I am now 120 days away from starting my permissive TDY as I leave the Army after nearly 21 years. Since the start of the new year, I’ve been hitting the job market trying to find my next employer. Part of that process is figuring out how much money I need to make.
When it comes to my post military salary, there’s two things to keep in mind. First, my retirement pay along with disability that I will hopefully get from the VA. Secondly, my salary and benefits that I get from my next employer. My goal is to not touch my retirement/disability pay and instead to put it all into savings. That means I essentially need to make the same amount of money tomorrow that I do today.
But there’s something really important to keep in mind when figuring out a salary that allows that to happen….I’m about to have to pay a lot more taxes then I do today.
Lets do a hypothetical. Lets say I currently make about $73,000 for my base pay and then another $24,000 in BAH/BAS for a total of about $100,000. The trick is, only the $73k is taxable. On top of that, I am currently a Texas resident which means that I don’t pay any state taxes. That gives me a take home after taxes and everything of about $78,000 which isn’t to shabby.
Once I retire, two things change. First I am now having to pay taxes on all of my income, and second I have to start paying Maryland state taxes. If I am able to take that same $100k that I make to day, and turn it all into salary, that entire amount is now taxable. That puts my take home pay at about $63,000 for a deficit of about $15,000 from my current take home. That also doesn’t take into consideration any medical insurance payments I need to make, 401K, etc.
To figure out what I needed to make, I made a calculator. I won’t explain all the math (basically I and to work from a final take home amount back to a base salary amount that took into account taxes) but it figures out what base salary I need to make to maintain the same take home salary that I have. Turns out that in order to maintain the same $78k of take home based on $120k in pay/allowances that I have today, I need to make right about $124,000. That again doesn’t take into account medical or 401K.
The Calculator
I’ve attached the calculator that I came up with for anyone to use. The excel file is really two different calculators. The first tab, Retirement Pay Summary is used to figure out what your retirement pay and disability pay will be. The 9 yellow boxes are all that you need to adjust to figure out what you will be making. The calculator figures out your high 3 average, determines your retirement based on your time in service, figures out the amount of disability you will get and adjusts both of those numbers for taxes to give you a final monthly total. As time passes, the only thing that needs to be updated is to add the new yearly pay table as it comes out. Just create a new tab (probably easiest to copy an existing pay table tab), name it “<Year> Pay Chart” and fill it out completely. The spreadsheet does the rest.
When it comes to figuring out your salary requirements, you’ll want to use the Salary Calculator tab. Again, fill in the yellow boxes with the correct information. Make sure you enter the correct state tax rates for before and after retirement. If you are going to contribute to a 401K or pre-tax medical insurance, fill in those boxes too. In the salary area, fill your current monthly amounts. After that, the calculator does the rest. The final column (Playground) lets you enter your own customizable salary amount to see what the math comes out to.
Both of these calculators are for planning purposes only and are only estimates. I have tested them as best as I can and the math is done as I understand it works. If I messed something up, please let me know. You’re welcome to modify the calculators anyway you like (there is not password to unlock the spreadsheets), I just ask that you give me credit if you distribute it.
Great post, Chief. You thought of all the hidden parts of compensation I didn’t!
I have a similar spreadsheet I developed for myself (yours does not work to enlisted ranks). I started my retirement planning as soon as I reenlisted “indef” at 15 YOS. I developed multiple scenarios based on possible promotions and years of service plans. As my future became more certain I took the most correct plan and refined it. Financial planning and future employment planning are key to a successful transition. Thanks for sharing.
Thanks for pointing out the enlisted….I fixed it.
I’m assuming you figured in that you will no longer receive a housing allowance?
yep
Great post and calc. I would add military benefits like 30 days leave and sick leave. Hard to put in a calculator. But if you are used to your 30 days get ready for 15-20 days PTO. If your new employer allows it and you want unpaid time off might want to add a few thousand into the math.
A few other things to consider:
1. Depending on when in the calendar year you retire you may really need to think about your tax withholding choices at the post retirement job. My first tax year post retirement I ended up writing a sizable check to the IRS because I carried the same w4 withholding from active duty to the civilian job, not a good idea when you have more taxable income.
2. Depending on your benefit package think about and take full advantage all the ways you may be able to save on taxes from the civilian job while saving. What I mean by that is max out your pre-tax 401k contributions so you get the company match if there is one and max out pre-tax HSA contributions. These may reduce your take home but they save you in taxes in the long run. If you need to live off of some of your disability money do so, in the end you’re making money do it this way.
That’s my street corner advise from a retiree of 2 years.