work.

But some problems are much worse. I know people who were underpaid, not paid at all, grossly overpaid and had their pay docked for the next several checks, etc. These pay problems can quickly cause a lot of damage. So let’s take a look at what you can do to help survive a military paycheck problem.

What to Do When the Military Messes Up Your Paycheck

The first step is to assess the situation. What happened? Were you not paid at all? Underpaid? Overpaid? Contact your finance department, explain the situation, and see if you can sit down with them and walk through the problem and find a solution. Many military pay problems are small, and can be resolved over the phone, or with a a quick meeting. But if your problem is bigger, you will need to do a little more work to find a resolution.

Resolving an Overpayment

Being overpaid can be almost as bad as being underpaid, because you will need to repay the excess amount of pay you received. As I previously mentioned, I was overpaid for a deployment when I was forced to take a cash advance I didn’t even want. The solution for me was easy – simply write a check to the US Treasury Department for the amount I was overpaid (I think it was in the $400 range; which was not an insubstantial sum when I was an E-3 with a take home pay of about $600 per pay period).

In other situations, you may be forced to repay more than you can write a check for in one fell swoop. In that case, your paycheck may be garnished by a certain amount each check until you have repaid the debt you now owe. This can be a big problem if you are living paycheck to paycheck, or you regularly spend your entire paycheck each month. In most cases, you can work with the finance department to spread out the overpayment over several checks. But if you were grossly overpaid, you may need to figure out some form of payment plan that doesn’t take away too much of your paycheck.

Resolving an Underpayment

Being underpaid is rough. You need to keep paying for your living expenses, even if your paycheck is light, or if it doesn’t even show up. Not being paid is rare, but not unheard of. Non-payments are most common when you are changing status (being activated, deactivated, separating from the service, receiving separation pay, or receiving an enlistment or reenlistment bonus).

Underpayments can happen for a variety of reasons, including being deployed, going through a PCS, receiving a promotion, change in status, adding dependents, change in BAH rates, becoming eligible for additional pays and bonuses, etc.

Resolving an underpayment starts with contacting your finance department, explaining the situation, and waiting for them to rectify the situation. In many cases, your pay will be resolved in one or two pay periods. But in some cases, it can take longer. Situations that may take longer are often things like bonuses, separation pay, and similar payments.

Unraveling the Impact of Paycheck Problems

Thankfully, most pay problems are small. But not all. And even small problems can quickly become big problems if they aren’t resolved quickly. And the problem with paycheck errors is the initial problem can lead to further problems, such as missing payments, adding debt, incurring finance problems, and worse. So let’s run through a few common problems and what can be done about them.

Dip into Emergency Savings. Everyone should have an emergency fund. How much you should have is up to you. But it’s best to start with at least $1,000. As a rule of thumb, I recommend everyone have at least one to three months of living expenses. That will help you manage most emergencies that pop up. If you don’t have one yet, make it your resolution to start an emergency fund. Be sure to top up your emergency fund once you have the situation resolved.

Speak to Your First Sergeant or Contact Your Service Aid Society. Your First Sergeant is your first line of defense and can help point you to resources on base, or in the local community. This can include a financial counselor or other specialist. Each branch of the service also has an aid foundation that helps their servicemembers through tough times. Here is a top-level list:

In most cases, these foundations will offer interest free, or low-interest loans to help you bridge the gap. Some may also offer a small cash grant or other aid.

Work with Your Creditors. If your paycheck problems cause you to run low on cash, you need to get proactive. That means contacting your lenders and creditors. Explain the situation and ask if they will be willing to work with you. Some lenders may be willing to let you skip a payment, or may be willing to waive late charges or finance fees for your first missed payment. The key is keeping lines of communication open. They can’t and won’t work with you if they don’t know about the situation.

Military Banking is a great way to go. Many military banking institutions will work with you on things like credit card payments, auto loans, etc. if you get them on the phone and let them know what is happening. Some of them also offer temporary loans that can help you bridge the gap. NFCU, PenFed, USAA, and other military banks are often willing to work with servicemembers in situations such as these.

Get More with a Free USAA Secure Checking Account

Raise Cash. There are many ways to raise cash quickly, so you’ll need to be creative. This can include things such as selling items on Craigslist or Ebay, having a yard sale, taking on a part time job, doing a side job for cash, etc. Your situation will be unique, so go with what you know and what you can do.

Credit Cards May Be an Option. Another option, though less attractive, is using credit cards. I don’t normally recommend using credit cards to pay for normal living expenses, but it’s a different story when it is for an emergency. And credit cards are almost always a better option than taking out a short term loan from a pay day lender, title loan company, or other company that offers high-interest short term loans. If at all possible, try to pay off your credit card as soon as possible. Here are some featured military credit cards.

Tap into Your Home Equity Line of Credit. I don’t like this option very much, because you would be taking out a loan against your home to pay for living expenses. The only time this is a good option is if you know you can (and will) repay the loan quickly. Otherwise, it’s better to look at other options.

Payday Loans and Title Loans – The Worst Options. Perhaps the worst thing you can do is get a  pay day loan, title loan, or other high interest loan. They are a quick way to digging a deeper hole and can be difficult to get out of. Interest rates on those loans don’t appear to be too bad at first-glance, but they are usually represented as a percentage for the short-term duration of the loan. So what appears to be a 20% loan is actually a 20% interest rate for a week or two. But it can be over 300% for a full year! To put that in perspective, you might borrow $1,000 and repay over $3,000. There are better options available!

Plan for the future. Once this situation is resolved, it’s a good idea to plan for something like this possibly happening again. It would be a good idea to use the separation pay and bonus to get current on any missed bills, and then save a little in an emergency fund for a rainy day. This will help you and your family avoid any potential financial surprises.

New Allotment Rules – No More Allotments for Personal Property Purchases

New Allotment Rules

The DoD has banned allotment for personal property purchases.

The Department of Defense recently announced sweeping changes for when they will allow military members to use allotments from their base pay. Starting January 1, 2015, the military will no longer allow active duty servicemembers to use allotments for personal property purchases, including purchases of:

  • Vehicles, including cars, trucks, motorcycles, and boats,
  • Household goods such as furniture, appliances such as washers and dryers, refrigerators,
  • Electronics, such as laptops, tablets, cell phones and televisions; and
  • Other consumer items that are tangible and moveable.

According to the DoD website, “Allotments still can be used for savings account deposits, investments, to support dependents, pay insurance premiums, mortgages, rents, make Combined Federal Campaign contributions, and U.S. government debt repayments.”

Servicemembers will also be required to certify under the UCMJ that the allotment is not for “the purchase, lease, or rental of personal property of or payment toward personal property.”

This will not affect current allotments, or those made before January 1, 2015. Additionally, these rules only apply to active duty service members, and not retirees or DoD Civilians.

Officials Cite Protection for Servicemembers as the Reason for Changes

The driving force behind these changes is to protect servicemembers from unscrupulous retailers and lenders who take advantage of military members and their families. In fact, DoD officials almost went a step further and banned all allotments, regardless of the purpose. In the end, they decided to keep the allotment system in place because servicemembers use them for sending money to family members and other purposes.

The main goal was to prevent servicemembers from being taken advantage of through high priced loans, and loans without clear disclosure of all fees. This includes loans such as payday loans, and high-priced consumer goods.

I’ve seen some examples of this first-hand, as I knew a young servicemember (E-2) who was talked into buying a car with an interest rate over 19%. The dealership even filled out the allotment paperwork for him. He should have known better than to buy a car he couldn’t afford, but the dealership also made it easy for him when they filled out the allotment paperwork and told him to take it to his finance department.

Are Allotments Even Necessary These Days? Allotments are convenient, but are they necessary? Most banks make it easy to set up automated payments from your account. You can do this quickly and easily at most banks. Here are some recommended military banks if your bank doesn’t offer these features.

But I see how allotments have a use – especially when it comes to sending money to family members while deployed, paying child support or alimony, and making sure certain payments are taken care of each month without having to worry about them.

Will new allotment rules fix the problem? I understand the reason for the new rules. Scrapping the allotment system for personal property purchases will add a barrier for certain loans. But I don’t think it will solve everything. The key is financial education. And that is something that unfortunately, is lacking in our school systems, and in the military. Until financial education becomes a priority, we will still have servicemembers who struggle with poor financial decisions.

Flat Rate Per Diem Update

If you have traveled on official government duty, you have probably receive per diem. Per diem is the daily allotted pay the DoD gives members while they are traveling on official duty assignments. The funds are to be used to cover your lodging, food, and incidental expenses, such as laundry and basic needs. When most people refer to per diem, they break it out to the two primary expenses, their Lodging, and their Meals and Incidental Expenses (M&IE).

All the rules can be found under the Joint Federal Travel Regulations, which is linked at the bottom of this article.

How are Per Diem Rates Determined?

per diem rates military and government travelPer Diem rates are given for specific locations. The rates range from $129 per day in the Continental US (CONUS), and up to $823 per day in Out of CONUS (or OCONUS) locations. Again, the total rate is split between your lodging and your Meals and Incidental Expenses.

Rates for these locations are determined by three organizations: The General Services Administration (GSA), The Department of State (DoS), and The Defense Travel Management Office (DTMO).

Proportional Meal Rates

You may find that you are eligible to eat government provided meals on some of your trips. This will result in a Proportional Meal Rate. The proportional meal rate for your location is based on the locality meal rate and the GOVAT meal rate (GMR).

The Proportional Meal Rate is determined by:

  • adding your locality meal rate with the GMR of $11.85, dividing by 2, then rounding up to the nearest dollar. Then you add the Incidental Expense rate.
  • Ex: The CONUS Meal & Incidental Rate is $46 ($41 for meals, and $5 incidental rate). Add $41 to $11.85, gives us $52.85. Divide by 2, that gives us $26.43. Round that down to $27. Then add the $5 incidental expense, for a total of $32.

The Proportional Meal Rate is given when:

  • You are lodging in government facilities and the government provides at least one meal (but not all 3 meals).
  • You are lodging in government facilities with government meals on your orders, but the mess wasn’t available for all meals.
  • You receive one or two meals that are paid for by the Government (for example, as part of a conference registration fee).
  • You aren’t entitled to per diem but must purchase a meal (your actual expenses are compared to the Proportional Meal Rate and you will be reimbursed the lesser of the two).

Current Per Diem Rates

Looking for per diem rates by location? The Defense Travel Management Office has a list of all the current Per Diem rates. Here are the relevant links:

Updates to Per Diem Policy

The Department of Defense recently updated the per diem rates for military members on Temporary Duty Assignments (TDY).

Here are some updates you need to be aware of:

Long-term per diem rates are lower than short term rates. Travelers will receive 100% of the locality rate per diem for travel under 30 days. Long-term travel over 30 days, but less than 180 days will result in an authorized per diem rate of 75% of the locality per diem rate. TDY travel in excess of 180 days results in a rate of 55% of the locality per diem rate.

Establishes a flat rate per diem allowance for long term TDY that would authorize a traveler 75% of the locality per diem rate for TDY periods over 30 days but not exceeding 180 days. This item also establishes a flat rate per diem allowance for TDY in excess of 180 days to be set at 55% of the locality per diem rate.

ATM fees, baggage expenses, transportation tips, & laundry/dry cleaning no longer reimbursable. These items were previously allowed expenses on your travel voucher and would be reimbursed. These are now included under incidental expenses and cannot be reimbursed on your travel voucher.

Other items of note:

  • When staying in government lodging, travelers will be reimbursed for the actual lodging costs.
  • Travelers may choose to stay in furnished apartments or similar lodging for long-term stays if the rates are comparable or less than commercial hotel rates.

Here is the updated Joint Travel Regulation (updated 20141101).

Combat Related Special Compensation (CRSC) Benefits – Replaces VA Disability Offset for Military Retirees with Combat-Related Disabilities

Did you know that if you are a military retiree with a combat-related disability you may be eligible to receive additional compensation through the Combat Related Special Compensation (CRSC) program? This is a relatively new law that many retirees are not aware of.

Combat Related Special Compensation (CRSC) Benefits

You may be eligible to receive additional compensation.

Until 2004, there was a law on the books that prevented military retirees from receiving both military retirement pay and VA service-connected disability compensation at the same time. Military retirees could choose to receive VA disability compensation if they were eligible, but their military retirement pay would be offset by the exact amount of compensation they received from the VA. The veteran received the same total compensation as their full retirement pay, however, the spending power was greater because VA disability compensation is tax-exempt.

In 2004, a law called Concurrent Retirement Disability Pay (CRDP) was passed. CRDP allows military retirees to receive both military retirement pay and VA disability compensation if they held a VA disability rating of 50% or greater. This is a substantial increase in compensation for these veterans who are eligible to receive their full military retirement pay and their full VA disability compensation.

But retirees with less than a 50% disability rating were left in the dark when it came to receiving greater compensation. While lawmakers didn’t extend the concurrent receipt laws to cover all disability ratings, they did create a similar law for veterans with a “combat related” disability, even if they do not have an overall disability rating of 50%. In 2008, Congress passed a law called the Combat-Related Special Compensation (CRSC) (10 U.S. Code § 1413a), which allows military retirees to receive monthly compensation to replace some or all of their VA disability offset if they have a combat-related injury. Let’s take a deeper look at CRSC, what it is, who it affects, and how to apply for this benefit.

What Is Combat Related Special Compensation?

Combat-Related Special Compensation was created to replace the VA disability offset for service-connected disabilities that are a direct result of combat related injuries, to include injuries that occur during combat or armed conflict, or during combat training, training that simulates war, while performing hazardous duty, or from exposure to an instrumentality of war (such as military combat vehicles, agent orange exposure, etc.).

Combat-Related Special Compensation provides compensation to eligible military retirees that will replace some or all of the VA disability offset. Their military retirement pay will no longer be deducted by the amount of their VA disability compensation. Instead, they will receive their full military retirement pay, and a CRSC payment based on the percentage of their disability rating that is considered combat-related. It’s important to note that CRSC payments only apply to the disabilities that are considered combat related. So it is possible that your CRSC payment can be less than your overall VA disability rating, and thus less than your VA disability offset. Like VA Disability compensation, CRSC payments are tax free.

Combat Related Special Compensation Eligibility

Here are the eligibility requirements, according to DFAS — To qualify for CRSC:

  • You must be entitled to and/or receiving military retired pay (Active or Reserve with 20 years or creditable service; Chapter 61 medically retired with less than 20 years of service; Retired under Temporary Early Retirement Act (TERA); or  retired under the Temporary Disabled Retirement List (TDRL)).
  • You must have a VA service-connected disability rating of at least 10 percent
  • Your military retirement pay is currently being reduced by your VA disability compensation (VA disability offset)
  • You must file a CRSC application with your Branch of Service

Disabilities that may be considered combat related include injuries incurred as a direct result of:

  • Armed Conflict / Combat: This can include direct or indirect wounds which occurred during armed conflict.
  • Hazardous Duty: This can include activities such as demolition duty, diving, parachuting, aerial flight, and more.
  • An Instrumentality of War: An instrumentality of war is a device such as a weapon or weapon systems specifically designed for military duty or warfare. This can include certain military combat vehicles, vessels, aircraft, or an injury or sickness caused by exposure to fumes, gases, or chemicals. Agent Orange exposure would qualify as an instrumentality of war.
  • Simulated War: This can activities such as military training, exercises, airborne ops, live fire exercises, hand-to-hand combat training, and more. This does not include standard physical training such as running, jogging, or group sports activities.

Eligibility Based on Service Dates and Back Pay: Anyone can be eligible to receive benefits under CRSC as long as they meet the eligibility requirements. This means it can apply to veterans who retired decades ago, or as recently as a month ago. There is even the possibility of receiving back pay if you are determined to be eligible for this benefit. However, if you retired with full longevity (20 or more years of service), you can only receive back pay as early as June 1, 2003, which was the effective date authorized by Congress. If you were medically retired under Chapter 61 with less than 20 years of service, back pay can only go back to January 2008, which was the effective date for authorizing veterans who retired with a medical retirement.

How to Apply for CRSC Benefits

Combat-Related Special Compensation is not automatic. You will need to apply for these benefits with your respective branch of service. They will assess your claim and determine your eligibility. To apply, you will need to fill out DD form 2860, along with the required documentation mentioned below, and send it to your respective military branch.

CRSC can be a complicated benefit because each case is unique. As always, it would be a good idea to consider using a Veterans Service Officer to help you with your benefits claims. They are often well-versed in applying for military and veterans benefits, and usually offer free assistance to veterans.

Documentation of Combat-Related Injury Required: You must be able to show a causal link between your service-connected disability rating and a combat-related event. You will need to provide documentation of your military service, including your Form DD-214 or Form DD-215, military medical records pertaining to your injuries, military personnel files, line of duty determinations, safety mishap (accident) reports, military personnel data system printouts, prior military disability board decisions, casualty reports, official orders or travel vouchers, VA summary letters, or other official documents that can substantiate your claims. Here is the important thing to remember: your records must clearly show your injury is combat-related.

Here is the contact info for submitting your CRSC claim:

Air Force
CRSC Program Office
550 C Street West, Suite 6
Randolph AFB
TX 78150-4708
Phone: 1-800-525-0102

Department of the Army
US Army Human Resources CMD
1600 Spearhead Division Ave
Dept 420
Fort Knox, KY 40122-5402
Phone: 1-866-281-3254
Fax: 1-502-613-9550

Coast Guard
Personnel Service Center
U.S. Coast Guard Stop 7200
4200 Wilson Blvd., Ste 1100
Arlington, VA 20598-7200
(703) 872-6626

Navy and Marine Corps
Secretary of the Navy Council of Review Boards
Attn: Combat-Related Special Compensation Branch
720 Kennon Street SE, Suite 309
Washington Navy Yard, DC 20374
Fax: 202-685-6610

More Info About Combat Related Special Compensation

Here is some additional information about CRSC:

Enlistment and Reenlistment Bonus Guide – Everything You Need to Know about Bonuses

Enlistment bonuses and reenlistment bonuses are just one way that the military entices people to join the military or choose to reenlist for additional service. These bonuses aren’t available to everyone, however. Bonuses are most often used as a tool to get people to sign up for hard to fill jobs, those which require a lot of training, and jobs that offer high paying jobs in the civilian sector. Let’s take a look at enlistment and reenlistment bonuses, including how much they can run, how they are paid out, and what you can expect if you receive one.

Enlistment Bonuses

reenlistment bonus guide

Read this guide before reenlisting!

Some jobs in the military are eligible for an initial enlistment bonus of up to $40,000. Keep in mind this is only for the most difficult to fill positions, and bonuses are not available for every job. The size and availability of bonuses depends on your branch of service, job specialty, and the length of your enlistment (typically between 3 and 6 years). As you can imagine, a 6 year enlistment bonus generally pays more than a 3 year enlistment bonus. If your job is eligible for a bonus, you will typically receive it after you finish your basic training and initial technical training.

Reenlistment Bonuses

Reenlistment bonuses may be available to current service members when they reenlist for another term, again, usually in 3 to 6 year increments. As previously mentioned, reenlistment bonuses aren’t available for every career field. Each branch of service is able to determine which specialty (Rating, MOS, or AFSC) is eligible for a reenlistment bonus.

You may be eligible for a reenlistment bonus if you are a member of the uniformed service who:

  • has completed at least 17 months of continuous active duty (other than for training) but not more than 20 years of active duty;
  • is qualified in a military skill designated as critical by the Secretary of Defense, or by the Secretary of Homeland Security with respect to the Coast Guard when it is not operating as service in the Navy; and
  • reenlists or voluntarily extends the member’s enlistment for a period of at least three years in a regular component of the service concerned; or in a reserve component of the service concerned, if the member is performing active Guard and Reserve duty (as defined in section 101 (d)(6) of title 10).
  • You are not currently receiving special nuclear-training pay.
  • You reenlist or voluntarily extend your enlistment for a period of at least three years.
  • You enlist in a regular component of the service concerned; or continue in a reserve component of the service concerned.

How much can you receive as a bonus? Reenlistment bonuses cannot exceed the lesser of:

  • The amount equal to the product of 15 times the monthly rate of basic pay to which the member was entitled at the time of the discharge or release of the member; and
  • the number of years (or the monthly fractions thereof) of the term of reenlistment or extension of enlistment.
  • Reenlistment bonus not to exceed $90,000.

Note on Special Retention Bonuses: Some specialties are eligible to receive retention bonuses of more than $90,000. These are usually limited to those in the medical field, aviators, and those in select nuclear specialties. These are all on a case-by-case basis and are spelled out in US Code: 37 U.S. C, Chapter 5.

How (Re)enlistment Bonuses Are Paid

This is the section everyone wants to read! If you qualify for a bonus, you want to know when you get paid, right? Fair enough. If your bonus is less than $20,000 you can generally expect to receive it in a lump sum, upon completion of the terms in your contract. This is generally after completion of your initial technical training. If your bonus is more than $20,000, you can generally expect to receive half up front (again, upon completion of training), and the remainder spread out among annual installments. The Navy pays out their annual installments on October 1, which is the start of the fiscal year. The other branches of the service pay their enlistment and reenlistment bonuses on the anniversary of the date you received your initial installment. Update: a reader recently wrote in to tell us the Navy now pays out reenlistment bonuses on the anniversary of your reenlistlment, just like the other branches do.

Why annual installments? The military wants to ensure they are getting their money’s worth. You must continue to meet standards for your Rating/MOS/AFSC in order to be eligible to continue receiving your anniversary bonus payments. Failure to meet the technical standards for your career field, or failure to meet other standards may make you ineligible to receive your bonus payment.

Example: If you have a $40,000 bonus, you would expect to receive a $20,000 lump sum upon completion of training (or when your reenlistment actually begins). You would receive the remaining $20,000 in 5 annual installments of $4,000 each on the anniversary of your reenlistment.

Don’t forget about taxes! You will also have taxes automatically withheld from your bonus, generally at the 25% or 28% rate. This is automatically done by the government, and not something you can change. If the withholding is too high for your tax bracket, then you will likely receive a larger than normal refund the following year.

What About Tax-Exempt Bonuses?

Count yourself lucky if you reenlist or receive your bonus while you are in a tax exempt combat zone. If you reenlist in a tax-free combat zone, you will receive your entire bonus tax free, which can be a substantial savings. Even better – your anniversary installments will also be considered tax-exempt, even if you receive them after you leave the tax-exempt zone. This is because you signed the contract in a tax-exempt zone. It’s not uncommon for people who are due to reenlist to request to go on an overseas deployment and reenlist at that location so they can receive a tax-exempt bonus. This tax exemption has another important factor which we cover in the next section about the Thrift Savings Plan.

Contributing Bonuses to the Thrift Savings Plan

You are eligible to contribute some or all of your enlistment or reenlistment bonus to the TSP, from 1-100%, provided your contributions do not exceed the federally mandated TSP contribution limits ($17,500 for 2014; $23,000 for age 50 and over). However, there are some exceptions. The $17,500 contribution limit only applies to taxable income. If your bonus is tax exempt, you can contribute up to the Annual Addition Limit of $52,000 ($57,500 for age 50+). You would be able to contribute up to $17,500 of your base pay, and up to $34,500 of your bonus pay, to reach the $52,000 limit. Taking this a step further, tax-exempt TSP contributions are extremely valuable as the income has never been taxed. This gives you some advanced retirement planning options should you choose to go that route (we’ll save that for another article).

Refunding a Bonus

This is the part no one wants to read, but it must be understood. If you receive a bonus, you are on the hook for the term of your contract. You may owe a prorated refund to the government if you are unable to fulfill the terms of your contract. This will be based on the amount of money you have received and how much time remains on your contract. Reasons you might have to repay your bonus can include, but are not limited to: voluntary separation, misconduct, failure to meet standards, failure to meet technical qualifications, and possible other reasons.

You aren’t generally on the hook to repay a portion of your bonus if you aren’t qualified to serve due to illness, injury, or other reasons for which you aren’t at fault.

Note on repaying a bonus due to early separation: Voluntary early separation often requires you to repay a portion of your bonus, but it may depend on why you separate. Repayment of bonuses has been waived at times during Reduction in Force (RIF) measures, but only in cases when the branch of service specifically waived the requirement. In other words, don’t take it for granted! Be sure to read the contract you signed when you received your bonus, and the contract you will sign to separate early. The terms will spell out whether or not you will need to repay your bonus.

Meet with your finance and/or personnel  office for more information: If it is determined you will owe a refund to Uncle Sam, be sure you know how much you will owe, and how you will be required to pay it back. Your finance or personnel office should be able to help you with this.

Which Jobs Offer an Enlistment or Reenlistment Bonus?

Great question, and I’m sorry, but it’s one I can’t answer because it’s a moving target. Each branch of service determines which specialties are eligible for enlistment or reenlistment bonuses, and they frequently change as the needs of the service change. If you are considering joining the military, then you will need to speak with a recruiter to find out if a bonus is available to you. If you are currently in the service, you can generally find a list on your service’s website, or by contacting your personnel or retention office.

Word of advice: Don’t just do it for the money. A bonus is nice, but make sure 1) you want to serve; you aren’t just joining the military for a fat bonus, and 2) you want to serve in the job that is offering the bonus. Nothing will make the next few years drag more than a job you hate. Secure happiness first, then worry about the money.

More reading:

  • Enlistment and Reenlistment bonuses are part of the US Code: 37 U.S. C, Chapter 5, subchapter 1 (§ 309 – Enlistment bonuses), (§ 308 – Reenlistment bonuses)
  • There are special sections of the US Code that cover certain hard to fill specialties, particularly those in the medical, aviation, nuclear, and other professional fields. These are also listed in subchapter 1.
  • Contact your recruiter or personnel office for more specific advice regarding any bonuses you may be eligible to receive. And as always, get it in writing!

Lesson Learned from the Government Shutdown

The government shutdown affected just about everyone in some way. And for many of us, it was scary. Would we get paid? Would veterans benefits continue?

The answers changed depending on the day of the week. Until laws were changed, no one would get paid. Congress eventually passed a law that ensured active duty military members would get paid, but many non-military government employees were furloughed without pay (many of them will get back pay, but that doesn’t account for the problems many people incurred while they were without pay).

There were other problems: many members of the Guard and Reserves had their drills canceled, reducing their points for the year, and leaving them without their expected pay. Numerous base activities and benefits were temporarily canceled or shut down. The Commissary, base exchange, child care, and other base benefits were unavailable.

In short, it was a bad dream for most military members and government employees. And here is the worst part: it can, and likely will, happen again.

Like the last few times dealing with the debt ceiling, the government placed a band aid on the wound. They didn’t make a permanent fix. This has been going on for the last two years, and it is likely to continue unless the government passes a permanent solution. In the mean time, it is up to all of us to do as much as we can to take control of our lives. Here are some tips we can all use to get on a better financial footing so the next time something like this happens it will still be an inconvenience, but hopefully, it won’t be catastrophic.

We Need to Take Control of Our Finances

It is hard to be in control when you are in the military. You go where they tell you to go, you get paid when the government says you get paid, etc. I get that. But there are things we can all do to help ourselves be in more control of our financial lives.

It starts with our day-to-day and week-to-week living. Living paycheck to paycheck is tough, and for many, it is a reality. But we all need to try to get ahead of the paycheck game. (Yes, I know it is hard to live on an enlisted salary, but tens of thousands of military families do it every day).

Getting our of the paycheck-to-paycheck cycle: There are no secrets here. The only way to get out of the paycheck-to-paycheck cycle is to spend less than you earn (or earn more than you spend). It won’t happen any other way. Here are some recommended tips to get you started:

  • Build an emergency fund. An emergency fund is nothing more than a savings account you set up for a rainy day. You don’t touch it unless you absolutely need to. There is no magic number for how much money you need in your emergency fund, but a recommended starting point is $1,000 (you don’t have to stop there, just set that as a target to get started). That is a lot of money, but you don’t have to put it all in right away. Start saving $25 a week, or $50 a paycheck, or whatever you can afford to put away. The money in your emergency fund will help you deal with any unexpected expenses that pop up, such as a flight home, a car accident, or a government shutdown. Your emergency fund will help you avoid relying upon credit cards or other loans in an emergency.
  • Reduce your debt. Debt is nothing but an anchor to your financial growth. It is hard to cut back your spending when you have a large portion of your income tied up in payments every month. Every bit of debt you reduce now is less money you have to spend before it hits your bank account, making it easier to weather the storm of a government shutdown or other event that limits your cash flow.
  • Increase income. Increasing your income is a great way to supercharge your savings or reduce the time it takes you to get out of debt. Not everyone can work a part-time job when in the military (and most military members shouldn’t). But there are other ways to earn more money, including having a side business, or a hobby that can generate income. Spouses may also be able to work part-time, either in or out of the home. Any additional income can make cash flow problems easier to deal with.

Stay informed

The government shutdown was not a static event. There was news about it in the weeks leading up to it, and a constant news stream during the shutdown. There was no permanent solution, so it is very possible this can happen again. Be ready if it does. If you see anything about this in the news, start preparing as soon as you can. Cut expenses where possible, save what you can, encourage your spouse to look for part-time work if possible, etc. Look at your personal situation and adjust as necessary. Preparing even a month out can reduce your stress levels.

Bank with Someone Who Understands

I recommend banking with a military financial institution such as Navy Federal Credit Union, Pentagon Federal Credit Union, or United Services Automobile Association (USAA). (There are likely other good financial institutions out there, I am recommending the ones I am most familiar with). All of these financial institutions are built to serve their members first, not shareholders like corporate banks. (Credit Unions by definition are owned by their members, and USAA is under a unique charter; they too are owned by their members). Because of these differences, these financial institutions are able to do things for their members that other financial institutions won’t do, such as offer interest free loans during a government shutdown or other forms of assistance to help members get through a difficult period. They may also offer member benefits during a PCS or deployment, better customer service than most large commercial banks, better financial products, fewer fees, and more. I recommend looking into joining one of these institutions if you aren’t already a member.

Take Control Where Possible

At the end of the day, the government shutdown was a major inconvenience for many people. And that is unfortunate, because the shutdown harmed the people the government is supposed to protect. That makes for an eye-opening experience for many of us. For me, it reinforced that I need to take as much control into my hands as possible.

Will Military Members Get Paid if Government Shuts Down?

The government still hasn’t passed next year’s funding bill, leaving the possibility of a government shutdown if the funding bill isn’t passed by September 30, 2013. How would a government shutdown affect the average American, and just as importantly, what would it mean for our men and women in uniform?

These are great questions. A government shutdown would affect a large segment of our population, including federal government employees and military members. But what about military retirees, Social Security Recipients, and recipients of other government and military benefits such as TRICARE, VA benefits, and more? The answers to these questions vary, depending on several situations.

What Happens if the Government Shuts Down?

First, let’s start with a little background on the situation: The US government is required to pass a spending bill each year. Essentially, this is their budget – without it the government ceases many operations and as a result, many government agencies will stop work and many will stop paying employees. The current spending bill ends September 30th, and without passing a new spending bill, the government will essentially shut down.

Will Military Members Get Paid?

Update: The government has passed approved military pay during the government shutdown. However, most government civilians will not receive pay during the shutdown, and man government and military support facilities will be closed. Check with your base for a list of current closings.

The answer is yes, and no. Military members will receive their paycheck on October 1st, but there is the possibility that service members won’t get paid beyond October 1st if the government shutdown extends beyond that date. The Air Force Times recently quoted Rep. C.W. “Bill” Young, R-Fla., chairman of the House defense appropriations subcommittee, as saying“All military personnel will continue to serve and accrue pay, but will not actually be paid until appropriations are available.” 

In this case, employees would be paid for their work up to the day the spending bill expired, or September 30th. Earnings through September 30th would be paid on October 1st, 2013. So the first possible missed paycheck would be the mid-month paycheck due on October 15th.

What does this mean for military members? The first thing to consider is that this hasn’t happened yet – the government has a tendency to burn the midnight oil when a showdown looms, often working until the early morning hours to either pass the funding bill, or pass a bill that gives them a deadline extension. At this point, a band-aid is better than nothing. Should they fail to reach a new agreement on the funding bill, it is possible that the government could shut down many services and stop making payments.

How much will you be paid, and when? If the government shuts down, you will receive your pay earned through the date at which the government shuts down. At this time the deadline is September 30th, which would make for a normal paycheck on the regularly scheduled October 1st payday. As stated above, military members would continue working and accruing pay after the cutoff date, so the next paycheck would be normal as long as the funding bill was passed in enough time for payments to be made.

Military members will receive back pay. If the government shuts down and military members don’t receive paychecks, they will receive back pay for missed paychecks.

Some government employees may not be required to report to work. If a funding bill is not passed, most government employees will be temporarily furloughed and will not be required to work until a spending bill is passed. However, there are exemptions, especially for those whose work is required for national security, including most military members. These groups of military members will be broken into exempt and non-exempt categories. So operations in war zones, humanitarian relief, and many people involved in fields such as medical, security, and transportation will continue to work.

What about other benefits? Benefits related to your pay, such as BAS and BAH will not be paid during a potential government shutdown, however, other benefits may still be around, such as health care. Military members may also be forced to cancel leave because technically the government is not allowed to permit government workers to take paid leave while there is no spending plan, due to the way paid leave works from an accounting standpoint. At this point, much is still in the air, and these concerns may not have all been determined at this time. The Pentagon is awaiting more information before releasing official guidance for military members and their families.

Military related payments not expected to stop. The government shut down will only affect paychecks for government spending which must be approved on an annual basis. Some military related payments are made from a separate pot of money and likely won’t be affected. The following payments are expected to continue without interruption:

What about Social Security Benefits, Veterans Health benefits, Medicare, Medicaid, etc.? During the last shut down, the government continued sending Social Security Benefits to recipients. This should continue again. However, many non-emergency veteran health care services were curtailed during the shutdowns. Medicare, Medicaid and VA health care benefits would continue during a shutdown, but payments for the care may be later than normal. So be aware of this when planning any non-emergency or low-priority medical care.

UPDATE: Here are some tips for Dealing With a Missed Military Paycheck. These tips can show you how to get by on your own or how to contact your lender, landlord, or financial aid service to get help with this situation.

Interview with Jeff Rose, Author of Soldier of Finance

One reason I started The Military Wallet was to help myself and other military members and veterans navigate the often-times confusing world of benefits and financial topics. No one is going to hold your hand and show you how to balance your check book, invest in your first mutual fund, open a Thrift Savings Plan account, or prepare for retirement. It’s up to each individual or family to get it right. And it’s not always easy.

Soldier of FinanceJeff Rose is a living example. He started off like many of us – living paycheck to paycheck, and not quite sure how to handle his money the right way. Then he became interested in learning more about money management, investing, and related topics. Today, Jeff is a Certified Financial Planner, blogger at Good Financial Cents, life insurance agent, and now, a published author, as he is in the process of launching his first book, Soldier of Finance: Take Charge of Your Money and Invest in Your Future.

Did I mention that Jeff served in the Army National Guard for 9 years and used his GI Bill to help him earn his college degree and financial planning certifications? Jeff leans heavily on his military background to bring you Soldier of Finance. In it, you will learn about how his military training prepared Jeff for a life of financial planning, how he learned to roll with the punches and recover from financial mistakes. He shares his experience with his year-long deployment to Iraq and how it helped shape his desire to create a stable financial footing for his family when he returned.

Jeff Rose - Soldier of Finance

I’ve read dozens of books on money management and financial planning, but I’ve never read one with the approach Jeff uses. He shares his background and personal anecdotes to distill difficult financial topics into a language every one of us can understand. Even better, Jeff lays out a road map to help you get your own finances in order. This book contains a lot of excellent information and is best treated as a manual for long term financial planning. Using this resource, you can learn how to manage debt, understand your credit report and credit score,identify your financial goals, begin saving for the future, start investing, save for a home, and insure yourself, your family, and your belongings. In short – it’s a manual you can keep on your shelf and use for reference at virtually any stage of your life.

Jeff graciously spent a few moments answering some questions for us. I hope you will take a few minutes to read through this, and learn more about his book on his website, or visit Amazon for more information (also available at Barnes & Noble and other retail stores).

1. Congratulations Jeff on the new book Solider of Finance. I know it’s been a lot of work in the making, and I’m sure you’re excited to finally see it in print form! Can you give us a brief overview about the book, including what inspired you to write it and who the target audience is?

First off, thanks Ryan for allowing me to share my story with your community. Secondly, I would like to thank my fellow service men and woman who have sacrificed for the country that they love.

The inspiration behind the book is simple. I’ve been a financial planner for over 10 years now and along that way, I’ve seen so many men and women who make poor financial decisions. This has to do with investing, budgeting, saving for retirement. You name it. I’ve seen it. This book looks to address those that need help just getting started in getting their financial house in order.

The underlying message behind the book is that we’ve all made poor financial decisions in our past; me included. I struggled with credit card debt and student loans. I dropped out of college and was going nowhere fast.  I made the conscious choice that I wanted more out of my life; I took action and made things happen.

I’ve personally seen dozens of cases where people got into really bad credit card debt, had to file bankruptcy, procrastinated, and didn’t save anything for retirement and despite all these shortfalls, they still have been able to get their financial life in order.

This book is for those that want more out of their money and are willing to put forth the effort to get there.

2. The concept of a battle buddy is not a new concept to most people in the military, but many military members don’t apply this concept to other areas of their lives, including their finances. Can you share why having a battle buddy is so important for helping with financial management?

As you alluded to, most people in the military get the battle buddy concept. Having somebody that has your back no matter what and knows everything about you.  Every deep, dark secret, and isn’t afraid to speak their mind if they feel that you need it and deserve it. The same thing applies with your financial battle buddy.

For example, in my case, my financial battle buddy is my spouse. She’s the one when we first started dating that called me out when I tried to convince her that I needed to buy a brand new 42 inch flat screen TV. Now keep in mind I wanted to buy this when my income was next to nothing, and I already was racking up credit card debt. Her simply asking me, “Can you really afford that?” was a wake-up call.

Initially, I was miffed that she would ever question this purchase, but after sitting on it for a few days I realized that she was right.

A financial battle buddy isn’t afraid to speak their mind when they know what you need to hear. If your battle buddy knows that you’re struggling with debt, they should be the first one to speak up if you’re getting ready to head to the mall to buy something you don’t need, or go on a trip that you really just can’t afford.

3. Many people are afraid to admit their mistakes to themselves, much less write about them, but you have done just that as you list several financial mistakes that you have made throughout your learning years. Can you share a financial mistake that you made and how you learned from it?

My gosh…where do I even start?  :)

I think the biggest mistake I made early on was my thinking in regards to credit cards “My payment will be a $100 per month.  I can totally afford that.

Because of my flawed logic my credit card debt went from a simple $500 store card to $10,000 of total debt.  And this was before I graduated college!

My spending was spiraling out of control and thankfully my wife was there to kick my financial butt again.

Since then I always ask myself “Do you really need that?” before I purchase anything.  That’s not just for big purchases.  I do that for small purchases like a $15 t-shirt.  It might sound silly but small “innocent” purchases it where it all begins.

4. When I first enlisted in the military, I saw how many youngsters made a variety of financial mistakes (I even made a few of my own!). What mistake do you see the most often among younger individuals or young families and what advice do you have for them.

I think the biggest mistake that most young people make is that they don’t save enough for their financial future. Most young individuals nowadays will not have the luxury of fruitful pensions and social security to take care of their retirement income needs. What that means is that it’s all on their shoulders to make it happen.

Because of this, younger individuals need to be saving a good chunk of their income. And I define a good chunk of income as a minimum of 20%, but in reality 25% is where you want to be.

A common misconception a lot of young people that I talk to assume  is that they can’t afford to start saving right now because it takes a lot of money to get started.  That’s a huge mistake.  It doesn’t take a lot to get going, but not getting going at all will have dangerous ramifications later on.

5. In your day job, you’re a financial planner and insurance agent. Many of your clients are more established in their lives and in their finances. What are the biggest financial problems you see when you visit with a new client? What advice do you have for them?

Some of the biggest problems I see are having way too much debt. Many of my clients are approaching retirement and have to watch their monthly spending fairly closely. By having too much debt, i.e., a mortgage, credit cards, car loans, etc., it puts that much more pressure on having enough money to live off in retirement. My advice to anyone who wants to retire with little to no stress is to get rid of the debt. Do what you can to pay off everything before you finally retire.

For the younger generation, don’t get caught up in keeping up with your peers. Know what you can afford. If at all possible, pay cash.  Not blowing your paycheck on the latest gadget or fad and putting that money away will reap huge benefits down the road.

6. So far, we have discussed reacting to mistakes, but you can’t win a war by only playing defense. Can you give some examples of how your readers can be proactive with their finances?

First and foremost people need to be in tune with what’s going on with their finances. This can be having a simple budget, having routine financial discussions with your spouse, knowing exactly how much money you’re saving and where it’s going. One of my pet peeves as a financial planner is that I see countless people blindly putting money into their retirement plans but have no idea what their money is actually invested into. Since your 401(k), TSP, 403(b) will eventually be your largest asset that you own, even larger than your home, wouldn’t you want to know where your money’s being invested?  I would hope so!

In addition to staying on top of your savings and your investing, it’s also wise to keep in tune with your credit. If your credit report changes constantly, this also affects your credit score. Doing simple routine audits of your credit report (since it’s free) will make you aware if there are any drastic changes that you need to be on top of.

Jeff, thanks so much for spending a few minutes sharing your insight with our readers. For anyone looking for a good financial resource, I recommend checking out Jeff’s new book, Soldier of Finance: Take Charge of Your Money and Invest in Your Future.

5 Priceless Money Tips from the WWII Generation

The World War II generation is fading away, and with them goes a lifetime of lessons this generation could certainly use today. If you were to sit down with one of these wise men or women, what would they tell you about life and money? Likely, you’d learn a thing or two about surviving difficult circumstances and how to foster strong business relationships with your fellow man. Let’s take a look a few of the priceless money tips you’d learn from these brave souls.

1. There’s no such thing as “too frugal.”

Money tips from the Greatest GenerationGrowing up in the Great Depression, the World War II generation knew what it meant to be frugal. The difficulties they encountered pale in comparison to the recession of late. Many didn’t have enough money for food, and every purchase was carefully considered. They were frugal because they had to be, but would likely tell you that it’s good to be frugal even when you don’t have to be. If they could’ve saved money for a rainy day, they would have. In fact, they are notorious for their frugal ways even during these times of plenty.

2. Work really, really hard.

The World War II generation understood the value of a job, and they worked very hard at the task at hand. Back in their day, they often didn’t have a wide variety of jobs to choose from. Today, typing a job search into Google will show you some results in the blink of an eye – an advantage non-existent to those living 70 years ago.

Complaining was not an option. You worked hard because if you didn’t, there was someone standing in line waiting to take your position. Finding your dream job probably never came to mind; instead, finding any job was a dream come true.

3. Find contentment in what you have.

Consider the words of Larry, an 89-year-old:

Let me tell you, in the 1930s we had the Depression . . . . We’d maybe get a nickel once in a while. We were half a block from a wonderful park, they had lots of activities there for kids, and wading pools, and we had a huge skating pond down there. And they’d have band concerts down there in the summer the whole neighborhood would go down there. There were popcorn wagons parked all around there. We kids would have a nickel and we’d sit there for several minutes trying to decide “What I should I have?” And these poor guys, they’re trying to wait on you, they’re patient waiting for you to decide: Do you want popcorn or do you want ice cream? You want a Holloway sucker or what do you want? And once in a while at the movies, they would have Saturday matinees for kids, for ten cents. And after the movie if we had another nickel we’d stop at a place that had ice cream and popcorn and we’d get that. And boy, we really had a Saturday afternoon.

Do you ever hear kids today saying such things after a movie and ice cream – “And boy, we really had a Saturday afternoon?” It’s clear from Larry’s story that he was content with much less than children are today. Movies, ice cream, and popcorn with friends were all a kid needed to have a blast. And these aren’t even small things. Something tells me Larry was content and happy even when he couldn’t afford such entertainment.

4. Don’t let inflation catch you off guard – because it’s real.

Take a twenty-dollar bill out of your wallet if you have one. As of this writing, that twenty-dollar bill has the same buying power as $1.19 the year World War II started (1939). Inflation is real, and you should figure it into your financial planning. While nobody can predict future inflation rates, this calculator will give you some more ideas about the effect of inflation on money.

5. You shouldn’t rely on credit cards.

Credit cards wouldn’t land in the hands of consumers until about a decade after World War II, making access to credit more difficult for that generation. While sharing supplies with your neighbor was a common occurrence in the early 1900s, borrowing at interest was far more difficult than companies make it today.

While the World War II generation would eventually, in part, adopt credit card use later in life, you’ll still find many from that generation using checks and debit cards as a means to spend money they actually had – what a novel idea. ;)

Bottom Line

If you have the opportunity to sit down with a senior and talk with them about life back in their youth, do. Ask them about some of their best money tips, and be open to taking their advice. You’ll be glad you did.

About the author: Bob is a full-time blogger who writes almost exclusively about personal finance. You can find more from him at Christian Personal Finance.

Is an Early Military Retirement a Good Option? A Look at TERA

The military last went through a draw down in the 1990’s, following the Cold War and the first Gulf War. During that time, the military contracted in many ways, including the retirement of weapons systems, base closures, and the mass attrition of personnel. Following a decade of relative peace, the world was rocked by the terror attacks of September 11th, which brought us into the War on Terror. Instead of decreasing in size, our military increased its numbers, and even implemented measures to temporarily prevent some members from leaving the service. Many military members were unable to leave the service when they originally intended to, as several branches enacted stop-loss measures that kept servicemembers in uniform long past their initial separation date.

However, as the war slowed, the need to keep as many servicemembers in uniform decreased. In recent years, each military branch has used different methods to reduce their force size, including offering servicemembers the opportunity to get an early transition from active duty to the Guard or Reserves, transition to another branch of the military, or even get an early out through Force Shaping or other measures.

Now, the military is offering select servicemembers the opportunity to retire with only 15-19 years of service, a substantial reduction from the normal requirement of 20 years of good service. This program, called the Temporary Early Retirement Authority, or TERA, was last available to servicemembers during the end of the Cold War era, or during the 1993-2001 fiscal years.

The National Defense Authorization Act signed in 2011 reauthorized the branches to offer the Temporary Early Retirement Authority program to select members who meet certain criteria. (This law is currently set to be on the books until 2018). The time in service requirement, which is more than 15 years and less than 20 years, is set by law. The other criteria are set by each branch so they can determine how best to shape the quality of their force. Generally, this program is only available to servicemembers who are in overmanned career fields. You will need to check with your respective service to determine if you are eligible for early retirement under TERA.

Is Early Military Retirement a Good Decision?

There is no one-size-fits-all answer to this question, so let’s look at the how the program works so you can decide for yourself. First, let’s assume the military member is working toward a normal military retirement under the High-3 system, or the Career Status Bonus (REDUX) retirement system.

How to Calculate High-3 Retirement: This retirement plan gives the servicemember a pension based on their average basic pay for their highest 36 months of service. Under this plan, each year served is worth 2.5% toward an annual pension. For example, serving 20 years would result in a pension worth 50% of their average base pay. Each additional year served increases their base multiplier by 2.5%. So 30 years of service would be worth a 75% pension. Under this plan, the annual Cost of Living Adjustment (COLA), is based on the Consumer Price Index (CPI). More info.

How to Calculate REDUX Retirement: In 1986, the military began offering servicemembers their choice of the High-3 retirement system or the Career Status Bonus/REDUX retirement. With the CSB/REDUX plan, servicemember would receive a $30,000 cash bonus at their 15 year mark in return for accepting a reduced retirement multiplier and COLA rating. REDUX is calculated in a similar fashion as the High-3 retirement plan, with a few notable differences. Instead of using a 2.5% multiplier across the board, the REDUX plan uses a 2.0% multiplier for the first 20 years, then 3.5% for each additional year of service. In this example, a 20 year retirement would be worth 40% of base pay, while a 30 year retirement would equal 75%, the same multiplier as the High-3 system. However, there is one more catch: under the REDUX plan, the annual Cost of Living Adjustment (COLA), is based on the Consumer Price Index (CPI) minus 1%. Since the annual Cost of Living Adjustment is less, the pension grows more slowly over time. Read more in this article about deciding if REDUX is worth it.

How to Calculate TERA Retirement: The Temporary Early Retirement Authority retirement plan is based on the above retirement plans, but it is reduced by a Reduction Factor equaling -1% for each year under 20 years served. For example, 19 year served would be 99%, 18 years would be 98%, 17 years would be 97%, etc.*

Start with whichever retirement system you chose, the High-3 or REDUX, then apply the following formula:

Active duty pay x Percent Multiple x Reduction Factor (-1% for each year short of 20 years) = TERA Retired Pay

In this formula, your Active Duty Pay is the average of your highest 36 months of pay, the percent multiple is the multiple based on your retirement plan and number of years served, and the Reduction Factor is a percentage that further reduces your retirement because you didn’t serve the full 20 years. Here are two examples for someone who served 15 years:

  • High-3 Plan at 15 years: Average pay x (15 years x 2.5% * 95%) = 35.625%
  • REDUX Plan at 15 years: Average pay x (15 years x 2.0% * 95%) = 28.5%

As you can see, taking the TERA early retirement option results in a much smaller retirement benefit, especially under the CSB/REDUX option.

*Calculating more than 15 years of service, but less than 20 years: It gets a little more complicated if you want to calculate your retirement benefits if you served over 15, but less than 20 years. The military gives credit for months served, so you your base multiplier wouldn’t necessarily be a round number, such as the 95% we used above. Here is a pdf that explains in more detail, and an article which also discusses the value of an early military retirement.

Other Retirement Benefits

To be clear, this is a full military retirement, complete with TRICARE and TRICARE for Life, starting immediately, the same COLA adjustments, base access, and access to the same benefits available to other military retirees. There is no special decal on your military ID card, and no one will have to know if you don’t tell them. The biggest considerations include your final pension and your quality of life.

Is Early Military Retirement a Good Decision?

Now all you need to do is run the numbers and look at your future income potential and take into consideration quality of life issues. To be clear, there isn’t always an easy answer. If you are financially secure and are ready to move on to the next stage of your life, then an early retirement may be well worth it from a quality of life standpoint, even with the reduced pension. This may also be the case if you believe you have a high income potential after your military service. Many civilian jobs pay much better than a comparable military job, and the difference in the pension can be easily made up with the higher civilian salary.

On the other hand, if you aren’t financially secure right now and your income potential isn’t as high, then you may consider avoiding the early retirement option. This isn’t a decision to take lightly. Take your time, run the numbers, consider your quality of life if you stay or get out, do some soul searching, and speak with your spouse or significant other. This is a major decision and one you should spend some time on.