The military is cutting its end strength across all branches of the military, including active duty, Guard, and Reserves. In today’s podcast we discuss how you can decrease the odds of being involuntarily let go, and what you can do if you are informed that you will lose your military job, including the financial implications of being laid off, benefits eligibility, civilian career options, transitioning to the Guard or Reserves, and how to handle the emotional impact of suddenly being unemployed.
Read this article and listen to the podcast. What follows is an in-depth version of my talking notes from the podcast, not a complete transcript. If you or someone you know is being impacted by the Reduction in Force, then I encourage you to listen to the podcast as well as read these notes. There is value in both. The podcast gives multiple anecdotes and examples. This article is almost 4,000 words and includes a variety of helpful links to internal and external resources. This is a huge topic and one that you need to spend a lot of time on. Your life is being impacted in a huge way and it’s not something you can solve in an hour.
The Military Drawdown – Reduction in Force
In the civilian world, you often hear about large companies laying off dozens, or hundreds of workers. In rare cases, a company may lay off thousands of employees. Rarely do you hear about this happening in the government sector, where job stability is often greater than in the commercial sector.
But right now, the military is going through some major downsizing. Call it a drawdown, Force Shaping, Reduction in Force, or RIF, or any other term, it’s all the same. The government is laying off tens of thousands of servicemen and women currently serving on active duty, and thousands from the Guard and Reserves.
This is a numbers game in Washington D.C., but this isn’t just a numbers game to the tens of thousands of people whose lives are being affected by the Force Shaping our military is experiencing. This is real life. And it’s hard.
Today we are going to talk about the problem, who it is impacting and how it is affecting them, and what you can do if your number is called and you are involuntarily separated from the military.
Joining us in our podcast is a special guest, Rob Aeschbach. He is a retired Marine officer and is in the process of starting a financial planning practice with the goal to help military members and their families. I met Rob at a financial conference about two years ago and we hit it off right away. He is a great guy, and knowledgeable about what’s happening in the military right now, and how you can protect yourself. If you wish to learn more about Rob, or get in touch with him, you can find him on @RobAeschbach on twitter.
Force Shaping – What is Happening in Each Branch
Let’s talk about the military drawdown going on. This is the largest drawdown since the Cold War when the military reduced the size of their active-duty ranks by 494,000 from 1991 to 1995. That’s almost half a million people whose lives were affected by the drawdown (source).
In comparison, today’s cuts are a small percentage of that. But it’s important to remember these cuts don’t represent statistics, they represent real lives that are being affected. Each branch is cutting thousands of active duty troops, and in the case of some branches, tens of thousands of troops.
Here are some scary numbers (note: some of these sources are somewhat conflicting, and of course, are subject to change):
Army Cuts: The Army has the most significant Reduction in Force, with roughly 50,000 active duty spots in the next few years, and about 30,000 Guard and Reserve slots.
- The Army is cutting 30,000 its size from 520,000 Soldiers today, to 490,000 in 2015 (source).
- And another 20,000 by 2017, down to 460,000.
- A total reduction of about 50,000 Soldiers (source).
- The Army will also cut around 30,000 Soldiers from Guard and Reserve units over the next few years (source).
- Here is a top-level overview of what is happening in the Army: Army Drawdown and Restructuring: Background and Issues for Congress.
Air Force, Marines, and Navy cuts: The other branches are cutting their numbers at a lower rate.
- Air Force is cutting 16,700 Airmen (source).
- The Marines are cutting 6,100 by 2015, and another 4,000 by 2017. Also cutting 1,100 members of the Reserves (source). One source showed a cut of 15,000 Marines by 2017 (source).
- The Navy is keeping its end strength the same for 2015.
Who is Affected – Officer, Enlisted?
Each branch determines which careers and ranks are being cut. This is something they normally decide based on desired end strength, current overages, and other needs. What is important to know is that the Reduction in Force affects officers and enlisted alike. For example:
- In June 2014, the Army cut 1,100 Army Captains, and they were scheduled to cut 500 Majors in July. In most cases, they are given a little less than a year to separate.
- Many enlisted members’ jobs are also being cut. Instead of being given a separation date, enlisted members are often allowed to finish their enlistment, but aren’t allowed to reenlist.
Which jobs are being cut? There is no public list. If your career field is over-manned, or your officer class has too many people, then you may be in danger of being selected for involuntary separation. If you don’t know the status of your career field, then you may try contacting your personnel officer or assignments officer to find out what is happening with your career field. If you want to be proactive, find out if you are eligible to cross-train into a high-need career field, or one that is undermanned.
Special to the podcast: Rob shared some anecdotes about his time in the Marines. He joined in 1990, right before one of the largest drawdowns in US Military history. He saw the end force strength of the Marines decrease each year he was in the service. Rob’s stories and tips can help you understand how others made it through a RIF, and possibly help you put things in perspective.
Options for those Facing Force Shaping
Let’s talk about some different classes of service members in regard to time in service and some of the options they have available to them if they are RIF’d. We’ll list a few, then tackle them individually.
- Less than 6 years of service: Most members in this career group are simply let go from military service.
- More than 6 years of service and less than 20 years of service: are often eligible for involuntary separation pay, which is similar to severance pay in the civilian community. Involuntary Separation Pay is based on your rank and years of service.
- Voluntary Separation Pay: Some branches are offering select service members the option of voluntarily separating from the service in exchange for a Voluntary Separation Bonus.
- Temporary Early Retirement Authority: Some military members are eligible for early retirement under TERA, the Temporary Early Retirement Authority.
- Guard/Reserves: Members may also be eligible to join the Guard or Reserves.
Keep in mind that everyone facing a Reduction in Force or involuntary separation should be eligible for unemployment benefits. In fact, military members are eligible for unemployment benefits even if they voluntarily separate from the service at the end of their service commitment. One of the few exceptions might be for those who are receiving retirement pay. Unemployment benefits won’t cover all your expenses, but they should help defray your cost of living until you land on your feet. Check with your state for more specific information on filing an unemployment benefits claim.
Less Than 6 Years of Service:
Those who served less than 6 years on active duty are ineligible for involuntary separation pay. So they will leave with the ability to call themselves a veteran, and they will have some basic benefits, such as the GI Bill, VA Loan, and possibly other veterans benefits, depending on individual circumstances. With less than 6 years of service time, junior enlisted members and junior officers haven’t yet become career military members. The transition is difficult but may be easier for many to bounce back from. The key thing to remember here is you are losing your job and benefits. The goal is to make yourself employable and find a new job as soon as you are able.
Special to the podcast: Rob gives tips on how to find a job using your military experience and credentials. There are many employers seeking those with military experience and leadership qualities.
More Than 6 Years of Service, But Less Than 20:
Those who served more than 6 years, but less than 20 years are generally considered mid-career personnel, or sometimes careerists, depending on how long they have been in. This can be a more difficult transition, especially if you have built your career and financial future around the military and potential military retirement. The good news is the military recognizes this. If you meet these service requirements are involuntarily separated, you may be eligible for involuntary separation pay.
To qualify for full Involuntary Separation Pay, you must be involuntarily separated, be fully qualified for retention at the time you are let go, and your service must be characterized as “Honorable.” An involuntary separation due to Force Shaping or a Reduction in Force is a common qualifier for receiving Involuntary Separation Pay. There are also rules for receiving Involuntary Separation Pay at a half rate. You can find these rules here.
How to Calculate Involuntary Separation Pay:
Take your monthly base pay, multiple by 12. Then multiply this by your years of service (including full months as a fraction of the year). Then multiply this by 10%.
Example of an E-5 receiving involuntary separation pay at 6 years:
$2,734.50 base pay x 12 = $32,814.00
$32,814.00 x 6 (number of years served) = $196,884.00
$196,884.00 x 10% = $19,688.40 = Involuntary Separation Pay.
Involuntary Separation Pay is nice, but it’s no substitute for losing your career. This group of service members is often hit the hardest because they might be over halfway to an active duty retirement. Many people who fall within this group have built their lives and financial future around serving until retirement and then finding another career for their later years. Unfortunately, that option is taken from them.
Voluntary Separation Pay:
Some branches are offering Voluntary Separation Pay on a limited basis. This is often limited to select branches, career fields, and pay grade. In some cases, it may only be open to certain ranks that have been passed up for promotion more than two times, or other various factors. Voluntary Separation Pay may be a good offer if you were already considering leaving active duty, and were not planning on making the military a career. Here is a news article from the Marine Corps which covers Voluntary Separation Pay for select individuals.
Temporary Early Retirement Authority
There is one group of servicemembers who are somewhat more fortunate than the others – those who are eligible to retire under TERA, the Temporary Early Retirement Authority. TERA allows eligible service members to retire from active duty with as little as 15 years of service, and less than 20. There are some caveats though. Each service determines which career fields are eligible for TERA, and you will receive a reduced pension if you retire under TERA. Let’s take a look at how the pension works compared to a normal pension:
- High-3 Pension: 2.5% of average of top 3 years of service for each year served. So 20 years on active duty = 50% of base pay. You receive 2.5% of your pay for each year served above 20. (click here for an explanation of the REDUX retirement system, another retirement system many are eligible for).
- TERA: TERA involves using a reduction factor of 1% per year of early retirement. You start with 100% as your base rate, then reduce that by 1% for each year you retire early. So if you retire at 15 years of service, your reduction factor is 95% (100%-5%). If you retire at 19 years, your reduction factor is 99% (100-1). Months also count toward service, but we will use round numbers to keep things simple.
- Assuming we are using the High-3 Pension plan: Take the number of years you served and multiply by 2.5%. Then multiply that by a reduction factor. So if you serve 15 years, you multiply that by 2.5%, which comes to 37.5%, then you multiply that by your reduction factor, which is 95%. So that 37.5% multiplied by 95% now comes to 35.625%.
- Multiply your new percentage by your average of high-3 pay and you will get your monthly pension.
- This is likely to be a far cry from the 50% retirement you were expecting, but you also get your pension immediately, as well as all other military retirement benefits including TRICARE, base access, military retiree card, etc.
The decision to take TERA shouldn’t be taken lightly. You will need to run the numbers to see if it makes financial sense, or if you believe leaving the military early will enhance your quality of life.
Transitioning to the Guard or Reserves Can Be a Great Option
Many service members targeted for involuntary separation from active duty may be eligible to join the Guard or Reserves, provided they had a positive reenlistment or separation code. Keep in mind the Reserve Corps is also undergoing some Reductions in Force, as some branches are cutting thousands of jobs in the Guard and Reserves. But that doesn’t mean you won’t be able to get a job in a Guard or Reserve unit. It all depends on the needs of each individual unit, as well as your ability to cross-train into a career they may need.
Joining the Guard or Reserves may be an option for many people, depending on their branch of service, career, rank, and other factors. You may even be able to change branches of service, depending on your situation.
The Guard and Reserves offer some great benefits, and that may be a great way to continue earning benefits toward retirement, as well as inexpensive health care, education benefits, and much more. Don’t dismiss the Guard or Reserves out of hand. I did that, and it was a mistake. I have since changed my mind about serving in the Guard/Reserves. Chances are high that you will go through similar changes when you leave military service. It’s a huge transition.
Special to the podcast: Rob retired from The Marine Reserves and has a lot of experience with how you can make the Guard or Reserves part of your lifestyle and career.We discuss some specific examples and benefits of joining the Guard or Reserves. This is where listening to the podcast adds more value than this article alone.
Military Retirement + Separation Pay = Repayment
Read this next section carefully.
If you received Voluntary or Involuntary Separation Pay and later joined the Guard or Reserves and remained on duty until you were eligible for retirement, then you would be required to repay the Voluntary or Involuntary Separation Pay you received. Upon retirement, DFAS will begin recouping your separation pay at a rate of 40% of your retirement pay. You cannot repay your separation pay in a lump sum, however, you can request DFAS increase your withhholding. Here is more information about paying back separation pay upon retirement.
Don’t let this stop you from joining the Guard or Reserves if you feel that is your calling, or in the best interest of your personal, professional, or familial goals. Just be aware that this exists.
Can You Avoid Force Shaping?
You may not be able to prevent Force Shaping completely. But you may be able to reduce your chances of being hit. To start with, Force Shaping is a way to reduce the manning from overly manned career fields. The best thing you can do is put your best foot forward. Imagine you are going in front of a promotion board. Those who have met their promotion schedules, completed Professional Military Education (NCO Academy, Squadron Officer School, War College, etc.), completed off-duty education, and achieved other benchmarks are likely to be looked upon more favorably than those who have negative marks on their personnel records. For example, you would want to avoid negative records in your personnel file such as Letters of Reprimand, an Article 15, or other non-judicial punishment. You will want to ensure you have completed all your training, pass your fitness exam, and avoid the military kiss of death – the dreaded DUI.
Special to the podcast: Rob gives more concrete examples of how some of his former colleagues avoided Force Shaping. It can take some creativity, but you may get lucky. The key here is to be proactive.
Big Picture – Financial Planning Before Separation
One of the benefits of being involuntarily separated, if you can call it a benefit, is that you know you are going to be laid off. This is a tough situation to deal with, but you have the benefit of knowing when you will lose your job. Many people in the civilian sector are only given a couple of weeks notice at best. Many military members have several months to plan. That isn’t a long time, but it is enough time to get started with some basic preparation.
There is too much to cover in this article, but we go into more depth in the podcast.
Special to the podcast: Rob gives concrete examples of steps you can take to get your financial house in order before you are laid off.
Health Insurance and Life Insurance – Make Sure You’re Covered!
You will want to make sure you and your family are covered when you leave military service, especially with health insurance, which is mandated under the Patient Affordable Care Act.
TRICARE is often under-appreciated by military members and their families. But it’s actually one of their most valuable benefits. Those who are involuntarily separated may receive a couple of extra months of health care, but it doesn’t always extend to their families. There are a few programs to look at:
- The Transitional Assistance Management Program offers 6 months of TRICARE coverage to the service member and their family if they are forced to leave the service involuntarily. The benefits are the same as active duty health care. Check to see if you are eligible for this program if you are forced out of the military.
- The Continued Health Care Benefit Program is similar to COBRA. Basically, you are eligible to continue receiving health care benefits similar to TRICARE – the benefits are administered through Humana. However, you have to pay 100% of the cost, which is roughly $1,200 per quarter for the servicemember only, or almost $2,700 per quarter for a family plan. You can receive these benefits for up to 18 months in most cases, and up to 36 months in some cases. (source).
- You can also elect to pay for a private health insurance program or find health insurance through your new employer or school if offered.
- Service members who deployed to a war zone may be covered by the VA for up to 5 years. However, that doesn’t cover their families.
- More tips on getting health insurance after leaving the military.
Life insurance after the military: Life insurance is also important. SGLI is inexpensive life insurance, but you will lose access when you separate from the military. The good news is you will be able to convert your SGLI policy to a Veterans Life Group Policy shortly after you separate. The rates are based on age, and you may be able to find less-expensive life insurance from a commercial provider. It pays to shop around.
Career Search – How to Get Started
Finding a new job will be high on the list for those who are forced out of the military. It’s important to start the job search process as soon as possible after learning you will lose your military job. There are several things you can do, such as building out your resume, using Tuition Assistance or the GI Bill to start taking some classes or earning professional certificates, enhancing your skills, and building your professional network.
Again, this is a massive topic. We go into more detail in the podcast and list a few resources here:
Special to the podcast: Rob and I discuss some tips for getting started with your education and training, and how you can start your career search. The key is to get started right away. You don’t need to start trying to get interviews if your separation date is months away. But you do need to start thinking about what type of job you want to do, where you want to live, creating your resume, etc.
Emotional Fallout of Being Laid Off
We would be remiss not to mention the emotional fallout that comes with being laid off. It’s tough. I was jobless for 6 months after I left the military. Emotionally, it was very difficult for me to go from having a lot of responsibility to having none. This was the most difficult aspect of my transition from the military to civilian life. But there is something you need to remember: It’s not your fault. Many of these cuts are simply a numbers game for the bean counters in Washington D.C. It’s highly unlikely you were singled out to be cut.
Special to the podcast: Rob and I discuss the transition and how you can make it go more smoothly. Serving in the Guard or Reserves can be a great way for many people to replace the loss of being around the military community and the loss of responsibility. Other tips include joining professional organizations, becoming more active in your church or community, finding hobbies that get you out of the house and around other people, volunteering, and more.
There Are No Quick Fixes – This Takes Time
Losing your job isn’t easy. It’s more difficult when you have given so much to your country and you want to continue serving, only to have them inform you your services are no longer needed. Just remember this isn’t personal. It’s simply a numbers game and your number was called. The key is to take this a day at a time and dedicate the same energy and discipline you had in the service to providing for yourself and your family.
Finally, don’t be afraid to reach out for help: You can contact support services on your base – they offer financial and career counseling. You can contact a Veterans Service Organization if you need assistance filing for veterans’ benefits. And feel free to leave us a comment here. We are here for you.
Thank you for your service.