Is Military Retirement Pay Enough to Retire On?

Military retirees have one of the best pension plans in the US. After only 20 years of service, military retirees can retire under the High-3 retirement plan with 50% of their basic pay, full medical coverage, and a slew of other benefits that will stay with them throughout the remainder of their lives. Members who retire under the new Blended Retirement System will earn 40% of their base pay, in addition to whatever they stashed away in their Thrift Savings Plan. Members who retire from the Guard or Reserves can also earn military retirement benefits, based on a point system. These benefits start at age 60, which is close to the traditional retirement age of 65. It is not a stretch to say that military retirement is worth millions over the life of the retiree. Considering that one can begin receiving retirement benefits around age 40 and potentially receive the benefits for another 40 years or more, this is an extremely good deal. But is it enough to live off for the rest of your life?

Can You Live Off Military Retirement Pay?

The short answer is, yes, absolutely. But it takes a lot of planning to make this work. A good friend of mine, Doug Nordman, wrote the book, The Military Guide to Financial Independence and Early Retirement, and founded the website, The Military Wallet. In his book and website, Doug discusses the steps he took to achieve financial independence – the point where he would no longer need to actively work to sustain his lifestyle. He and his wife saved and invested over the course of their careers, and even made dozens of mistakes along the way. But by saving a high percentage of their income and living well within their means, they were able to reach the point where they could maintain a nice quality of life (in Hawaii, no less!) while living off the income from his military pension and their investments. His story is inspirational and well worth reading. I highly recommend the book or starting with the About Page on The Military Wallet. His book had a big impact on me and was one of the factors that lead to my joining the Air National Guard after being out of the military for over 8 years. Being able to earn military retirement benefits will have a huge impact on my financial future.

Another Case Study – Living Off Enlisted Military Retirement Pay

Here is another example, this time of an enlisted couple who both retired from the military and had their story featured in CNN Money. They both are military retirees who will receive a combined $58,500 per year in military retirement pay, in addition to other military retiree benefits such as medical care. This is not a bad sum of money for not doing any more work for the remainder of their lives! Even with their retirement pay and health benefits, there are some potential roadblocks to their plan not to work anymore. The CNN Money article discusses how their retirement pay currently covers their fixed costs including their mortgage and other regular bills. But it doesn’t give them a lot of freedom if they need to support their children through college, or have many unexpected large expenses arise. Even something like taking a family vacation will need to be carefully planned. I think it may be possible for them to do it, but I imagine that after a while they will want to find some source of work to keep them occupied. It may not be a traditional 9-5 job, but it may be a part-time job or a hobby that provides them income. The most important thing about their situation is this:

Their military retirement pay and benefits are giving them the option and freedom to decide whether or not they work. The freedom of bringing in $58,500 per year (indexed for inflation) without doing anything else gives them the opportunity to work, or choose more rewarding work if they decide to do that.

That is a beautiful thing! This is also something that is worth repeating. Your military pension is extremely valuable because it gives you the opportunity to decide which type of work you want to do. Having that regular monthly cash flow should reduce the amount of money you need to earn in the future, making it easier to take on the type of job you want to do, instead of being tied to taking the highest paying job. So use this as an opportunity to take a job in a field that is rewarding.

Can Everyone Live off Military Retirement Pay?

While many people have figured out how to make it by on military retirement pay, it’s not something that everyone can do, at least right away. Military retirement is fairly generous compared to most civilian retirement plans, and can even be worth millions over the life of the retiree. However, the immediate cash flow is probably not enough for most people to retire immediately, especially for many retired enlisted military members who bring in $20,000-$30,000 per year. It does take a lot of planning and it requires the retiree to avoid taking on too much debt or too many ongoing financial obligations. Living on military retirement pay becomes even more difficult if you have a mortgage, credit card debt, a car loan, student loan debt, and other regular payments. I many cases, a military pension is a great financial blessing, but it may not be enough to live on.

How to Stretch Your Military Retirement Pay

The key to being able to retire on your military pension is paying off as many loans and credit cards as possible before you officially retire from the military. Debt is the quickest way to tie up your future pension checks. But eliminating your debt gives you the opportunity to use your money for more important things, such as your regular living expenses, vacations, and other enjoyable activities. Another important factor in military retirement is the addition of other sources of retirement funds, especially those which will be available to you later. That is why it is important to open a Roth IRA, Thrift Savings Plan, or other investments. You can open a TSP account through your military pay unit or you can start your civilian retirement plan through a civilian 401k program or at an investment firm. Finally, don’t forget about Social Security Benefits, which will be available to you in your 60’s. Full retirement age is 66, but you can begin receiving a reduced amount at age 62, or you can wait beyond age 66 and receive a larger payout. And depending on when you served, your military service may impact your Social Security Benefits in a positive way. So that is something else to look forward to. With careful planning, you should be able to get to the point where your military retirement pay and other benefits will be enough to pay for your retirement. It may not happen the day you leave the military. But with careful planning, you should be able to reach that point, especially when you are able to begin taking withdrawals from retirement accounts and when you begin receiving Social Security Benefits.