Hello,
Approaching retirement and looking at options of retiring as an O-4 at 20 years vs an O-5 at 24 years (assuming I made it).
With the extra pay plus cost of living increases, etc, it would be $5,000 vs $7,500 a month for retirement between the two options.
If I live to 75, that would likely be almost a million more in my pension during that time.
But then retiring at 20 means I start the pension sooner, start a potential civilian career sooner, etc.
Has anyone seen a calculator or spreadsheet that can handle all of these variables and compare them at the same time?
Deciding between 20 vs 24+ year retirement – Calculators to compare military pay vs estimated civilian pay?
byu/Haystcker inMilitaryFinance
Posted by Haystcker
5 Comments
With or without calculator, wouldn’t it hinge on whether or not you get a high paying job outside of the service?
One thing i think worth throwing in is that extra 2500$ gets you 2500$ more a month of security for 4 years only. Thats something I think a lot of people would kill for.
We use the “MilitaryRetire” App, it’s been great to run different military scenarios and timelines, includes variables like SBP, taxes, Tricare, etc.
Not sure how you would run numbers for a potential civilian scenario to compare until you know wages, tax bracket, COL, etc..
How are you coming up with $7500/month for retired O5 over 24?
$11425 x 24 x .025 = $6856 per month.
Am I missing something?
To get to your question though…. if you plan on having a second career it’s likely better to get that going. You’ll make your retirement plus that salary. If you’re going to be done with working (or you just want a side job after you retire) then staying in longer is probably to pad the numbers is likely the way to go.
Easiest way I looked at it was what’s the payback period for the increased pension to equal lost years of collecting it.
Let’s assume you get a job that can cover all your expenses, and all your O-4 pay goes straight into savings for the purposes of building income/retirement. Your pension will be $60K per year. Let’s assume you pay 25% taxes. You’ll have $45K per year to put into savings.
You could put $30K into Roth TSP (for your civilian job) and a Roth IRA. That leaves $15K for either 529 accounts for your kids or brokerage savings. Let’s assume you get 8% returns per year with your investments.
At the end of those 4 years on O-4 retirement at 20 years, you’ll have an extra $202K in savings. If you leave that alone and let it grow, you’ll be gaining just shy of $22K in the subsequent year. Probably. This is assuming steady 8% market gains with no crash or brutal correction.
If you stay in until 2024 as an O-5, you’ll be making $30K per year more at the end of those 4 years. As long as you get your promotion and you don’t do something really stupid/illegal, it’s essentially guaranteed. So there’s definitely an advantage to staying in and getting that promotion.
However, if you have a job lined up with which you can start at a substantially higher pay (with benefits) with good job security that’s substantially better than what you would otherwise make as an O-5, it could be worth your while financially to get out.
Using the rough spreadsheet calculation I set up for your scenario, if your civilian job pays $35K per year (before taxes) more than what you would make if you stay in, that’s roughly the break-even point.
*All this said, I don’t think this should be a financial decision.* Do you want to stay in for four more years? Do you want the jobs and the responsibilities that come with being an O-5? If so, then stay in! If not, then retire! If you love what you do, you’ll be fine. As long as you’re living on less than you make (which is easy on an O-4 salary), you’ll be fine.