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My 16 hours in Military Retirement Boot Camp

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I've mentioned before that my wife is a pharmacist with the military. That unique career choice has given her some of the greatest perks in the job market today. It's great job security as it literally takes an act of Congress to fire her. Probably most importantly, from my view is that she's exempt from be deployed for war. However, today I'd like to talk about another of the great perks of her career, her retirement and pension. (Note: I've covered some of this broadly before in Our Early Retirement Plan: My Wife’s Plan (Part 3).)

In the military, personnel can retire after 20 years of service with a pension of 50% of their base pay. This means that my wife is eligible to retire in 7 years when she'll be 43. When she invited me to her office for a two-day workshop on retirement, I natural said yes. I'm never one to pass up good material a blog post, especially in a unique area that few personal finance bloggers are in a position to cover. Also, since I'm a dork and interested in these kinds of financial matters, this was going be like a trip to Disney World, right? I was wrong. There was no wi-fi and every Internet connection requires VPN software that my civilian computer didn't have. In addition, the workshop was set up for those on the east coast, so we had to get up before 4:30 in the morning. Some had it worse than me. Several people flew 1,000 so that they could sit in the office with the video conferencing software. I'll let that sink in for a minute. If only someone could tell the military that there is thing called Skype. There was little interaction on the video conference (a couple of times they took questions), so 98% of the material could have been taped and/or presented on a DVD which could be watched at the military worker's leisure. A couple of times a year they could have a 2-hour round of questions.

I had hoped that once I got past the format of the workshop, I'd be back in retirement-math-nerd-bliss. However, I had forgotten the one thing I knew about the military: they are experts in wrapping up something with enough red tape to make you want to pull you eyeballs and throw them across the room. Much of the retirement planning workshop covered knowing where to get the 78 forms of paperwork, how to fill them out, and figuring out who is supposed to get them at what time. There's no one-stop shop with this. The military recommendation was that personnel plan ahead 6 months in advance of retirement in order to complete the process. I can't think of anything less interesting to write than a military process, so we'll move on to useful things I've learned.

Types of Retirement

It turns out there are a billion types of retirement. While I only considered the 20-year version, there's also a 20-year one where the military can remove your position. You are free to look for another position, but if you can't find, they essentially retire you. You can also stay on for 30 years (and with special approval even longer) and collect 75% of your base pay. Also when you hit age 64, that's going to be forced retirement for most everyone as well. Finally, only with my wife's branch of the military if she's disabled she gets 75% of her base pay for life (I'm not sure if that's in the line of duty or in general).

Terminal vs. Lump Sum Leave

When you plan to retire you have to think about your leave (vacation to us civilians). You can use your leave to effectively retire before the 20 years... or you can take it as a lump-sum payment. This is similar to when you leave any job. However, with the military, you can store up 60-days of leave. This lead to an example where an O-6 ranking officer (where I hope my wife will be in a few years) will get a lump-sum payment of $24,757.12 for those 60-days. While some people get fancy pens for retirement, this is a way to give yourself a very nice long vacation.

Types of Health Care Available

When you retire you can health care from the VA (Department of Veteran's Affairs). However, it seems like that isn't what most people use even if they have it for free. You also get TRICARE, which the health care that we have now. In retirement, you get TRICARE Standard which has some reduced benefits. However, for the paltry sum of around $500 a year, our entire family will be covered by TRICARE Prime, which gives us the equivalent coverage of what we have now. That's IF (can I make that "if" any bigger?) they don't raise that premium substantially. There's already rumblings that the cost of TRICARE will have to go up to ease some of the financial burden on the government. I'm planning for it be a good deal more.
Survivor Benefit Plan - Woohoo!

This is the reason why I wake up before 4:30 and go to these retirement things. If my wife retires and then dies, her pension ends too. Me and the dog are left blogging for dough (and Jacoby is a terrible blogger). Fortunately, there's a Survivor Benefit Plan (SBP). This allows for the surviving spouse to get 55% of the base amount of the pension. So if my wife retires after 20 years and gets 50% of her base-pay and dies, I would be able to get 55% of that (or 27.5% of her original base-pay). However, in order to get this benefit, you have to pay 6.5% of your base-pay each year in pre-tax dollars. The pre-tax is key because alternatives like annuities use post-tax dollars.

We are years away from making a decision on this, but the guidelines at the seminar were something like this: For every 5 years that you pay the SBP premium, the surviving spouse has to live 7 months longer. If you retire and live for 30 years paying the SBP, the spouse needs to live 35 months (let's call it 3 years) for it to pay off.

The key things to think about here are the life expectancy of the non-military spouse, your assets (savings, investments, etc.), and spousal income (can I teach Jacoby to be an ace blogger rocking LazyDogAndMoney.com?).

Life Insurance

While my wife is working she's got a life-insurance plan called Servicemembers' Group Life Insurance (SGLI), which is a very low-cost life insurance policy. This gives me $400,000 if she dies before retirement (I'd get another $100,000 from the military itself). This is a great head start, especially since we don't have any children yet. In 5-6 months that will change and we'll have to think about life insurance for both of us. However, SGLI goes away at retirement, so if my wife retires in 7 years, we'll have a 7 year old and no insurance. At that point we'll have to look into Converting SGLI to VGLI with VGLI being the veteran's version of the same life insurance. Unfortunately VGLI, isn't any cheaper than civilian insurance. In fact, at the workshop they made a point to say, it is expensive. The main advantage to VGLI is that there is no physical or any kind of health test that can be used to deny coverage. File VGLI under "It is good to have options."

Long-Term Care

The workshop brought in an outside financial advisor to try sell the audience on long-term care. That half-hour will be a blog post in itself. Look for it sometime the middle of next week.

The Rest of the Workshop

They covered a lot of other details that 99.9% of my readership don't really care about. Here are some examples:

Upon retirement the military will move us anywhere we want in the continental US. (There's a loophole where if you pick an expensive place to move to, you can negotiate a cheaper international destination. Rather than have them move my stuff from Maine to Hawaii, I might be able to negotiate a move to Montreal. Your mileage may vary with this.)

There's also the Tricare Retiree Dental Program, which runs around $99-160 per month for family coverage (depending on the cost of living in your area). Oddly to me this is much more expensive that health care costs.

The most personally intriguing thing of stuff that may be little interest to anyone is an alternative health care option to TRICARE Prime called U.S. Family Health Plan (USFHP). This is apparently an outstanding medical plan for a few people who happen to live in the right area of the country and meet the most random of eligibility requirements (almost like being born on the fourth week of March). Fortunately for me, it seems I qualify. In one of those odd oversights, my wife, the actual military member does not appear to. Also, it is available back in Boston, where we are from, so it is of no use to us now that we live in CA. However, they are closing it off to new enrollees later this year because it is just too expensive to maintain, so I might be able to act quick and get grandfathered in.

They covered a bunch more stuff that really isn't worth covering here. Perhaps next year, now that I know what to expect, I'll go and report for my friend Ryan at The Military Wallet.

Posted on April 12, 2012.

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11 Responses to “My 16 hours in Military Retirement Boot Camp”

  1. I’ve been doing a few evaluations on the annuities / pensions, as I have one provided through my work and my mother is a soon-to-be retiree through her job as a teacher. As far as the survivor benefit is concerned, I believe in lieu of a survivor benefit, you can purchase a term life insurance policy to replace the net present value of the pension. In my mind, the trade becomes the value of the insurance policy per year compared to the decrease in benefit due to the cost of survivorship. If I’m misguided, please weigh in, but it seems as though insurance policies are the way to go with these sorts of things.

    • Lazy Man says:

      The Poker Meister,

      No you are right. One could purchase a life-insurance policy or an annuity and it would give you the save insurance against the death and loss of that income. Right now we don’t know what the survivor benefit will be, it depends on when she retires and what her rank is. The benefit with the military’s survivor benefit is that the premiums are paid with pre-tax dollars. When the time comes to figure out if this is the right move to make, we’ll have to look at the numbers and see what life-insurance annuities, etc. are available.

      One other thing to keep in mind with the survivor benefit is that it continues until death. So while life insurance will pay a fixed amount, if I outlive my wife by 30 years (unlikely), I’ll end up soaking the system for a lot of money. Let’s cheer for modern medicine while I knock out a few push-ups ;-).

  2. How many times did they call you “maggot”?

  3. In your second paragraph of the response, what you’re alluding to is a net present value formula. Based on actuarial tables, you can figure out your most likely lifespan and calculate the net present value of your pension (using a negative interest rate for inflation, if it is a fixed payout like my pension is). For example, if your average lifespan is 25 years after retirement at 65, then you can calculate, in excel, a value for the sum of future cash flows in present $$$ terms. The formula is fairly easy to use: PV(rate, #periods, payment). I look at the benefit of using an insurance policy instead is as a minimum, you’d get paid the net present value of the annuity if something were to happen on day 0, but you’d also get paid on the whole policy if something were to happen in year 24, meaning you’d (or your heirs) come out WAY ahead. One other point of note: my understanding is that life insurance policies are tax free as well, so the argument about the pension being tax free – you’re still comparing apples to apples so to speak.

    • Lazy Man says:

      Yes, the math isn’t too complex. There are probably some online calculators.

      We don’t know what the pension will be because it is dependent on my wife’s final rank and years of service. It’s like trying to figure out how much you are going to have in retirement savings at age 65, when you are only 45. A lot can happen in 20 years, so make an educated guess and revise it repeatedly as you get closer to the goal.

      Did I say that the pension is tax-free? I believe you still have to pay income tax on it (some states have exemptions for military retirement pensions though). The pension premiums for the Survivor Benefit Plan are pre-tax dollars like your 401k. If you buy life insurance or an annuity, you are going to use post-tax dollars.

  4. robyn says:

    you’re having a baby? did i read that correctly? CONGRATULATIONS!

  5. Kosmo says:

    If they didn’t call you maggot, then it’s hard to justify referring to it as a boot camp :)

    You should really say that your wife is a drug supplier for an armed militia. It makes her job sound a lot more dangerous.

    So if she has no risk of being deployed in war time, who administers drugs in a war zone? This is a serious question. If you’re a diabetic soldier in Afghanistan, you have to get your insulin from someone.

    On the non-financial side, it would be a good idea for your wife to figure out what she wants to do with her life in retirement. At 43, she’s going to have a very different retirement lifestyle than the typical civilian retiree. If she’s not planning to take a civilian job, she may want to fill some of her time with a hobby (reading, gardening, atronomy, scrimshaw, whatever).

    My brother spent 20 years in the Marines and was completely lost when he retired. He wasn’t is particularly good financial shape (yeah, some MLM involvement among other poor decisions) and had a few civilian jobs. He passed away in his mid 40s (heart disease) without ever really finding his way in the civilian world. Many of his military skills (such as yelling at people as a drill instructor) didn’t translate particularly well.

    • Lazy Man says:

      I generally wake up pretty early, but before 4:30 justifies it as boot camp.

      With the wife thing, I could go with my old stand-by, “My wife was a drug-dealer in prison.” She worked as the prison’s pharmacist ;-).

      I think the medical officers in the army, navy, etc. administer the medication in a war zone.

      My wife has about 30 potential business ideas on what to do in retirement. Some of them like putting together a boy band I *hope* are joking. Others like the consulting practice may be more realistic.

  6. […] care was another great concern I highlighted in the previous article. From my 16 hours in military retirement boot camp, it seems that health care won't be that expensive… about $500 a year for what we have now. This […]

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