I just saw this question the other day. I've been asked it and seen it for years. If, and this is a big if, maximizing the amount of money in your pocket is the question, it depends. Let's take a look at a couple different scenarios. To start with, I'll assume that when your retirement date is approved you don't have a job lined up or a start date. That was certainly the case for me and I think it is for most retiring Senior Military Officers and NCOs.
Closing in on Retirement with no Job Offer or Start Date
Once your retirement date is set, you will receive your full pay and allowances until that date. It doesn't matter if you're on terminal leave or working. So, if your intent is to maximize the money in your pocket, you should work until your retirement and sell back leave.
You Get a Job Offer and Start Day with Enough Time to Get Terminal Leave Approved
In this scenario you have the opportunity to double dip. You'll get full pay and allowances until your retirement date and at the same time you'll be receiving a pay check from your new employer. If you have any leave left over, sell it.
Things I've Heard
I've heard some say, "Sell your leave. You don't get BAH when you sell it back." As mentioned in the first scenario, once your retirement date is set, you'll get full pay and allowances until that date. Period. I've also heard people say to not sell back leave because you'll pay higher taxes. The reality is the withholding rate is higher for some military members than their marginal tax rate. That probably isn't the case if you're a senior officer and even if the withholding is higher than your marginal tax rate, you'll likely get it refunded when you file your taxes.
Is This Really That Important?
While there is nothing wrong with maximizing the financial benefits available to you when you retire, it might not be the most important thing. You're finishing a long and distinguished (and hard) career. Some time off might be just what the doctor ordered. Just a thought...coming from a money guy.
Military Finances are Different
I'm pretty sure that if you talked to a financial advisor that doesn't routinely deal with military members you'd get a blank stare, if you asked about selling back leave versus taking terminal. That's why we think you should work with a financial advisor or planner that works with active and retired military members every day. Give us a call or schedule a free initial consultation if you'd like to chat.
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