However, most of today’s servicemembers are under the rules for the legacy High Three pension. By the time you reach age 62 for the COLA reset, you’ve lagged the High Three COLA by at least 20%. So, if you retire early in the year like January – March, you’ll get the benefit of the new military pay chart PLUS the almost all of the COLA that same year in December. The Military Guide to Financial Independence and Retirement. If your new January pay table is 1% higher, then you’ll have to stay alive for roughly 100 months (less than 8.5 years) to make up for that month of missing pay. This is to preclude the advantage of receiving a retirement based on both a new pay raise and full COLA in the first year of retirement. Briefly, that pension starts by calculating the average of the highest 36 months (“high three years”) of pay. Filed Under: Blended Retirement System, Guard & Reserve Retirement, Military Pay, Military Retirement. Veterans who retire during the current calendar year will receive a temporary partial COLA due to already receiving a military pay raise in January. In addition, the pay base of a High Three pension is the average of the highest 36 months of pay, and a military pay raise during the last year of service does not have a significant effect on that average. And if I did my math correctly, the advantage of January 1, 2018 over December 31, 2017 was 2%. (It’s released late each year before the FMR update is added to Volume 7B.) It might seem like a large leap of faith to start a military retirement with a $1500/month pension and a $1000/month fixed-rate mortgage payment. Servicemembers all know “someone” (a shipmate, or a spouse of a friend of a spouse) who did the math for their particular pension rules. (Thanks to CPA Mike Piper at Oblivious Investor for sharing a sentence with only a few three-syllable words.) No. This section of the post does not apply to you. Let’s not get into how the BLS gathers that data and analyzes it. Which is why the two far larger issues for the military retiree and their overall FI, quality of life will be cost share as applies to working age military retirees with Tricare and the over all health of that program. Financially, you’ll get the biggest pension boost from retiring on 1 March of your chosen year. How have I not heard about this yet? Thus, retirement pay COLAs and annual active duty pay raises will differ as active duty pay raises will differ. COLA. It’s the same COLA calculation used by Social Security. I am not complaining, considering in that time span 3 years had no COLA. In the event of a decrease in the CPI, the COLA will not be negative, but will be zero. Disclaimer: This is a privately owned website and is not affiliated with the U.S. government, Department of Defense, Department of Veterans Affairs, or any other government agency. It’s hard to parse the verbiage, but for High Three (no CSB or REDUX) it’s: “… equal to the difference between the percent by which—, (1) the price index for the base quarter of that year, exceeds, (2) the price index for the calendar quarter immediately before the calendar quarter during which the member became entitled to retired pay.”. Start your pension as soon as you can. They still use them today.) The question was asked on the Facebook group “Military Spouse Retirement Information”: “Is there a date that is better to retire on than any other day of the year? However, 15 years later that pension has grown by over 30% (to at least $2000/month) while the mortgage payment is still $1000/month. The first COLA after starting a military pension is generally pro-rated by the quarter of the year in which the retirement occurred. My COLA story, 2008: final high 3 $4225 2018: $ 5,015, 19%. Two months of pension and a 1% pay raise? I realize that the military’s Blended Retirement System is advertised as the biggest overhaul of the pension in many years. Projections are based on current retirement plans, average military pay increases and average COLA rates. (It’s released late each year before the FMR update is added to Volume 7B.) A very few servicemembers are under an even older retirement system known as Final Pay. Social Security benefits will be effective beginning with December 2020 benefits, which are payable in January 2021. (That other COLA is set by a separate part of the Department of Defense, and that information is linked at the bottom of this post.) Over the last 35 years, the military has started its pay raises on 1 January. The 2021 COLA (Cost-of-Living Adjustments) increase is 1.3% as announced by the Social Security Administration. We’re trying to share what we’ve learned and to pay it forward – but you have to make your own decisions. The actual COLA calculation is set by federal law. Also where you live. While a many were hoping for a much higher increase in 2021 this is positive news that there will be any increase given earlier projections of no increase at all. It follows that the later in the year you wait to retire, you’re losing out on COLA at the end of that first year. Caution for Reserve/Guard servicemembers with a DIEMS date after 7 September 1980: you’re under High Three or BRS. Inflation also affects mortgage payments. So if i understand correctly, it comes in December, and you get a prorated amount that first year, depending on how long you were retired that year. your Cost Of Living Allowance, can find the COLA calculator here. [September 2020 update:  We have a new answer on this question! Make sure you’re contributing at least 5% to your Thrift Savings Plan for the full DoD BRS matching contributions. You got the 2.4% military pay raise, but in December, only got 2.4% COLA as opposed to the full 2.8% had you retired in 2017. (It could start a little earlier for combat deployments after January 2008, but I digress.) Now that you’ve seen the effect of the military retiree COLA, consider the devastating effects of its evil twin: inflation. At the end of September, the Department of Labor’s Bureau of Labor Statistics has enough data to tell us what next year’s COLA will be. That pension is based on, um, your final base pay. We're sharing what we've learned and paying it forward – but you have to make your own decisions. Even real estate “only” appreciates at about the rate of inflation, although you can leverage that growth with a mortgage. The first partial COLA under the Disability retirement plan is the same as for the Final Pay retirement plan. Meanwhile the investments grow faster than inflation while the fixed mortgage payment is declining in value with that same inflation. One more piece of information to tuck away for later. 10 Veterans Benefits You May Not Know About, Veterans Employment and Training Service (VETS), Security Clearance Jobs After the Military, Military Spouse Career Advancement Accounts (MyCAA), Monthly Housing Allowance (MHA) for the GI Bill, Veterans ID on Driver’s License or ID Card by State, Parents’ Dependency and Indemnity Compensation (DIC) Tables, Social Security Disability Insurance (SSDI). But if you were able to tweak your retirement timing to retire on 1 January, then your pension was based on the new year’s pay tables– and those pay tables were usually higher. The COLA calculation is explained in more gory detail in the obscure Financial Management Regulation (DoD 7000.14-R) Volume 7B page 8-36, article 080513.A.2. The payment is fixed at the same dollar amount yet its value has been greatly reduced by inflation. If you would like to find more information about benefits offered by Veteran Affairs, visit the official site for veterans benefits at Veterans Affairs. My spouse (a Reserve Final Pay retiree) was born late in the year. My pension COLAs from 2002-2017 have compounded to nearly 38%. While you don’t know what the real numbers will be until after the fact, you can play the historical trends when deciding to retire. The military servicemen’s pay would be computed by 2.5% x 23.5 years = 58.75% 58.75% x $6,068.70 So, February 1, 2019 active duty rate for an E-9 with over 23 … Here’s the link to download a PDF of the research paper: “The COLA Trap: Picking the Wrong Retirement Date Could Cost You Thousands” by Douglas Fowler. Please tell your friends you read it here. All military retirements are protected from inflation by an annual Cost of Living Adjustment (COLA), based on changes in the Consumer Price Index (CPI) as measured by the Department of … The first COLA adjustment after retirement is calculated under a formula different than that above, if the member retires between January 1st and September 31st. Well, you only need to survive a little past age 64 to win that math. GI Bill® is a registered trademark of the U.S. Department of Veterans Affairs (VA). eligible to opt in to the Blended Retirement System, contributing at least 5% to your Thrift Savings Plan for the full DoD BRS matching contributions, The Reserve/National Guard pension calculation is particularly tricky. Why in the world would anyone want to delay their pension? Simply by hanging around for another month, you’d enjoy a higher pension for life. Note that the COLA for retired pay is calculated differently than the increase to active duty pay. But now you can make an informed choice.]. The Final Pay finagling continues even today among a small group of Reserve and National Guard servicemembers who have filed for “retired awaiting pay” but who have not yet started their pensions. I essentially only showed up for seven weeks of work in 2002. The Cost-of-Living-Adjustment (aka Cost-of-Living Allowance) is determined by the Bureau of Labor Statistics’ Consumer Price Index (CPI-W).


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