First Premier Bank's Guide to How Much Your Military Pension Is Worth

How much is my military pension worth as a lump sum?

Divide your yearly retired pay by 0.04, which is the same as multiplying by 25. A $3,000 monthly check is $36K a year, and $36K ÷ 0.04 = $900K. That's a planning shortcut, not a buy-out price: a High-3 retiree can't sell the pension to anyone.

DFAS reports retired pay on a 1099-R, and the IRS taxes it as ordinary income. That makes the $900K a pre-tax number. At an assumed 20% combined rate, for illustration, $36K nets $28,800, and $28,800 ÷ 0.04 = $720K. Call that the Roth-equivalent value. Neither figure saves you a dollar of tax; they just put the pension and the TSP in the same units so you can compare them. How much of the 1099-R amount is actually taxable is covered in our article on whether military retirement pay is taxable.

Run the number if the pension will cover a quarter or more of your retirement spending. Below that, the TSP mix is mostly an ordinary portfolio question.

The shortcut has limits. It skips the SBP premium, the chance of dying without SBP coverage, VA waivers and changes in tax rates. And it doesn't apply to TSP money you'll need within a few years, or to a household without an emergency fund and steady second-career income.

The 25-times shortcut

Pre-tax versus Roth-equivalent

What does a $3,000 monthly estimate do to our TSP mix?

A $3,000 monthly pension acts like $900K of bonds, so a $420K TSP can usually hold more stock than the usual retirement rule suggests. In Andre and Miriam's case the pension is 68% of their retirement assets before the TSP mix is even chosen.

Hypothetical: Andre and Miriam open the retired pay estimate from Andre's retirement counselor, which shows about $3,000 a month at 20 years under High-3. Andre is a Marine gunnery sergeant, 39, six months from retiring; Miriam is a dental hygienist, 37; they have 3 kids and rent near base. That's $36K a year, and $36K ÷ 0.04 = $900K of pre-tax portfolio value. Add his $420K TSP and the total is $1.32M. The pension is $900K ÷ $1.32M, or 68%.

If the TSP sat at 60/40, stocks would be $252K, just 19% of the whole. Even with all $420K in stock funds, stocks reach only 32%. Our calculator repeats these steps with your own estimate and balance.

Changing funds inside the TSP is an interfund transfer. It isn't a taxable event and produces no 1099-R, so re-mixing costs nothing in tax. Only 2 transfers a month can move money freely, and the TSP applies one fund mix to both the traditional and the Roth balance, so you can't hold bonds in one and stock in the other. Asset location has to happen across accounts, like Miriam's 401(k), not inside the TSP.

Before First Premier Bank suggests a TSP fund change, it writes down the net retired pay after the DD 2656 choice, because the SBP premium comes off the top. The SBP election is due first, so it gets decided first. A separate page covers the Survivor Benefit Plan.

Doubling up on safety catches careful couples. They move a $420K TSP into a bond-heavy mix at retirement while the pension already acts like $900K of bonds. Assuming 3% a year versus 6% a year, for illustration, 20 years leaves about $759K versus $1.35M, a gap of about $588K. Stock funds can lose value, including money you put in, and the pension doesn't remove that risk.

The arithmetic behind the 68%

What the switch costs in tax

What do I gather and ask before I act, and in what order?

Gather six papers: the retired pay estimate, Andre's LES from myPay, the DD 2656, the latest TSP statement, last year's 1040 and Miriam's 401(k) statement. Then settle the SBP election before touching the TSP mix, because the SBP premium changes the net pay you divide by 0.04.

Ask the counselor which 36 months and what base pay make up the High-3. One answer should worry you: an estimate built on current base pay instead of the 36-month average, which overstates the pension. Also ask the TSP to confirm whether any loan or partial withdrawal is pending before you change funds.

Three timing errors come up. Re-mixing before the SBP election is final and the first retired pay deposit arrives is too early. Leaving an L Fund set for a near-term date for years is too late. Picking a stock share before netting the SBP premium and federal withholding is the wrong order.

Papers to pull

Questions and timing

• Retired pay estimate: from the retirement counselor or the DoD calculator.
• Last 36 months of base pay: the LES in myPay.
• TSP statement: shows the traditional and Roth split, at tsp.gov.
• Latest Form 1040: from your own tax records, so you know your real rate.
• DD 2656 draft: the SBP choice, from the retirement counselor.
• Miriam's 401(k) statement: from her employer's plan.

Did anything change since my first retirement briefing?

Yes, three things. RMDs now start at 73, or at 75 for anyone born in 1960 or later, so Andre's traditional TSP can grow untouched longer than older briefings assumed. The TSP now allows multiple partial withdrawals after separation. The BRS lump-sum option exists only under BRS, so a High-3 member like Andre never gets a buy-out quote.

Plans written under the old age-70½ or one-withdrawal rules often hold more bonds and cash than they need.

Who raises this first at our house?

The spouse who isn't in uniform usually spots it first. Miriam reads the TSP statement and asks why it sits in a conservative L Fund when a pension is coming. Sit down together with the estimate letter, divide it by 0.04, and write the result next to the TSP balance before you talk about funds.

Seeing $900K beside $420K settles most of the argument before it starts. Our article on the Blended Retirement System versus High-3 covers how the two pension formulas differ.

Which part can I run myself, and which part goes to First Premier Bank?

Tonight you can divide your retired pay by 0.04 and set the result beside your TSP balance. First Premier Bank is worth talking to about three pieces: the after-tax value at your real rate, the net pay after SBP, and how a new employer's 401(k) fits the mix. A TSP rollover is a separate decision, and it has a deadline of its own.