4% Rule with Military Retirement

One of the benefits of serving in the U.S. Armed Forces is the military retirement compensation that service members have the opportunity to achieve after a minimum of 20 years of service. Depending on when someone enlisted, their pay grade, and the amount of years they served would determine the amount a retiree would receive on a monthly basis for the rest of their life.

Currently for active service member there are two retirement plans that are available. These retirement plans are called the High-3 and the BRS. The BRS, Blended Retirement System, went into effect in 2018. Service members that entered the service in and after January 1st 2018 had the opportunity to stay on the High-3 retirement plan of switch to the BRS. Service members that joined after 2018, are entered the BRS retirement plan. Once entered into the BRS, High-3 is no longer an option. Members that remained on the High-3 were unable to switch into the BRS after December 31st of 2018.

Calculating the High-3 and the BRS retirement is simple.

To calculate for the High-3, take the basic pay of the last 36 months of service and add them up. Divide the total number by 36 to get the average pay of the last three years. Multiply the multiplier number 2.5% by the amount of years served, minimum of 20.

Example: An E-6 with 20 years of service that enlisted January 1st of 1999. 

(3,797.70*12) +(3944.10*12) +(3990.00*12)

          45,572.40+47,329.20+47,880.00

                         140,781.60/36

                            $3910.60 Average Base Pay

        20*2.5%

           50% Multiplier

                                             $3910.60*50%=

                                                 $1,955.30 a Month

                                                 $23,463.60 a Year

To calculate for the BRS, take the basic pay of the last 36 months of service and add them up. Divide the total number by 36 to get the average pay of the last three years. Multiply the multiplier number 2.0% by the amount of years served, minimum of 20.

Example: An E-6 with 20 years of service that enlisted January 1st of 1999.

(3,797.70*12) +(3944.10*12) +(3990.00*12)

          45,572.40+47,329.20+47,880.00

                         140,781.60/36

                            $3910.60 Average Base Pay

        20*2.0%

           40% Multiplier

                                             $3910.60*40%=

                                                 $1,564.24 a Month

                                                 $18,770.88 a Year

Before anyone says anything, I know that the E-6 in this example for the BRS was not eligible to opt-in to the BRS, this is being done for comparison only.

This is the fun part, the 4% Rule when it comes to withdrawing for retirement. Assume that you were this service member who retired in the minimum pay grade and the minimum amount of years required to retire. If you follow the 4% Rule, you'll understand to calculate a withdrawal amount for a year, you will need your total investment multiplied by 4 percent to get a certain amount that is workable to sustain you for the rest of your life. If you had a certain number that is required for you to sustain your lifestyle in a year, you would multiply that by 25 to set a goal that would allow you to withdraw a 4% income.

As for the member who is now retired under the High-3, receiving $23,463.60 a year is the equivalent as having $586,590 in investments that will never be depleted.

For the member who is now retired under the BRS, receiving $18,770.88 a year is the equivalent as having $469,272 in investments that will never deplete.