When I was in the military, I didn’t spend too much time thinking about the lifetime value of retirement benefits. A few of us talked about investing in mutual funds, but the reality is that we spent most of our money as quickly as we earned it and very few of us stayed in until full retirement. Looking back now, that was a big mistake on our part since the value of a military retirement can be worth millions of dollars!
There are a couple of aspects to consider when placing a value on military retirement benefits. First is the amount of money received as part of your direct pension each month. Second is the value of additional supplemental benefits, such as medical and dental coverage, commissary and base exchange shopping access, and use of other on-base facilities. Although the combination of these two are easily worth millions, for simplicity I’ll only focus on the direct monthly payment.
How Much is Military Retirement Pay Worth?
The financial value of military retirement pay is dependent upon multiple factors, including whether you were enlisted or officer, your rank, and the number of years service at retirement. For our example, we’ll play it conservatively and assume a typical career with retirement after 20 years.
Given this assumption, it is safe to assume an enlisted service member would retire at the rank of E-7, while an officer would retire at the rank of O-5.
Monthly and Annual Military Retirement Pay Examples
We can utilize the military pay tables found at the DFAS website to determine the current pay. For 2016, the base pay is the following:
Monthly Base Pay:
E-7 monthly: $4,472.70
O-5 monthly: $8,617.20
Annual Base Pay:
E-7 annually: $53,672.40
O-5 annually: $103,406.40
After 20 years of service, most service members will retire with 50% of their base pay. For our example, that would equal the following amounts:
E-7 annual retirement received: $26,836.20
O-5 annual retirement received: $51,703.20
Remember, these are simple and conservative estimates used to give you an idea of the lifetime value of military retirement benefits. In reality, you’ll receive an additional 2.5% of your pay for each additional year served beyond 20 years (up to 75% of base pay). Additionally, this example does not take into account cost of living allowance increases.
If you enter the military at 20 years old and retire after 20 years of service, you’ve just hit the jackpot! Try to find another career where you can retire at the age of 40 with a guaranteed pension for the rest of your life.
The average American lives until the age of 78. With retirement beginning at 40, this gives you 38 years of retirement benefits. For our example, the lifetime value is:
E-7 Retirement Pay for 38 Years
O-5 Retirement Pay for 38 Years
Expanded Military Retirement Pay Tables
But what if you have more than 20 years of military service or a different life expectancy? Use the following tables to get an idea of what the lifetime military retirement pay would be. Find the number of years you would expect to receive payment in the left column, and then go to the right until you find your total years of service. This intersection shows the lifetime retirement amount you could expect to receive.
Again, this is simplified and doesn’t take into account COLA, taxes, or other adjustments. But it should give you a rough estimate. It should also help show how beneficial it is to join the military as an officer instead of an enlisted service member!
The Bottom Line
The bottom line is that your service was worth it, and retirement after 20 years is definitely worth it. Receiving 50% of your pay may not sound like a lot when you’re fresh out of boot camp (and, let’s be honest, it isn’t at that point in your career). But that guaranteed cash flow deposited into your bank account each month adds up quickly. Over the course of your life, your military retirement is worth millions of dollars.