Transitioning from Active Duty to Reserves Or National Guard

Table of Contents

1. Can You Really Retire After 20 Years in the Military?
2. Active Duty or Reserves: What’s Best For You?
3. Tip #1: Stay on Active Duty Service As Long As It’s Challenging and Fulfilling
4. Tip #2: Learn About Changing from Active Duty to the Reserves
1. Compare Active Duty Retirement and Reserve Retirement
5. Tip #3: Invest and Save More for Retirement
6. Active Duty vs. Reserve
7. Final Thoughts

The magic number for military members is 20. For active duty members it’s the number of years  you must serve to get access to your military retirement benefits. Reserve and Guard members also need 20 eligible years for military retirement, the only caveat being that they can’t access their pension until age 60. However, if you need a change of pace, this might be a small price to pay. 

So often, career servicemembers get locked into a single line of thinking that drives them to put their head down and continue their military career until reaching that magic number of 20 years of active duty service, regardless of the cost.

As a retired Navy veteran and author of The Military Guide to Financial Independence and Retirement, I’m here to tell you that if you are struggling with the commitment of serving 20 years on active duty, you have options.

Can You Really Retire After 20 Years in the Military?

Some active duty members want to stay in the military after serving 20 years and qualifying for retirement. 

You can stay in the military or join the Reserves after qualifying for retirement, but if you stay in the service you won’t be able to draw on your pension. 

If you decide to go to the reserves after qualifying for retirement, you essentially “cash in” your retirement for reserve points. This allows you to gain reserve points toward your retirement and potentially earn a higher pension when you do retire.

Now, there is a loophole if you’re a warrant officer. Warrant officers can withdraw retirement while serving in the Reserves. You’re also able to receive promotions. When you retire from the Reserves, the military will re-calculate your retirement, adding the time you served in the Reserves.

However, you don’t have to wait until you’ve served 20 active duty years to move to the Reserves. In fact, you can switch at any point from active duty to Reserves and still continue building toward your retirement and financial independence.

Active Duty or Reserves: What’s Best For You?

This post gets a bit personal. Let me permit you to think about these questions in your career.

A reader writes:

“I’m active duty and coming up on year #9 this May. I have owned your book for a few years and dig into the blog content on occasion. Love it!

My question has to do specifically with one of the closing paragraphs in your last post on the BRS:

‘I should’ve left active duty for the Reserves at the 12-year point (when we started a family and my career priorities changed). The money would’ve worked out about the same, and we would’ve reached financial independence within a year or two of when we did, but our quality of life would’ve been way better.”’

This is what I wrestle with the most. I dread the slog that years 12 through 20 will bring and the separation it will cause from my family. Can you expound on that, or point to a place you have already expounded on these statements?

Specifically: How would the money have worked out the same in the Reserves vs active duty?

This is what I struggle with. Monthly drill pay would hardly prove comparable to my current active duty compensation, and I know little of what other opportunities might be available.”

One of the reasons I write is to help today’s servicemembers avoid my mistakes – or at least anticipate them. Yet, this post wasn’t based on my experience alone but also on 15 years of forum threads and reader e-mails.

Let me start by agreeing that people should stay on active duty as long as they find it challenging and fulfilling. When the fun stops, though, then it’s time to think about leaving active duty for the Reserves or National Guard.

A couple of clarifications:

• There will be no doubt in your mind when the fun has stopped. It’s different for everyone, but you’ll know it when you see it.
• Consider going from active duty to the Reserves or the National Guard before going straight to civilian life. The Reserve/Guard is an intermediate step toward work/life balance, with more of the things you enjoy(ed) about the military and less of the not-so-enjoyable parts. Readers tell me it’s easier to go this way than to go total civilian and later try to affiliate with a Reserve/Guard unit. Try a drill billet for a while, and then decide if you want to go civilian.

Tip #1: Stay on Active Duty Service As Long As It’s Challenging and Fulfilling

Not everyone should just leave active duty service for the sake of leaving a possibly taxing job. Some still find it challenging and fulfilling. In that case, there’s nothing wrong with staying on active duty. 

Personally, I enjoyed my first 10 years of active duty. After my second submarine, my dual-military spouse and I wanted to stay in Pearl Harbor. I could’ve taken just about any career-enhancing billet (as long as it was Nuclear Power School instructor or BUPERS), but we wanted collocation. There seemed to be plenty of billets in Hawaii, and we weren’t interested in moving thousands of miles just for the job. Again.

I took the first Pearl Harbor vacancy that came up at my rotation date: shore duty on an admiral’s staff. I didn’t appreciate that Ops & Plans was a 60-hour/week deadline-fueled job, and I wouldn’t have cared because, after sea duty, every other billet seems like a paid vacation. But, we were perpetually overwhelmed by real-world crises with submarine missions or by the inevitable paperwork crisis du jour (no PowerPoint back then– only Lotus Freelance). Even message traffic was largely screened by hand and routed in paper.

We also started our family when starting shore duty, which meant we encountered sleep deprivation (in a good parenting way) at home as well as at work. We were overwhelmed on the domestic front too.

Tip #2: Learn About Changing from Active Duty to the Reserves

Take time to ask about the Reserve component from other service members. I was surrounded by Navy Reserve officers on the staff. Some of them were full-time civil-service employees, while others were contractors, and I’d occasionally see them in uniform for active duty or drill weekends.

One of the Reservists on our staff had even been a shipmate on our first submarine. I asked them a few questions about their billets, pay, and pensions, yet I never really made the time to learn about the system. My spouse was working alongside Reservists too, but we only saw them once a year for their two weeks of active duty.

To be fair, the Reserves were a minority of the staff. Our commands were also filled with active-duty junior servicemembers who were separating at 8-12 years of service and older ones who were retiring at 20-30 years. I identified much more with those groups than the Reservists.

However, take some time to learn more about the service requirements of Reservists. For example, some Guard and Reserve units offer the traditional one weekend a month, two weeks a year, while other units may have more opportunities for picking up extra days or mobilizations.

Compare Active Duty Retirement and Reserve Retirement

It’s also important to understand how the pay retirement benefits work. If I’d made the mental bandwidth to analyze my options then, I would’ve eventually realized that Reserve pensions are based on the pay tables in effect when the pension starts. They’re not based on the pay tables in effect when you apply for retirement.

By federal law 10 U.S. Code section 1407(d)(1)(a), the pension’s length of service would have also been at the maximum pay scale in retirement rank, not just the years of service when a Reserve/Guard member applied to retire. That’s also in the Financial Management Regulation (DoD 7000.14-R) section 030205.A.2.

I didn’t understand any of that at the time.

Tip #3: Invest and Save More for Retirement

In today’s military retirement ecosystem, there are options for you to save money. For example, the Blended Retirement System involves TSP accounts and a government matching component. However, if you’re in the Reserves or National Guard working as a full-time civilian, at an installment or as a contractor, you should consider creating a budget that allows you to save additional money beyond your retirement plan. There’s nothing wrong with having a little more money set aside for either a rainy day or, better yet, the golden years of your life. 

When I was younger, I was familiar with inflation and healthcare expenses, but I didn’t make the time to learn how the Reserve pension handled those issues. I thought that if I retired from the Reserves in my 40s, then my pension (at age 60) would’ve been eroded by two decades of inflation.

I didn’t see any value in the Reserves and I certainly wasn’t going to leave my “safe” active-duty career. I was grossly wrong, and if I’d talked with enough Reservists, I would finally have figured out my errors. However, I had my active-duty blinders on and didn’t see any other path.

If I’d joined the Reserves, I would’ve drilled until 20 total Good Years (active combined with  Reserve) to earn the pension. I would have had an inflation-fighting pension (and Tricare) at age 60 instead of at age 41. The Reserve pension would’ve been about 70% of my active-duty pension, and our savings and investments would only have needed to bridge (at worst) a 19-year gap. If I were a drilling Reserve/Guard member today, I would’ve also had Tricare Reserve Select. 

After that, when I “retired awaiting pay,” I would have bought Tricare Reserve Retired until age 60. Reserve retirement also solves the same issues handled by an active-duty pension, and I would only have had to fill in the financial planning holes with other paid employment.

In retrospect, a “real job” would’ve been straightforward – even easy. I didn’t know it back then, but like many Pearl Harbor submariners, when I showed up at my drill weekends, I would’ve eventually been offered a contractor or civil-service job on that same staff as a tactical development officer. I would’ve had other opportunities to go back on active duty for 30-179 days at the submarine staff or Pacific Fleet headquarters or PACOM.

On the civilian side of it, I would have networked with my shipmates for nuclear work at a shipyard or an electrical utility career at HECO. I could have used my graduate degree to teach at local high schools or colleges and could’ve easily moved into state or federal civil service systems. I’m confident about this because those are the same job offers I received when I retired from active duty, and a lot of the offers came through those same Reservists.

Yet, I was suffering from the “military inferiority complex.” The Cold War had ended and we were all scrambling to keep our jobs during the largest drawdown since WWII. (The staff was rightly concerned that submarine missions would be suspended and the force cut to less than a third of its size.) I thought that I was worthless and weak and that I would never be able to make it in a civilian career. I feared that I’d never get hired by anyone for anything and would end up fixing leaky toilets.

I was not just ignorant about the Reserves and National Guard but also about building a civilian career. At that chronically-fatigued time in my life, the fog of work made it easier to keep dragging my sorry butt into the staff’s classified concrete bunker to either scramble a submarine or write a point paper, or both with bonus points for doing it on Sunday morning.

Today, I know that within five years after leaving active duty, my total compensation (Reserve/Guard drills + civilian earnings) would’ve been higher than my active-duty pay and benefits. The first couple of years would have been a big dip in paychecks and a huge disruption on the homefront, but my wife and I would’ve figured it out. We would’ve kept about the same expenses, eventually recovered our savings rate, and had a much higher quality of life.

Sure, life would have still been complicated. My active-duty spouse might have been sent on an unaccompanied tour to Diego Garcia. I might have been mobilized to support contingency operations in Kosovo or the Middle East, certainly after 9/11. I might have struggled to figure out what I wanted to do with my life as the Navy bounced my spouse from one homeport to another. We might even have had to leave Hawaii for a few years (Guam! Japan!). But would Reserve life have been as stressful as the dual-military active-duty life that we dealt with for another decade?

Active Duty vs. Reserve

How did I (finally) learn all about the Reserves? Why do I know more about the pay and benefits today than most servicemembers?

We learned all of these details when (a year before I retired) my spouse hit a career speedbump and left active duty for the Reserves. Our life immediately got awesome. Better yet, her unit was full of Reserve submariners who happily explained to me the lifestyle that I’d missed out on during the back half of my active-duty career. Then, they offered me jobs with their civilian employers.

Today, I’ve been retired from active duty for over 15 years, and I’m still getting a job offer every year or two – and these offers are coming from outside of my robust network of personal finance bloggers and entrepreneurs.

That’s when I started reading everything I could find about Reserve pensions and benefits. When I realized how the pension actually worked, I knew that gutting it out to 20 on active duty had been a mistake.

My spouse and I also overshot the mark on our finances when we persevered for the active-duty pension. We were saving for financial independence long before those marketing guys wrote The Millionaire Next Door (another classic that took a few years to gain traction during the Internet decade).

That was also years before those researchers at Trinity University replicated Bengen’s results and popularized the 4% Safe Withdrawal Rate. I placed too much value on an active-duty pension when a Reserve pension would have accomplished “enough” of the inflation adjustment and the health insurance.

Final Thoughts

With what I know now, I could’ve worked part-time for a few extra years to build up the same investments and continued to drill for a Reserve pension instead of full-time with the 60-hour weeks to get an active-duty pension. We would have reached financial independence (at 25 x expenses) a few years later but at a half-marathon pace instead of a 1,500-meter sprint.

Maybe I wouldn’t have worked those few extra years after all. In the early 2000s (as we were approaching a delayed financial independence), I would’ve learned more about this blogging fad and created a part-time income of $20K/year. We would have lost less money on buying real estate during active duty and might’ve invested in a few dirt-cheap rental properties.

We would’ve had more quality family time together.

But back then, I didn’t see the possibilities, let alone the opportunities. I was too focused on gutting it out to 20 for that cliff-vesting pension. I was clenching my jaw (and grinding my teeth) to deal with the daily pressure (and I have the medical records to prove it).

Today, at age 57, I’d happily trade a million dollars of our net worth to recover the lost time of my 30s spent in overtime.

The Reserves and National Guard offer similar challenges and fulfillment of active duty but with less of the sucky parts of active duty. Work/life balance is still complicated, but there’s less stress (physically, mentally, & emotionally) and there’s less time in the field. There are still deployments, but they’re at a slower cycle, perhaps one out of five instead of every other year. Even that’s negotiable during peacetime, based on your career priorities and federal funding.

If you have a traditional civilian career, then once a month, you’ll work 12 straight days around the drill weekend, but that’s still a lower operating tempo than active duty.

Reserve service members near a four-star staff command might find more opportunities for active-duty orders. Large staffs are chronically short-handed (and on short notice) while you’re a Reservist. Right there. And ready to work. A phone call on Thursday asking if you want a Saturday midwatch? Yeah, we could handle that. I got those calls on active duty anyway.

For some servicemembers, the National Guard might be a better deal than the Reserves. National Guard armories are generally closer to home, especially for drill weekends, and there are opportunities for state-funded orders as well as federal ones. Instead of traveling hundreds of miles to Reserve centers, you might network with local Guard members for civilian contractor gigs or even full-time employment. Some Guard billets work with state civil service and government staff.

When you’re saving for financial independence during active duty (instead of living a consumer lifestyle), then your rising net worth gives you choices. You don’t have to fear unemployment. You’ll have time to network (real life as well as Linkedin) and learn about civilian careers. It’s never been easier to freelance the gig economy or to (eventually) start your own business.

You have skills. You can make the finances work. You don’t have to live in fear.

Now, you should track down those Reserve & Guard members in your area (of any rank) and learn how they do it.

Even if you’re still feeling challenged and fulfilled by active duty today, it’s worth learning about the alternatives now. Someday, you’ll slam into a billet where you’re too overwhelmed (and too exhausted) to figure out your transition. You’ll get the “unrefuseable offer” from the chain of command or your assignment officer. When (not if) that happens, you won’t have a lot of time to figure things out, and you may be too tired to tackle the research.

Better yet, when you’re saving for financial independence, you’ll have choices.

The best time to save for financial independence was yesterday. The second-best time to save is today. 

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