Discover your Retirement Pay
If you’re unsure how much your retirement pay will be in the military, you’re in luck! The Department of Defense created a website with a military retirement calculator to help servicemembers determine their monthly income. If you’re like me, I am always wondering if I will have enough. My mind playing with the numbers – should I increase my Thrift Savings Program (TSP) contributions?
Luckily, I don’t need to calculate the variables in my head anymore. The website tool does it for me and offers some robust features. One thing to note, the military retirement calculator doesn’t account for investments outside the TSP, such as Roth IRAs or taxable accounts.
I am going to walk you through the website tool using the High-3 calculator, which is identical to the Blended Retirement System (BRS) except for the final calculations. Let’s get started!
Military Retirement Calculator
The military retirement calculator link is found here. For this example, I will use a Navy Chief Petty Officer (E-7) who plans to retire in the next eight years, for a total of 24 years of service. His goal is to pickup Senior Chief (E-8) at the 20 year mark, from which he will start getting paid at the 21 year mark.
1. Active or Reserve
After clicking the link for the High-3 Calculator, the first window asks you if you’re “active component” or “reserve component.” Additionally, do you plan to separate or retire as active duty or reservist. Since the Chief Petty Officer is active duty and plans to retire while active duty, we will select active component.
2. Personal Information
The personal information section requires a few important inputs. Our Chief was born March 1986 and reported to Navy boot camp in July 2004 at the age of 18. His current paygrade is E-7 and he plans to retire exactly 24 years later.
3. Retirement Information
Next, we need to fill out the retirement information section. Life expectancy – how long will you live, think you will live, or plan to live? It seems morbid, but something you must consider. Next, is when do you plan to withdraw? You can withdraw as early as 59 1/2, but dipping into your money early will mean less for later. For the Chief, I selected he will live until 85 and start withdrawing at the age of 67.
How much do you plan to contribute each month to your TSP? Often this number fluctuates as you make rank, but remember, we want an overarching view of your military retirement. You can get more precise with additional calculators or from your financial advisor. Also, as you get closer to retirement, you’ll be reviewing your numbers more closely. This Chief was a stalwart investor and contributed 20%.
Now, select your TSP rate of return. On average, the S&P 500 has a 10% return, but 7% is a more realistic approach. Also, if your TSP investment is in one of the Lifecycle Funds, the returns will be more conservative closer to retirement. Next, what will be your rate of return when you start withdrawing? In most cases, individuals will move their money to the G Fund, which equates to low returns but low risk. When you start withdrawing, it would be devastating to have the market crash. Smooth and steady is the preferred course of action.
Lastly, what is your current TSP account balance. For the Chief, I selected $100k. I highly recommend logging into your TSP account and finding the exact number – this is the one input you don’t need to “guess” on.
4. Career Progression
We now look at career progression. As I stated before, Chief plans to pick-up Senior Chief at 20 years of service, which will see him receive E-8 pay at his 21 year mark. The career progression table allows you to adjust the rank for each year so you can play with different assumptions.
Once all your inputs have been selected, the military retirement calculator computes your results. First you will see the overview – a nice bar graph depicting your basic pay, TSP, and high-3 pension. You will see the different stages that pays overlap depending on your inputs from the retirement information section.
The next tab “TSP Summary” depicts a bar graph of your TSP account total, contributions, and withdrawals. In Chief’s case his TSP peaks at 2052 because by 2053, he starts withdrawing.
The last tab, “All Payments,” breaks out all the payments that Chief will receive from his inputs. His last basic pay paycheck will be received in 2028 when he retires, whereupon he starts receiving his pension. He lives solely off his pension until 2053 when he starts withdrawing from his TSP account. The right hand column totals all monies received for that particular year.
The military compensation calculator is a great resource for servicemembers and their families. Remember, this calculator doesn’t calculate social security or any other investments, such as a Roth IRA you might be receiving in retirement. Lastly, don’t let retirement scare you from retiring. Calculating your pension and TSP payout has never been easier. Rah.