Retire in 5 yrs or stay in another 15?

[mellowyellow]

I have been on active duty Air Force for 16 years total, five years as a commissioned officer. I hold the rank of Capt (03E pay grade). My goal in serving as long as I can in the military is to increase my retirement (2.5%/yr) and potentially retire at 31 years total, hoping to never work after age 50. Details are in the spreadsheet linked below.

This is where your opinions/expertise comes in. I CAN retire in 5 years, making $52k/year after taxes, and then pick up a second job and potentially work until who knows when, potentially longer, vs. if I grit my teeth and stay in the military.

Facts:

1. If I retire in 5 years, I will have to get a second job (5 kids/wife). Unsure of what I want to do when I grow up. I could make ~$200K/yr if I get out in 5 years (conversation with peers). I will lose $1.8M in retirement pay vs. if I stay in the military.
2. If I grin and bear it for another 15 years, I will have ~$101K/yr after taxes (if tax brackets stay similar to today). My youngest child would be 19, and I would be free to visit kids/grandkids then.
3. My goal in retiring early is to visit kids and grandkids and be present in their lives. I do not want to be tied down to "having to work." I do not want my latter years controlled by a necessity to go to work.
4. I have a modest TSP/401K that I started when I was commissioned five years ago. I hope not to rely on this for retirement but have it as a bonus. I can continue to put ~$1K/mo while I serve in the military. Longer service = better regarding the 401K, no matching.

What would you do? I do not know all of the figures and potential outcomes that could result from retiring early. I bring my dilemma to you to see if you have thoughts or ideas I have overlooked as part of my thought process. I am not a financial expert, so I am sure to have missed the devil in the details.

Thank you for any thoughts/comments/advice.

Spreadsheet:

https://docs.google.com/spreadsheets/d/1rU9GOcJdgD8pk5-zLP4qxpPfOH1-wKprPvkqr16Ym5k/edit?usp=sharing

 

[basilisk06]

@mellowyellow You keep saying if you retire as soon as eligible, you'd have to get a "second" job. I think what you mean is, a "job." You know, like the one you'd be doing if you stayed in.

Retire, collect your modest pension, AND collect full-time pay from your "second" job. You'll make a ton more. If you quit that job at the same time you would have hit 31 active duty, you'll still be way ahead.

Yes, your military pension will probably be half of what it could have been. But remember, you'll have 10 years of your "lower" pension AND full-time pay in your other job.

 

[truthingenesis]

@basilisk06 Agree, and adding this as a second-level comment because it's not financial advice.

My goal in retiring early is to visit kids and grandkids and be present in their lives.

If this is your goal, spending longer in a more demanding military role rather than retiring and taking an almost certainly less demanding, more flexible civilian job is counter-intuitive. Do you really want to risk being out of your kids' lives until your youngest is 19? Because honestly, they're going to have less time for you once they are in college and starting careers of their own. I obviously can't tell you how your future will be, but I can say that I saw my family once a year max (some years not at all) between the ages of 18 and 31. Your kids will not remember you as fondly for the most-optimized financial foundation later as they will for more of your time now.

 

[annyfins]

@truthingenesis Heard a story about one of these Os whose adult kids didn't show up for his retirement. They were pissed that his job was important than them. Ironically, it was a workaholic O that told me the story when I was kicking him out of the office (it was after 6 pm and all other seniors were gone for the day).

 

[joanibird]

@basilisk06 This guy/girl has the right advice. Retire as soon as you can makes the most sense. Also, why the fuck do you want to “grit your teeth and stay in the military”. Honestly, the Os I knew that stayed well past their shelflife who are some of the worst people to work with. If you are not enjoying the mission and your role, get out and find something that you are going to enjoy. Unlike most of the rest of the population, you have a huge safety net that you can use to help you find meaningful work in the second half of your life.

 

[susie40s]

@basilisk06 Are you a pilot?

If so, get out and get a line number ASAP.

 

[jamieredheaduk]

@basilisk06 You’re forgetting about VA money which you should definitely make a claim after 20 years regardless if you think anything is wrong with you or not

O3E/O4 retirement: $4000-5500/mo

VA Disability (tax free): $1000-3700/mo

Civilian career: $6000-11,000/mo

Low end getting out at 20: $11,000/mo

High end getting out at 20: $20,000/mo

You should definitely get out and just enjoy life.

 

[ndune4jc]

@mellowyellow I did some retirement math for my wife sometime back, and it was an eye opening experience. I have provided the math below. Keep in mind that I was a prior E-7 and commissioned around my 15 year mark. This puts me in a nearly identical scenario as you. I conducted an estimate based on how long it would take for the larger deferred retirement to recapture my pay vs a $50k civilian salary (almost certainly the extreme low range of what I could expect). The bottom line is that it will take me almost 32 years to recapture the difference. What you have to calculate is that each year you stay in you are foregoing a civilian salary but your base pay becomes worth less. The biggest hit comes at 20 where you are now effectively working for halfpay. Each year your active duty salary will become worth 50%+2.5%(t) less in what is effectively a reverse amortization schedule. If you live long enough and keep promoting, you might come out ahead quicker. I was only calculating out the minimum until I hit 10 years commissioned, which means I am expecting 2 yr O3E and 1 yr O4 pay averaged.

Math:

Baseline Salary: $8,000

Baseline Retirement (20-years): $4,000/mo ($48,000/yr)

26-Year vs 20-Year Retirment Difference: +$1,200/mo ($5,200/mo); +$14,400/yr ($62,400/yr)

6-Year Baseline Salary: $576,000

Retirement Deflator (Delta between Active Duty Salary vs 20-Year Retirement Salary over 6-Years): $237,000

Baseline Retirement Loss: $339,000

Additional Pay (BAH + BAS): $2,500/mo ; $180,000/6 yrs

Adjusted Retirement Loss (BRL-AP): $159,000

Estimated Civilian Pay Lost: $50,000/yr ; $300,000/6 yrs

Net Income Lost over 6-Years: $459,000

Years to Recover Lost Income w/ Higher Retirement Pay: 31.875 Years

 

[jamieredheaduk]

@ndune4jc I had this debate with a buddy who is staying past his 20 so he could accept E8 and I told him it was dumb.

You are in the right track and same train of though as I was until he reminded me that while yes 50k from a civilian job is counted you also have to count his active duty pay against it, you can’t leave that out of the equation.

So if you’re going to add 50k x 6 then you also have to add 125k x 6 as your pay if you stayed in.

Then that 30 some odd year calculation drastically decreases because you’re earning 75k more per those 6 years. 75k x 6 = $450k

 

[ndune4jc]

@jamieredheaduk I did include active duty pay, including BAH and BAS in my calculations (576k + 186) in the above example). What I deducted from my pay calculations was the amount I would already have received should I have separated at 20 years. If I retired at 20 years, I could receive 50% of my base pay plus a civilian salary, but the amount I am working “for free” also increases by an extra 2.5% per year. There are intangibles that are too difficult to quantify here such as cost of insurance, dental, PCSing, so all those variables can certainly change real world results.

 

[caca]

@mellowyellow Every year you stay in past 20 you’re giving the military a $52k discount on your services. IMO, take the pension and start your next career.

 

[bluelionlaguna]

@caca What makes you say that? Never heard that saying before.

 

[rpn]

@bluelionlaguna IIRC, it was more commonly said as “at 20 years, you’re working for (about) half pay.”, because you would be already receiving your pension if you had retired.

 

[desperatewife]

@rpn That's a really good point no one ever brings up

 

[everyman]

@bluelionlaguna A Lt Col with 20-year of experience makes $121k in base pay. So if I do zero work (retire) I get paid $60k. And if I go to work I get paid $120k. So I'm actually only getting paid $60k to do my job, because doing nothing gets me $60k.

Thats what folks are pointing out. Every year past 20 you're working for half pay. It usually make more sense to get out, get paid about the same on the civilian side, plus draw your $60k in retirement.

 

[bluelionlaguna]

@everyman Thanks, that actually makes a lot of sense

 

[fetorahjesuslibertarian]

@everyman I posted a response to a similar question in a different subreddit. I included it below. TLDR, it’s a personal choice, but there are some benefits to having a higher inflation protected pension vs getting out sooner and making more on the front end.

Until recently, I thought this way too until I put all the numbers on a spreadsheet. I’m a signal Warrant Officer in the Army. I always thought staying past 20 years made zero sense because you’re working for 50% of your pay and leaving a much higher paying civilian job on the table. It only gets worse the more years you work since every year past 20 you’re working for 2.5% less of your pay.

When I put the numbers on a spreadsheet, I’d earn about $3800/month in retirement pay if I retired as a CW3 at ~21 years. That’s approximately equivalent to having $1,140,000 in an account that can be drawn down at 4% each year. 3800*12/0.04. If I sat another year, my retirement pay goes up to ~$4200/month. That’s the equivalent of $1,260,000 in an account. Working in IT, I can find a low stress job that pays me $120,000-$160,000 pretty easily, but what are the chances I save $120,000 of it? It gets even bigger if I stay until 26 years as a CW4. Retirement will be ~$6700/month. That’s the equivalent of $2,010,000 in an account. That’s a difference of $860,000 for 5 years. Again, maybe I can make $860,000 over those 5 years but I couldn’t save that much. 5 more years retirement pay goes to ~$10,400/month and I then retire at 51.

Now maybe your situation is different because you’re delaying the start of another career so it makes sense for you to secure your pension and start on your second career as soon as possible. Our kids will also be out of the house by that time, so maybe it makes more sense for your family to get out. For us, we are leaning towards staying in the Army as long as we can. My wife is also a Warrant Officer and will retire as at least a CW4. Having two inflation protected pensions as high as we can get them makes sense over making a little bit more today for us. Either way, it’s awesome that you’ve made it this far. The military pension is great because it opens up so many options.

 

[msmat]

@fetorahjesuslibertarian

Working in IT, I can find a low stress job that pays me $120,000-$160,000 pretty easily,

I think you are overly optimistic. Unless you're a seasoned programmer, you are not going to start at those salaries. I work at USAA, and those are IT salaries for senior employees with 20+ years of experience. You should plan on starting out around $70-80K.

 

[fetorahjesuslibertarian]

@msmat I appreciate it and will take it into consideration, but I have more than a few friends that have retired between CW2-CW4 and are making considerably more than the $120-$160k I used above. The combination of their TS clearance and years of IT experience make it pretty easy to get that salary as a contractor.

 

[msmat]

@fetorahjesuslibertarian "as a contractor"

You do know that salary is only part of the compensation package, right? Contractors typically have shitty PTO policies and tiny, if any, bonus packages. If you're looking for is time with family then being a contractor is not where you'll find it.