How a Pension Impacts Your Retirement – How You Can Retire With or Without a Pension

Earning military retirement pay or some other form of pension can make retirement easier. But it isn't necessary to be able to retire. We’ll take a deeper look at how having a pension impacts your retirement, and what you can do to create regular income streams in retirement.
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Will you have a pension plan to help fund your retirement dreams? A defined benefit pension plan can make a huge difference in your retirement planning. We’ll take a deeper look at how having a pension impacts your retirement, and what you can do to create regular income streams if a pension will not be part of your retirement plan.

Disclosure: This article is part of the #LifeUninterrupted campaign sponsored by USAA, which is designed to help future retirees learn how they can transition into retirement without worrying about financial interruptions. You can receive a free, no-obligation retirement review today by calling USAA. Note: We are receiving a fee for posting; however, the opinions expressed in this post are my own. I do not earn a commission or percentage of sales.

I have been paying much more attention to retirement planning over the last few years. My wife and I are still about 20 years from the traditional retirement age, which still gives us plenty of time to prepare for retirement. But I also want to ensure that we do everything in our power to take care of our future spending needs.

That is why we are planning now. The more we prepare today, the less ground we will have to make up later. And I’m sure our lives will become more complicated (and expensive!) as our children get older.

Right now, our retirement savings include our investment accounts, such as our IRA and 401k plans, and a taxable investment account with some index funds. Together, these accounts should help fund our retirement.

We also hope to one day add social security benefits and a military pension to our retirement income. So far, I have about 12 years of military service under my belt, which means I still have about 8 more years of service to go before I will be eligible to earn military retirement benefits. And since I am serving in the Air National Guard, I would not be eligible to receive retirement pay until I reach age 60.

Overall, I would say we are on track to retire.

How a Pension Impacts Your Retirement Planning

A pension plan is a retirement account that pays the recipient a monthly income during retirement. Pensions were once very common when employees tended to work for the same company for most of their adult lives.

However, in recent years, pensions have largely disappeared from the corporate world and are becoming rarer outside of government, public service, and military occupations.

Benefits of Having a Pension

Pensions provide a steady income during retirement. Some pensions offer a fixed monthly payment for life, while others, like military retirement pay, may offer an inflation-indexed pension that increases with inflation. The latter helps maintain your spending power as inflation erodes the value of the dollar.

Having this fixed income stream each month is incredibly valuable for retirement planning. This allows retirees to build a stable budget, and if they are fortunate, to be able to fund the entirety of their retirement spending from their pension, Social Security checks, and other regular income streams.

While pensions make retirement easier, it is still entirely possible to retire without a pension. We’ll look at this in a moment.

Since most of us reading this article are current and former military members, we’ll take a look at how you can use your military service to earn a pension that can provide an income stream for the remainder of your life.

4 Ways Use Your Military Service to Earn a Pension

There are several ways you can use your military service toward earning retirement benefits. These include:

  • Active Duty Retirement
  • Guard/Reserve Retirement
  • Civil Service Retirement
  • Retirement from State & Local Government or Other Agencies

Active Duty Retirement Pay

Retiring from active duty is what most people think about when they think of military retirement pay. Active duty members are eligible to retire after 20 years of service and can begin receiving military retirement pay the month after they retire. In some cases, veterans are able to retire as young as age 38 and can receive military retirement pay and health care for the remainder of their life.

Military retirement pay is also indexed for inflation, meaning the payment amount increases with inflation. This can have a large and lasting impact on your retirement pay.

Guard or Reserve Retirement Pay

Members of the Guard and Reserves can retire after 20 good years of service. Reserve retirement benefits are more or less the same as active duty retirement benefits. However, they are not eligible to receive military retirement pay or health care until they reach age 60 (unless their military service qualifies them for early retirement benefits).

As a current member of the Air National Guard, I hope to be able to retire after 20 years of service and begin receiving retirement pay when I am age 60.

Civil Service Retirement

Active Duty military veterans who later join the Civil Service are able to buy back military service credits to increase their Civil Service retirement benefits. This is an excellent way to increase your Civil Service retirement benefits based on the military service you have already completed.

Additionally, members of the Guard or Reserves who also serve in the Civil Service and buy back their military service credits are able to double-dip and use their active duty military service toward a Reserve pension, as well as a Civil Service pension.

Federal law, however, prohibits active duty retirees from counting their service twice.

State & Local Government & Similar Organizations

Many state and local governments and similar organizations also allow military members to receive retirement credit from their active duty military service. This is common in many levels of state and local government, as well as in some first responder organizations, such as law enforcement and firefighting organizations.

There are many people in my Guard unit who are working on earning full retirement benefits through the Guard, as well as through their civilian job. Some of these members are state employees, law enforcement officers, firefighters, EMTs, and other local government employees.

Check with your employer’s Human Resources office for more information about applying military service toward your retirement benefits.

How to Create Your Own Retirement Income Streams

Earning a pension is just one of many ways to fund your retirement. And many people prefer pension plans because they offer a steady monthly income stream.

However, you can still create additional income streams to fund your retirement. These tips apply whether or not you have a pension.

Some of these include Social Security Benefits, dividends, bond payments, interest, annuities, withdrawing from investment accounts, rental properties, and more. Let’s take a quick look at these in more detail.

Social Security Benefits

Many Americans will be eligible for Social Security Retirement Benefits when they reach retirement age. While this is not designed to be your sole source of retirement income, its steady cash flow and the annual cost of living increases can go a long way toward funding your retirement.

Coupling Social Security benefits and a pension can often cover the majority of one’s living expenses.

The good news is that military members who served prior to 2001 may see an increase in Social Security Benefits based on their service time.


Some stocks pay dividends, which is a cash distribution from the company to the shareholders. These payments can be made directly to your investment account or reinvested for added portfolio growth.

I currently reinvest my dividends for added growth, as I still have about two decades before reaching the traditional retirement age. However, I expect that I will eventually stop reinvesting dividends and will withdraw the dividend payments to help cover living expenses.

You can review your current investment portfolio to estimate the amount of dividends you receive each year to determine how this will impact your retirement income. It takes a substantial investment portfolio to live entirely off dividend payments. However, the regular monthly, quarterly, or annual dividend payments can help improve your quality of life and reduce the amount of money you need from other sources.

Bond Payments & Interest

Bond payments also offer regular payments that can be reinvested or used for current living expenses. Municipal and Treasury bonds tend to be lower risk than corporate bonds and can help reduce portfolio risk and smooth returns.

Interest is another component of many retirement portfolios and can be earned from savings accounts and certificates of deposit (CDs). Many retirees choose to hold a certain amount of their near-term spending needs in interest-bearing savings accounts or CDs to have access to ready spending cash. Money held in stable accounts also reduces the sequence of returns risk and makes for a more stable long-term investment portfolio.

Annuities – Setting up an Income Stream for Life

Annuities are basically an insurance policy that provides an investor with regular monthly payments, often for the rest of the investor’s life.

To purchase an annuity, an investor makes a lump sum payment to the annuity firm, and in return, receives regular payments for the rest of his or her life.

Annuities can also be purchased through the Thrift Savings Plan, and through some other organizations. Please do your research before buying an annuity, as there are many types of annuities with differing levels of complexity and fee structures. Some offers are better than others. It always pays to shop around for the right annuity.

Withdrawing from Investment Accounts

I am currently in the accumulation phase of my investing career, meaning that I am not spending my investments. I am working on saving and investing as much as possible and reinvesting any additional growth our investments make.

However, we will eventually reach the spending phase and begin making withdrawals from our retirement accounts.

Determining how much you can withdraw from your investment accounts without running them dry is a much-discussed topic. But research has shown that most portfolios can sustain a 4% Withdrawal Rate each year. The studies that back this research use historical records and various simulations, but as we all know, past performance doesn’t guarantee future results.

You may wish to work with a financial planner to help you determine how much money you can safely withdraw from your investments each year. You can schedule a free retirement review with a financial planner from USAA.

Rental Properties

I know many real estate investors whose rental properties kick off enough income each month for them to live a comfortable life, and even provide enough extra cash flow to fund additional activities or investments.

Getting started with real estate investing is outside the scope of this article. However, it can be a good way to generate positive monthly cash flow that can help support, or possibly even fund your retirement.

Putting This All Together

As I mentioned, my wife and I are still in the accumulation phase of retirement planning. We have made good progress and we will continue to save and invest until we reach retirement age. And hopefully, I will be able to earn retirement benefits through the Air National Guard. If so, the military retirement pay and health care benefits will go a long way toward helping us achieve a financially sound retirement.

We are also working on building out other investments, such as contributing to our 401k plans and IRAs. These accounts will continue to earn dividends and interest, which we will continue to reinvest until we decide we are ready to retire and start drawing down our retirement accounts to fund our retirement.

We also anticipate that we will receive some Social Security Benefits when we retire, though we can’t predict the future and any possible changes that may happen with the program.

Overall, we believe are on track to retire at a reasonable age, and possibly a little early.

Are You on Track to Retire? Free Retirement Review at USAA

I’m a firm believer in taking control of your future. That’s why my wife and I started saving for our retirement over a decade ago. But it’s also never too late to start.

Right now USAA is offering a free, no-obligation retirement review with one of their retirement advisors. There is no cost, and you do not need to be a USAA member. To learn more or to schedule a call, you can visit the USAA website.

I recommend everyone have a retirement plan review, regardless of their age, or the amount of money they have. Taking an hour out of your day today can have an immense return on your investment and help you understand what you need to do to realize the retirement of your dreams.

You can get started now at USAA.

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  1. Todd says

    Thanks Ryan!
    Do you offer guidance for a fee?

    I have a topic to address and would like to discuss it with someone knowledgeable.


    • Ryan Guina says

      Hello Todd, I’m not a financial planner, so I’m not qualified to give specific financial planning advice. That said, I’m happy to offer basic tips via email. I can also put you in touch with a financial planner who specializes in military finances if you need more specific financial planning advice. Thanks.

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