A military retirement is worth millions of dollars. That’s a bold headline, but it’s true. In both cash and benefits, a military retirement is really worth well over a million bucks. In some cases, it’s worth several million dollars.
Before we get too deep into this, I want to define what I’m talking about. In this article, I’ll break down two factors:
- The long-term value of how much you could receive in a direct pension over the lifetime of your retirement benefits.
- The value of other military retirement benefits, such as a Thrift Savings Plan and healthcare coverage.
Combined, these benefits are easily worth over a million dollars. Let’s look at an example of retirement pay for an average military career.
How Much is a Military Retirement Worth?
The bulk of your military retirement’s value will be in your retirement plan. This section will calculate examples of retirement pay based on a hypothetical military career. Since military members are eligible for retirement benefits at 20 years, we’ll use a reasonable rank and service time for our examples.
We can assume that after 20 years, an average enlisted member will have achieved the rank of E-7, and the average officer will have achieved the rank of O-5. While there are several different military retirement plans, for the purposes of this article, we’ll be comparing examples using the High-36 and Blended Retirement System (BRS) programs, as they apply to most contemporary service members.
Of course, there will be outliers based on when you served and other factors. For example, service members can earn extra on their retirement pay when they serve past 20 years. But for now, let’s get into the examples.
*disclaimer about this article: The calculations are for illustrative purposes only and do not reflect the exact retirement benefits you will receive. This is a simplified look at military retirement benefits and does not take many factors into consideration, including taxes, disability benefits, inflation, COLA, and others.
Monthly and Annual Military Retirement Pay Examples
As we mentioned before, our military retirement pay examples focus on Veterans who retire at the ranks of E-7 for enlisted members and O-5 for officers. Since military retirement pay is based on the average of your highest pay during active duty, we’ll start by noting the monthly and annual base pay for these two pay grades at 20 years of service:
2024 E-7 Gross Pay:
- Monthly: $5,757.90
- Annually: $69,094.80
2024 O-5 Gross Pay:
- Monthly: $11,093.10
- Annually: $133,117.20
With these figures in mind, we can now estimate the monthly and annual payment amounts under High-36 and BRS.
High-36 Monthly and Annual Pay
Most retirees under the High-36 Plan receive 50% of their highest average base pay if they retire with 20 years of service, which, in our example, would be dispersed in the following amounts:
E-7 Retirement Pay Estimate:
- Monthly: $2,878.95
- Annually: $34,547.40
O-5 Retirement Pay Estimate:
- Monthly: $5,546.55
- Annually: $66,558.60
Blended Retirement System Monthly and Annual Pay
Those under the BRS receive 40% of their average highest base pay at 20 years. In our example, the retirement pay would be dispersed in the following amounts:
E-7 Retirement Pay Estimate:
- Monthly: $2303.16
- Annually: $27,637.92
O-5 Retirement Pay Estimate:
- Monthly: $4,437.24
- Annually: $53,246.88
How Much is Military Retirement Pay Worth Over a Lifetime?
There are few careers in which someone could receive a lifetime pension starting at age 38. Many military retirees will receive a monthly cash payment for over 40 years. When you add in the cost of living and inflation adjustments (COLA), we’re talking about some serious cash!
Using the numbers above from a recently retired E-7 or O-5, we get the following lifetime payments:
Cumulative Retirement Pay Under High 36
E-7 Retirement Pay Estimate:
- 20 years: $690,948.00
- 30 years: $1,036,422.00
- 40 years: $1,381,896.00
O-5 Retirement Pay Estimate:
- 20 years: $1,331,172.00
- 30 years: $1,996,758.00
- 40 years: $2,662,344.00
Cumulative Retirement Pay Under BRS:
E-7 Retirement Pay Estimate:
20 years: $552,758.40
30 years: $829,137.60
40 years: $1,105,516.80
O-5 Retirement Pay Estimate:
20 years: $1,064,937.60
30 years: $1,597,406.40
40 years: $2,129,875.20
Even without COLA or other inflation adjustments, we’re reaching some huge numbers. Additionally, remember that each year of active duty you serve past 20 years adds another 2.0% (BRS) or 2.5% (High-36) to your monthly and annual retirement pay, and each higher pay grade you achieve can add hundreds or even thousands of dollars per year.
Thrift Savings Plan
You’ve likely noticed that the BRS provides a lower pension than comparable service under the High-36 retirement plan. What makes up for that discrepancy is the option to contribute to a Thrift Savings Plan (TSP) with automatic and matching contributions made by the Department of Defense (DoD). While both retirement plans allow you to make deposits into your TSP account, only those enrolled in the BRS are eligible for 1% in automatic contributions and up to 4% in matching contributions.
Each time a service member in the BRS gets paid, the DoD automatically deposits an amount equal to 1% of the member’s basic pay to their TSP, regardless of whether the member contributes. The DoD also matches 100% of the member’s contributions for the first 3% of their basic pay, and 50% for the next 2%, when the member contributes at least 5% of their pay.
Like other retirement savings plans, TSP accounts also accrue compounding interest. This system helps build the TSP balance over time.
Assuming enlisted members and officers get paid bi-weekly, and meet the requirements to receive the maximum DoD matching contributions, we can use the previously mentioned monthly pay rates to estimate how much they would be able to generate in gross TSP deposits:
E-7 TSP Contributions Estimate:
| 5% Servicemember Contribution | $143.95 |
| 5% DoD Contribution | $143.95 |
| Total Servicemember and DoD Contribution Per Paycheck | $287.90 |
| Total Servicemember and DoD Contribution Per Month | $575.79 |
| 1 Year of Contributions | $6,909.48 |
O-5 TSP Contributions Estimate:
| 5% Servicemember Contribution | $277.33 |
| 5% DoD Contribution | $277.33 |
| Total Servicemember and DoD Contribution Per Paycheck | $554.65 |
| Total Servicemember and DoD Contribution Per Month | $1,109.30 |
| 1 Year of Contributions | $13,311.72 |
Value of Military Retirement Medical Benefits
Military-sponsored medical benefits are incredibly valuable, especially as you and your potential spouse age. Few civilian healthcare plans provide as extensive benefits as the Tricare system. It would not be unreasonable to place a value of $15,000-$20,000 per year on military retiree medical benefits, even for a healthy individual. Add a spouse to the benefits, and you can easily double or triple that number.
If you have not yet retired from active duty, it’s almost certain that you’re on a Tricare Prime or Tricare Select health insurance plan. You can remain on one of these plans after you retire, until you reach age 65, when you will transition to Tricare For Life, a Medicare-wraparound healthcare plan for military retirees. Guard and Reserve retirees are eligible for Tricare Retired Reserve until age 60 when they transition to either Tricare Prime or Select. They transfer to Tricare for Life at age 65.
Healthcare benefits for military retirees are also guaranteed, meaning they won’t drop you after you have required expensive procedures or for preexisting conditions. You’ll have little to no out-of-pocket expenses for complex medical procedures.
Commissary, Base Exchange, and Other Base Benefits
I won’t even try to assign a value to these benefits because they don’t apply to all military retirees equally. Some retirees practically live on base, visiting the base clubs, shopping at the Commissary and Exchanges, using the gyms, auto hobby shops, etc. Others may not live near a base at all.
While this category isn’t a part of the core military retirement benefits, it’s worth mentioning because many retirees save a lot of money each year by shopping on base.
Value of Military Discounts
Retired Veterans can also save big by taking advantage of military discounts. Thousands of stores and online retailers across the U.S. seek to express their gratitude to servicemembers by offering perks like money off, free shipping, and upgrades. Many of these discounts also extend to military spouses and dependents. If you haven’t taken advantage of these savings yet, you can check out our guide on how to get a military discount.
Military Retirement is Worth It
Thousands of dollars coming in regularly quickly add up over the years. If you add up the COLA increases in pay for inflation, essentially free health care, and other benefits you can see how a military retirement can quickly be worth millions of dollars over a lifetime.
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Andy says
I was raised in Cuba under the oppression of the Castro regime before my parents brought my brothers and I to the US in 1995. I realized early on that this was the most positive life change a child could have – to move to the US from a communist state.
I joined the Army two weeks after graduating high school. I humbly served over 21 years as enlisted and as a Warrant Officer, retiring as a CW2 in July 2022. I now receive retirement and disability benefits, and if I make it another 40 years, my retirement will be worth over $3.4 million. And that is not including the healthcare benefits and all the other things. And, if my wife survives me, she will receive 50% of my retirement and my disability benefits. There are other benefits for military retirees/disabled veterans that vary by state, so I won’t discuss them here.
Now, I compare this with my fellow elementary students in Cuba that either served or are still serving in the Cuban armed forces, who don’t even have food to eat. One single egg costs about $3, one pound of pork meat costs about $20, and the average monthly salary of a Cuban worker is about $100, just to state a few facts. And guess what, potable water is only available for short periods at a time. Electricity is only available for a couple of hours a day, and they get lucky if it’s during the day and they are able to escape the heat in front of a fan.
My point with stating all of this is that America is great. Every US resident should aspire to serve their nation.
Mark says
It’s so worth it to stick with it. Medical alone saves us thousands of dollars per year. I retired after 23 years as an E-8, and my monthly income was $2,292 in 2006. Now it’s $3,437 monthly at age 59. This has allowed us to send our youngest to private school while living in Hawaii. Granted, I must continue to work to live in paradise! So worth it!!!
robert davis says
I retired in 1995 after 20 years in the US Navy. To be honest, there were a lot of things I didn’t like about navy life, being away from my family for Westpac’s, constantly being at sea, and having to move every few years, among many other things. But I’m coming up on 66 years old now. And without hesitation, I have to say that staying in till retirement was without a doubt the smartest thing I ever did in my life. The retirement pay and medical benefits can’t be beaten in the civilian sector.
Dave Twombly says
From the time I used a government pen to sign up at the age of 16 then the transportation, uniforms and equipment .Weapons and ammunition. housing ,food, medical care. serve 21and ahalf years as E7 with 60 0/0 disability . The space A travel and with 51 years since retirement I believe I have received more then a million dollars.
Difu Wu says
The pension is not even close to be worth millions. You can’t just multiply the annual pension amount by number of years to arrive at the pension’s value. Future cash flows have to be discounted, because you can invest each dollar you have today to make more dollars tomorrow.
Even if we take the higher O-5 annual pension amount of $46,184.40, and assume he lives forever, we can use the perpetuity formula = PMT/R = $46,184.40/0.07 = $659,777, where PMT is the annual payment and R is the discount rate. BRS offers a lump sum option for the military pension using a 7% discount rate, which approximates long term historical real stock market return.
Then you have to factor taxes into consideration. While most states exempt military pensions, the federal government fully taxes pension pay. If you have no other earned income, $46,184.40 would probably be in the 12% tax bracket, which means you only get to keep 88% of your pension pay. So $659,777 is worth only about $580,604 for the retired O-5.
CC says
While I understand the formula you are using, you miss a few key aspects of a military retirement. Lets take the O-5. Presume the O-5 joined the service at 25…retired after 20 years. The officers age is 45 at that point. They will receive the retirement of $46K plus cost of living adjustment until their death (spouse may continue to collect a portion until their death). Your PMT/R assumes a flat rate of $46K per year. The actual retirement pay will increase each year. If you included the amount necessary to save for the cost of living, the principal of $659K would have to go up.
Second, you fail to take into account the guarantee nature of the payment. You are using a 7% return rate (historical average of stock market). However, income from private investments that would be guaranteed would have a rate of return well below 2%. If you use the .02 (reflecting risk of investment) instead of .07(stock market average return) you end up with a valuation over $2M dollars.
Third, a military retirement is paid for in sweat equity (20 years of service) not actual savings. Military members do not have their paychecks reduced to pay for the pension retirement. Military members are also eligible for a 403(b)…a 401(k) for government employees.
On the downside, a military pension has no value for the most part upon the death of the retiree and spouse….where cash can be passed on to heirs.
I am not saying a military pension for an O5 has a $2M value. I am merely pointing out that a military pension is different than most any other “investment” and using a private equity investment formula does not necessarily reflect the full value of the pension.
Dave says
CC: this is the best summary. Thanks!
Difu Wu says
@CC: I factored in COLA already in the 7% discount rate I used, which is the REAL stock market return, not nominal. The growing perpetuity formula is PMT/(R-G), where G is the growth rate. If you use 10% nominal return rate and 3% inflation rate, you get the same 7%.
It is important to note that 7% discount rate is not just my opinion. It is the rate used by the BRS lump option option. If you choose the lump sum option, 7% discount rate is what you get.
People who retire from the military generally have decades more residual life expectancy, which is a long term investment horizon. Fixed income options that earn only 2% a year guaranteed are only appropriate for short term savers, certainly not for long term investors.
Over any 30 year period since 1926, the stock market has returned an annualized 8% to 15%. While that is no guarantee the same will hold for the future, it’s pretty close to one, considering that this data included the Great Depression. Arguably, military pensions are not guaranteed either. The government could default or be overthrown.
My assumptions are actually very generous for the military pension. First, nobody lives forever. If you calculate the value of the pension as an annuity instead of a perpetuity, the value would be less.
Second, 12% bracket assumes the retiree has no other income. That is not true for many folks I know. Many retire from the military after 20 years only to work on a GS or civilian job. Using a higher tax rate, such as 24%, would make the pension worth much less. A more realistic value for the military pension is likely to be worth only half a million for the retired O-5, and far less for the retired enlisted man.
cc says
Difu, you are equating value to how much a pension can be sold for. Generally, it is almost never advantageous to sell a pension because it is sold at a discounted rate. Anyone considering doing so should definitely speak with a financial planner (Many VAs provide one) before doing so. It is the same thing as the tv advertisements that offer to buy legal settlements that are paid out over time…a million dollar settlement paid out over 20 years can be sold for immediate cash at a steep discount.
A second way to value a military retirement is replacement cost…how much would it cost in the public market to get a guaranteed payment for life. For example if we look at how much would it take to purchase an annuity for a 42 year old for say $4k payments a month for the life of person and their spouse to start paying immediately, the cost of the annuity would be well over $1m dollars. And the annuity would not include cost of living increases like a military retirement does. There are lots of annuity calculators you can use on the internet if anyone wants to look.
As I said before, a military pension is different than most current retirement plans out there. It is guaranteed…yes the US government could fall as you point out, but if that were to happen any other investment would also be pretty much worthless…and again an unlikely event in our lifetimes. It is not the same as stocks which can have wild fluctuations in value in the short term….which matters for people that are using the money for their monthly expenses.
Simple Sailor says
As several have commented here, the meaning of value can have a different meaning. I took a slightly different perspective looking at my monthly military retirement income stream and VA disability compensation which started at 42 upon retiring from active duty. I’ve read that financial planners often use the 4% guideline for drawing down on a lump sum to perpetuity i.e. .04 x $1M will give you $40K annually to spend…in general. At least in those terms today’s E7 and definitely 05s are in that situation even with the new avg of the high 3’s plan now in place. Plus military retirement Tricare is still small compared to private sector, less than $100/month for me and the spouse. Plus for those drawing VA disability, that portion is tax free. Someone mentioned it definitely was sweat equity so we were not deducted from any of our paychecks while we were on active duty. Of course the drawback to that is 8 moves over a 20 year career which made my wife’s career impractica; no great equity in a house at age 42 moving all over and with mandated govt quarters overseas; the emotional costs of being away from family, missing big events due to patrols/deployments; of course the arduous and dangerous nature of the work itself; and starting over trying to wedge your into private sector work 20 years behind your competitors/peers. So you do earn that military pension in other ways. But now retired with most of my health intact, the pension and health care coverage are definitely beneficial and in my opinion worth at least $1M in that perspective!
Abner says
If I retire from the army at age 45, will I start getting my pension at age 45? Or do I have to wait until 55, 60 etc until I can start receiving it.
Also, can I get my medical benefits starting at age 45 as well?
Thanks for clearing up the confusion, it was a great article!
Ryan Guina says
Hello Abner, If you are on active duty, then yes, you will receive your military retirement pay and medical benefits starting the month after you retire from active duty.
However, if you are in the Army National Guard or Army Reserves, you will not receive retirement benefits (pay or medical) until age 60, unless you qualify for early retirement. If you qualify for early retirement, you would receive retirement pay at the earlier date (no earlier than age 55), but your medical benefits would not kick in until age 60. You can learn more about early retirement from the Guard and Reserves in this article.
I wish you the best, and thank you for your service!
Helen says
My fiancé just retired from the Military on the 25 of September, he stopped at Washington DC to do his paperwork. Now he had been trying to get his money from the bank account and is unable to withdraw money. Why?? Is there a problem with the bank account? Please explain to me why can’t he withdraw money from his account?
Thank You
Shellie G says
I hope someone can provide me with an answer or point me in the right direction. In 2010 there was a study done on the value of a military ID card (http://bipartisanpolicy.org/wp-content/uploads/sites/default/files/BPC%20AEI%20Military%20Compensation%20Chartbook%20July%202014.pdf). However, does anyone know where to find an actual legal case that used the ‘value of the military ID card’ to determine equitable distribution if a military member and spouse divorce and they don’t meet the 20-20-20 rule (they have 20-36-18? (20 yrs military service, 36 years marriage, 18 years of the marriage overlap the military service). Thanks so much
John S says
I earn $2566 a month in retirement after deducting taxes, SBP, TRICARE, & VGLI. I receive $2177 a month in VA SC disability. I also use the Post 9/11 GI Bill to receive $2701 a month for 9 months a year. Earning $81,243 a year is not bad!
I retired in 2016. I was an E-7 with 24 years/one month and and get a 10% increase in retirement pay due to earning a Soldiers Medal. I was rated 90% by the VA and I am attending UMUC while residing overseas permanently in Europe.
UMUC pays $2301 per month because their zip code is in the Maryland DC area. It’s a high cost area just like Europe. I also get a “kicker” of an extra $400 per month because I initially enlisted under the Montgomery GI Bill and into a critical skills MOS. Hence $2301 + $400 = $2701. Life is good.
Dale says
How will military retirement be guaranteed as Washington is running out of money and it appears the Chinese Yuan will be the World currency possibly by 2014. Washington is looking to turn the military retirement into a 401K program which will save them money. To me this is a caution flag that Washington will not be able to pay retirees. If this is the case….be prepared….war in the streets of America!
Eugene T. says
Another way you might look at it is to establish a capital value of your retirement, i.e., determine what sum of money you would need invested to yield your annual retirement figure.
Using the 1/2 pay MSgt figures above: E-7 Annually: $23,972.40… and figuring a 2% return (well above bank interest, at this time), you would need a principal sum of $1,198,620 to yield the stated annual retirement…
Ryan says
Cliff, it is a great deal for those who are able to complete the 20 year service requirement. I thought long and hard about joining the Reserves after I separated from Active Duty, but it didn’t work out for several reasons. The Reserves is no longer an option I am considering, but I have a lot of respect for those who choose to continue their service. 🙂
Cliff says
Ryan,
Continue to serve in the reserves for 20 years and at age 60 your benefits will be almost identical to someone who served on active duty for 20 years! Now that’s really a great deal!
Bill says
You need to check your #’s again if you think the reserve will be the same as Active Duty.. not even close
Eric Forrest says
In numerous articles I keep noticing the following: “Most retirees at 20 years will receive 50% of their base pay, which would equal the following amounts:” Then it continues to show an amount equal to 50% of the base base upon retirement. The it also states the medical benefits.
1. For “most of us”, the real amount is the average of the prior 36 months of basic pay, which is less than 50% of the final basic pay upon retirement. Accuracy is important. Plus, we received no increase for 2010 due to the COLA calculations, even though our real cost of living rose.
2. Second, medical coverage must be paid for (although a great rate), and fewer doctors on installations is forcing more to go downtown and pay the co-pay amount.