How Much Do I Need to Make After Military Retirement?

By Joseph Brown, PhD, CFP®, MQFP®

One of the most common questions I hear from service members considering retirement is, "How much do I need to make to provide the same lifestyle for my family?" It's a crucial question, and the answer isn't always straightforward. Let's walk through the process of calculating your break-even point after military retirement.

Step 1: Determine Your Current Income

First, you need to know how much you're making now. This isn't just your base pay - it's your total Regular Military Compensation (RMC). The RMC includes:

Basic Pay
Basic Allowance for Housing (BAH)
Basic Allowance for Subsistence (BAS)
Tax Advantage (the amount of taxes you don't pay on allowances)

To calculate your RMC, use the DOD's RMC Calculator¹.

Step 2: Calculate Your Retirement Pay

Next, estimate how much you'll receive in retirement pay. This depends on your years of service and your retirement system (High-3 or BRS). Use the DOD's retirement calculator² to get an accurate estimate.

Step 3: Account for Increased Expenses

Retirement often comes with some increased expenses. Here are six common ones to consider:

Life Insurance: SGLI will end, so you'll need to budget for VGLI or commercial life insurance.
Vision Insurance: No longer covered beyond annual exams.
Dental Insurance: You'll need to pay for a separate plan.
Tricare Enrollment Fees and Copays: These increase for retirees.
State and Property Taxes: These may change if you move after retirement.
Survivor Benefit Plan (SBP): If you opt for this, it's 6.5% of your covered retirement pay.

Step 4: Factor in VA Disability Pay

If you're eligible for VA disability pay, this can significantly offset your expenses. Remember, this isn't guaranteed and can take some time to start.

Step 5: Calculate Your Pay Gap

Now, let's put it all together. We'll use an example scenario (with 2024 numbers):

O-6 retiring after 26 years of active duty, married with 2 children under 18, stationed at Base Cape Cod (zip 02542), current age 45.

Category	Monthly Amount
Current RMC	$20,724.57
Retirement Pay (without payroll taxes)	$8,290.08
Retirement Pay (with payroll taxes added in)	$8,976.81
New Expenses in Retirement	$1127.29
Current Difference (before VA disability)	-$12,875.05

New Expenses Breakdown:

Expense	Monthly Amount
VGLI ($500,000 coverage)	$70.00
FEDVIP Dental (High plan)	$171.25
FEDVIP Vision (Standard plan)	$36.68
Survivor Benefit Plan	$583.86
Tricare Prime Retired	$60.50
Tricare Copays	$250.00
Total	$1,127.29

Step 6: Consider Your Bridge Fund

Remember, there will likely be a gap between your last Active-Duty paycheck and when your retirement and VA disability pay kick in. You'll need a bridge fund to cover this period. Calculate this by estimating your expenses for 2-3 months after retirement and subtracting any income you expect during this time.

Putting It All Together

In our example scenario, before considering VA disability pay, you would be looking at a yearly pay gap of about $154,500.54 ($12,875.05 * 12). This means you would need a job that pays about $155,000 before taxes to break even.

Anything above $155,000 would represent an increase in pay after your retirement.
Anything below $155,000 would represent a decrease in pay.

However, if you qualify for VA disability, this can significantly change the calculation:

VA Disability	Monthly Amount	New Monthly Difference	New Yearly Break-Even
50% with spouse & 2 Children	$1,306.16	-$11,033.54	$132,424.60

With a 50% VA disability rating with a spouse, your new break-even point would be about $132,000 per year before taxes (rounded to the nearest thousand).

Remember, this is just a starting point. Your actual needs may vary based on your specific situation, goals, and lifestyle choices. It's always a good idea to work with a financial advisor who specializes in military transitions to ensure you're considering all aspects of your financial picture.

Military Finances are Different

As an Active or Retired Senior Military Officer or NCO, your financial situation is unique. From understanding the intricacies of military retirement pay to navigating VA disability benefits and the Survivor Benefit Plan, your financial landscape requires specialized knowledge. That's why it's crucial to work with financial advisors who understand the nuances of military benefits and can help you navigate this significant life transition.

Ready to create a personalized plan for your military retirement? We're here to help you navigate these important decisions. Use the button below to schedule a free initial consultation and take the first step towards a secure financial future after your military service.

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