Carrying forward with our conversation regarding how much money is the Military Retirement worth. Some people will say there is no way my retirement for an E7 is worth millions. Well, much like the stock market, how much your retirement is worth changes all the time. Look at bonds. If you purchased a 5 year bond for $1,000 giving you 3% per year, and the next day interest rates for that 5 year bonds goes to 10%. Your bond would lose a lot of value maybe in half. Meaning your $1,000 bond might only be worth $500 (if you tried to sell it). At maturity of course your bond would still be worth the $1,000.
This was a real issue when working at Fidelity. People are used to buying a CD and not seeing the CD value change with interest rates. The value has changed, but the banks buffered this change with payment penalties. Your retirement money and your $22,200 per year could technically be worth $2,220,000 in today’s interest rates. If rates goes to 10% then your annuity is really worth only $22,200/.1 = $222,000. Regardless of how much your retirement money is worth, you do not have access to it. It is a fixed amount with COLA increases.
Many other great benefits to retiring in the military exist. You have base access to go bowling, watch movies, grocery shop, and purchase gas at highly competitive rates. You have access to repair garages and healthcare to name a few areas. How much is all this worth? I would say at least $10,000 extra per year.
There is another blog that talks about this…
As military member you still pay into social security. If the time comes that you can tap into this income, you could receive an extra 10-20k per year. How much is this worth? Again, it depends on how much current fixed rates are going for. In this low interest environment $10k per year is worth around $1,000,000 @ 1% interest rates (less taxes).
This is why it is critical to have the skills of calculating percentages. When I was working at Fidelity I had someone call me wanting some information about their account. I noticed that they had a little over $1,000,000 sitting in what Fidelity calls your core account. This is where money is parked until it goes into an investment such as CD, bonds, mutual funds, options, or stocks. The core account that he had his money in was called FCASH and was earning the customer 0.1%. This means he was earning $1,000 per year and being taxed on this $1,000. I offered to change his core account from FCASH to a tax free money market that was earning 1.24% at the time. The customer would have received $12,400 tax free for the year. That is 12 times or 1240% greater return on their investment. The customer said, no thanks and hung up.
Folks the goal of an investment account is to make money, and I was offering a risk free way to make more money for the customer. The customer said no. I obviously didn’t explain myself very well, but hey in the end it’s your money, and you are free to do whatever you want with it even if it means making a lot less.