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50 Percent for 20 Years? Not Hardly…

October 5, 2014

I’d mentioned back a few weeks ago that I needed to dispel the myth that somebody who serves in the US Military for 20 years earns a 50% pension.

First, managing expectations…I acknowledge and understand that those who serve for 20 years and do receive a pension for the rest of their life are blessed.  So few folks have a pension for life after retiring, thanks to the shenanigans of Corporate and Municipal America and discharging pension obligations through bankruptcies and other accounting maneuvers.  It is appreciated and remains a big pull for people to join and stay in the military.

And also, I speak only for myself.  This does not necessary reflect the views or policy of my previous employer.  I’m retired and I’m almost allowed to speak my mind.

But 50% for 20 years?  Puh-leeeease.

Compensation that soldiers, sailors, airmen, and Marines receive is a complicated.  But here are the basics that will illustrate my points:

Basic Pay:  Every member of the military receives what is called Basic Pay.  Basic pay is based on your earned rank and the number of years that you have served.  There is a chart available from dfas.mil that shows what each years served/rank combination is.  It is taxable.

Basic Allowance for Subsistence:  Every member of the military receives an allowance for food, called a Basic Allowance for Subsistence.  It is meager, especially given the number of calories our youngest members burn while training.  Enlisted members get $357.55 per month.  Officers receive less.  It is not taxed.

Basic Allowance for Housing:  Every member of the military stationed in the Lower 48 receives an allowance for housing based on where they live, called Basic Allowance for Housing (personnel overseas receive Overseas Housing Allowance which is similar but not the same).  Unlike civilian jobs, military members have no true say in where they are going to go next.  As such, the one primary (and nearly lone) adjustment military members have to adjust for the cost of living in location is through this allowance for housing.  The rate is based calculations of fair market value of housing, on rank (higher the rank, the bigger the housing), and on marital status (instituted upon congressional mandate after some ugly press during the Nixon, Ford, and Carter administrations–this is being re-evaluated again).  It is not taxed, either.

So for most, the paycheck consists of those three components.  Other special pays can be added based on what seems like a plethora of different circumstances.  But to keep things simple, we will keep things to these three.  Any extra money after that point amplifies my point.

So, let’s take a theoretic E-6, retiring after exactly 20 years of service this coming January 1st (this keeps the math simpler).  She lives in Wichita Falls, Texas (a very low cost of living area) and is married.  She was promoted to E-6 six years ago.  Her gross pay (before taxes) was $5,232.55.  Very fair compensation for an experienced individual in our Armed Forces, likely fulfilling a role as an advanced technician or middle manager.  But if you listen to the pundits, her retirement pay is 50% of her old paycheck: $2,616.27 a month or about $31,400 per year.  And (in the opinion of the pundits) she’s living large.

But as a famous sportscaster said (repeatedly), “Not so fast my friend.”

Retirement pay for today’s military members is based on the average of the highest 36 months of basic pay (usually the last 36 months on active duty).  No other allowances play into the equation and military members cannot take a lump sum payout of vacation days to boost that average.

For this theoretic E-6, the average of her last 36 months is actually $3,625.80 based on pay charts from 2012-2014.  Take 50% of that number and before taxes her actual retirement pay is $1,812.90 (give or take a few pennies) or about 34.6% of her gross pay.  Not quite 50%, eh?

If this E-6 had lived in Tacoma, Washington instead of Wichita Falls, Texas, her gross pay prior to retiring would have been $6,099.55, meaning that her retirement income would be 29.7% of her prior gross pay.  Tacoma is far from the most expensive housing market in the country where we have large numbers of military members stationed (think Washington, DC).

For another perspective, that E-6 retirement pay on an annualized basis ($21,754.80) is less than the federal poverty level for a family of 4 ($23,850 – source: Department of Health and Human Services).  Seems like the folks working fast food are using that argument to death regarding why minimum wage is not good enough.

Each year after 20 years yields another 2.5% (21 years is 52.5% of the average of the last 36 months, 22 years is 55%, and so on).  The bulk of military members retire between the ranks of E-6 and E-7.  Most retire at around 20-22 years.

So a retired E-6 with no other income but their retirement income but with a couple of kids and a spouse who didn’t work would qualify for any number of additional federal and state programs to boost their meager income.  And this seems like too much to pay those who have defended our country?  Not hardly.

The author of this piece is a retired E-8 who served 22.5 years on active duty.  The views expressed are his and his alone.  They do not necessarily reflect the Department of Defense.  In fact, it’s pretty safe to say that they absolutely do not reflect the views of the Department of Defense.

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