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Military Pension (Defined Benefit) value comparison

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rated:
What would you SWAG the value difference between the following defined benefit (pension) values assuming an average life expectancy?  Each amount is pre-tax income that will be provided immediately, roughly inflation adjusted each year. Case 1 represents no new promotions. I could choose to retire at any of those points and probably minimize the months away from family. How much more is $68k/yr starting 5 years later worth than $51k/yr starting now? Case 2 represents a promotion that requires a carefully crafted career path with many hard/crappy jobs (e.g. spend a year away from your family) to be competitive, and is still ~60% (more achievable the "harder" the jobs you volunteer for). That said, $100k/yr pension at 50 is often considered to be the pinnacle career goal. 

FWIW, I'm 5 years out and I've done the hard jobs so far, so on track for either path. Right now $51k/yr at 40 is looking pretty appealing, especially with the option for more relaxed jobs during the next 5-10 years. Roughly how much $$ per year am I "giving up" in opportunity cost between the 5 cases? I'll start another career immediately after. I'm not concerned about employability.

Case 1:
40 years old, 51k/yr before taxes
43 years old, 61k before taxes
45 years old, 68k before taxes

Case 2: Promotion ~60% chance + crappy jobs

47 years old, 87k before taxes
50 years old,  100k before taxes

Numbers come from O5 or O6 retirement between 20 and 30 years. 
http://militarypay.defense.gov/Calculators/Active-Duty-Retiremen... 

Thanks much!

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rated:
If you're starting another career afterwards, retire at O-5 and call it a day.  I've known quite a few mentors in this same exact situation and unless you're pretty certain you're going to make O-6, it's a fool's errand chasing rank when you can get your pension now + a new career.  

Most everyone I know that decides to Chase rank or hang around after 20 years is miserable or they end up with regrets be it on the enlisted side as seniors or officers.  Be it from missing out on their kids activities, spouse tired of moving every 3-4 years, the stress of being deployed, the list goes on. 

My old First Sergeant from my command time decided to retire recently.  He was selected for Sergeant Major while on terminal leave.  Go figure.  He knew he'd have to do another five years before he could retire and yet the Army dangled that carrot in front of him.  He stayed on terminal leave and started his business.  He and his family couldn't be happier.

What does your spouse think?

rated:
RailroadTrack said:   If you're starting another career afterwards, retire at O-5 and call it a day.  I've known quite a few mentors in this same exact situation and unless you're pretty certain you're going to make O-6, it's a fool's errand chasing rank when you can get your pension now + a new career.  

Most everyone I know that decides to Chase rank or hang around after 20 years is miserable or they end up with regrets be it on the enlisted side as seniors or officers.  Be it from missing out on their kids activities, spouse tired of moving every 3-4 years, the stress of being deployed, the list goes on. 

My old First Sergeant from my command time decided to retire recently.  He was selected for Sergeant Major while on terminal leave.  Go figure.  He knew he'd have to do another five years before he could retire and yet the Army dangled that carrot in front of him.  He stayed on terminal leave and started his business.  He and his family couldn't be happier.

What does your spouse think?

  Good part is in the Navy this won't happen....when your Fleet Reserve/Officer retirement package is approved they won't consider you for a selection board!  

rated:
Thanks!!! I'm a senior O4 now with very strong paper. My jobs have been somewhat rough, my wife very supportive. She'd love to see 20 and out per several conversations. She's on the front stretch of a professional career. However, we're beginning a 3 year joint tour that seems to be 9-5 and we're both loving it. I could be a non-competitive O5 and live out my career more or less like this (20-26 yrs). I could take the hard jobs and have a pretty high assurance of O6 if I stick it out. I could do one selective hard job, try to take what we like and probably run a 60pct. In my field I'd have a pretty good idea as I see my paper and boards. I'm also very marketable now, hard to say if military advancement and age makes that better or worse in my case.

Question for the group is what kind of monetary opportunity cost I'm looking at between those exit points.

rated:
To evaluate opportunity cost would require current salary, promotion salary, post-retirement salary, and how long you plan to keep working.

Early retirement plus post-retirement salary is likely more cash flow than current salary alone. Some of the difference could be socked away to close the retirement income gap.

rated:
Retire. You are dismissing the opportunity cost of not working a civilian job. 100k retirement is nice but so is having some control over where you live, work, spend time with family, friends, etc. Retiring earlier also makes it much more possible to earn a better civilian second retirement if desired.

You also cannot predict promotion rates 5 years from now. I have lots of friends or co workers who worked the hard jobs only to become twice passed over and separated or retire/SELCON.

Me - over 20 years AFS (Army). Commission in 2002 after 5 years enlisted. I have done everything to get promoted including all ACOM oer's since LT, 4 combat tours, 1 Korea tour, never been passed over. I could hang on but the last 5-6 years of watching tough promotion rates have convinced me to move on. My retirement date is 2 years before my next promotion board. The benefit of increased pay at the expense delaying civilian employment was not worth it to my family and I.

Good luck on whatever path you choose!

rated:
Finish your tour and retire. 1. You've already decided to retire, an extra 10K a year won't make you happier, so staying in past your current tour will make you miserable. There will be something every day that will make you think "I could get out now". 2. You'll start your second career earlier and that will more than make up on any retirement pay that you may be missing out on. Plus you'll start a new retirement plan with more diversity and control. 3. Your wife will appreciate having more control over your career and where to live. You really don't need to do a value difference between retiring now vs retiring later. Money isn't really the point. We all kind of hit retirement gates 20 years, 26 years (when you don't get time based pay increases anymore) and 30 years. I retired at 21 when I found out my last tour wouldn't accommodate my wife's illness. Best move I ever made.

rated:
If you stay in past 20 years, you are essentially working for half pay.

rated:
redsox9547 said:   
RailroadTrack said:   If you're starting another career afterwards, retire at O-5 and call it a day.  I've known quite a few mentors in this same exact situation and unless you're pretty certain you're going to make O-6, it's a fool's errand chasing rank when you can get your pension now + a new career.  

Most everyone I know that decides to Chase rank or hang around after 20 years is miserable or they end up with regrets be it on the enlisted side as seniors or officers.  Be it from missing out on their kids activities, spouse tired of moving every 3-4 years, the stress of being deployed, the list goes on. 

My old First Sergeant from my command time decided to retire recently.  He was selected for Sergeant Major while on terminal leave.  Go figure.  He knew he'd have to do another five years before he could retire and yet the Army dangled that carrot in front of him.  He stayed on terminal leave and started his business.  He and his family couldn't be happier.

What does your spouse think?

  Good part is in the Navy this won't happen....when your Fleet Reserve/Officer retirement package is approved they won't consider you for a selection board!  

  Not necessarily true....I've known a few people who were all set to retire and then got promoted.  One guy had just a month or 2 until he retired, and then he picked up O-5.
 

rated:
You can estimate the value of a pension by finding what it would cost to buy an annuity with similar payout.

Using calculator found here : https://www.immediateannuities.com/information/annuity-rates-ste...

I get the values for equivalent annuities as below.


Case 1:
40 years old, 51k/yr before taxes  = $1,061,200
43 years old, 61k before taxes = $1,193,893
45 years old, 68k before taxes = $1,202,648

Case 2: Promotion ~60% chance + crappy jobs

47 years old, 87k before taxes = $1,388,570
50 years old,  100k before taxes = $1,359,469

So those figures are the present cost of buying such an annuity today at age 40 so its for the current present value of each pension.    A 40 year old male would have to pay $1,388,570 to buy an annuity that kicks in in 7 years when he's 47.

For simplicity I'm picking the single life annuity for a male.  If you have a beneficiary benefit and a wife then the values will be higher.
 

rated:
Jerosen's numbers bring a lot of clarification to your situation.

Take case 1, 40 years as a baseline ($1.06M)
Case 1, 43 years: Adds $130K for 3 years of work, or $43K/year above all of your normal pay/benefits.
Case 1, 45 years: Adds $10K for 2 years of work. Or $5K/year (from 43 -> 45) above your normal pay/benefits.
Case 2, 47 years: Adds $320K for 7 years of work, or $45K/year above all your normal pay/benefits.
Case 2, 50 years: Actually you lose money, because you miss out on $87K/year * 3 years = $260K of pension, just to get $13K/year benefit. You won't break even for 20 years.

So strictly based on math
If you can make more than ~$45k/year in the private sector above and beyond your military pay for those years, either Case 1 @ 43 years or Case 2 @ 47 years makes sense.

If you can't make Military salary & benefits + $45K/year in the private sector, or you just want the freedom and flexibility, Case 1 @ 40 years is the winner.

rated:
Thanks for those numbers! I was estimating more value, but I think life expectancy weights heavily. It also covers my wife, so slightly more valuable. I'm thinking 21-22 years as an O5 is the best way to go...

rated:
Dont forget to factor in the total benefits package of the pay as an O5. Tax free BAH, esp. if you are in a high COL area, can be a ton of money.

rated:
jerosen said:   You can estimate the value of a pension by finding what it would cost to buy an annuity with similar payout.

Using calculator found here : https://www.immediateannuities.com/information/annuity-rates-ste...

I get the values for equivalent annuities as below.


Case 1:
40 years old, 51k/yr before taxes  = $1,061,200
43 years old, 61k before taxes = $1,193,893
45 years old, 68k before taxes = $1,202,648

Case 2: Promotion ~60% chance + crappy jobs

47 years old, 87k before taxes = $1,388,570
50 years old,  100k before taxes = $1,359,469

So those figures are the present cost of buying such an annuity today at age 40 so its for the current present value of each pension.    A 40 year old male would have to pay $1,388,570 to buy an annuity that kicks in in 7 years when he's 47.

For simplicity I'm picking the single life annuity for a male.  If you have a beneficiary benefit and a wife then the values will be higher.
 


I think we may have a major calculation error. Example, shouldn't 50 yr old pension at 100k be valued at current annuity cost for a 50 yo (closer to $2M)? It appears cheaper buying as a 40 yr old waiting 10 years based on them investing your $1.3M for 10 years while they don't pay you and hope you die. All numbers will be inflation adjusted through pay raises and COLA adjustment​s. Hard for me to correctly consider net present value of the $$ in this case.

I think that's why the relative values don't "feel right"

Also, I'm 35 now... Doesn't seem right to calculate based on if I purchase the annuity now and have to wait for payback... Or maybe I should...?

rated:
I figured them all based on buying today so they would all be on an equal footing for comparison. Idea was to put it all in today dollars to compare today.

Yes buying a 100k annuity at age 50 is more like $1.9M. But that is 10 years from now so you have to at least account for inflation or opportunity cost for the money.

Since your pension has a COLA the real value of your pension is a good 20-30% higher than the numbers given too since I got quotes without COLA. And you get the survivor benefit too which also makes yours worth more. But the numbers are all proportional. So you can take the # I got and multiply by 1.x to get the actual value.

rated:
Let's see...I retired at 22 years as an E6 (TSgt) in 2008. Continued my career as a civil servant..and now a GS-14...non supervisory! I have another 12 years to go to retire directly to pension as a GS. My mil retired pay helped close the gap when I first started as a civilian, and now just goes towards my long term retirement savings.

As an O5, it would be even easier than what I experienced,

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