The best way to estimate your military pension is with one of the calculators available on militarypay.defense.gov. For most folks in the window to retire, the High-3 plan will apply where you receive the average of your highest 3 years of base pay on active duty (usually your last 3 years).
You plug in your retirement year (or estimate) years of service, grade, and then estimate inflation and pay raises plus your tax rate after retirement to generate a fairly lengthy output. There are several graphs of how much your retirement amounts will increase over time and such, but the most important chart is at the very bottom and it is labeled Summary Results Table. This chart shows your your monthly and annual pay before and after taxes and provides an estimate of how your pay will change based on the active duty pay raises you selected.
So now you can calculate what your pension will look like with various scenarios on inflation, cost of living increases and tax scenarios. Some states either don’t have a state income tax or exempt military pensions and these facts are important to consider when you are picking your retirement location.
In this scenario, the pension isn’t enough for an average family to live on without some pretty severe belt tightening, but it provides a nice supplement to either a second career income or to offset the amount of retirement savings or other income producing investments (such as real estate) you have to draw from upon retirement.
The best characteristic of the military pension is that it represents a government backed annuity with guaranteed cost of living increases.
Next post we will punch some numbers on example retirements.This entry was posted in Retirement Stuff by Rich