Breakeven Point for Staying in for Military Pension vs. Private Practice When You Have Prior Service

[LTMCUSN]

Has anyone done a detailed analysis on lifetime earnings on active duty, vs. reserves and civilian practice, vs. pure civilian practice?

I’ve done some rough math but would like to know how others have approached this. I have 5 years AD from my previous career, 2 reserve, a 5 year residency ahead of me and a 4 year payback. I think it makes sense to stay until 20, based on the lifetime value of a military pension (estimating for me $2.5-3 mil) but I’m also in a relatively high paying specialty (mean income ~ $450k). I was curious if any prior service folks had determined their “break even point” to stay in/get out, based on purely financial reasons and what variables they looked at.

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[Onefellswoop87]

Financial Implications of Military Physician Separation

Should I stay or should I go? Most military doctors ask themselves this question many times in their career. This is a financial analysis of that decision.

www.whitecoatinvestor.com

Caveats: This article is from 2012 and the author’s speciality (and therefore number crunching) is emergency medicine, which isn’t yours since you said a 5 year residency. And he didn’t have prior service. So it’s not equal comparison but it goes through some of the numbers better than I could and gives you a starting point

Also, are you the new blended or prior high-3 “20 or bust”? That potentially changes the calculations.

 

[DMBandFan86]

It might help if you say AD or reserve and how many good retirement years you will have when done with your current contract.

I have been reserve only and did 12 good years. If I stayed in 8 more years, I would get something like 1200 a month after 65 years old. My civilian pension, on the other hand, will be >13k+ per month - taxes if I stay with current company 25+ years. I also have some smaller. separate retirement plans and investments. My spouse also will have retirement. In my case, the extra 1200 per month from reserve retirement wasn’t worth it and I am on my way out. That’s plenty enough for me without the army retirement to live very comfortably. But, if you’re an orthopod you’ll probably need triple that and still won’t have enough money lol.

Hopefully that is what you are looking for. If you are doing reserves then it really shouldn’t effect your civilian income on average. My employer gave 30 days paid military leave per year, but if you don’t have that then use vacation for AT and Friday drills. Or just shoot for the minimum points per year and skip AT. Deployments or prolonged training will decrease your income temporarily. Of course, if you stay in and end up getting shot and killed then you won’t be able to personally enjoy that military retirement.

 

[DrMetal]

Has anyone done a detailed analysis on lifetime earnings on active duty, vs. reserves and civilian practice, vs. pure civilian practice?

I’ve done some rough math but would like to know how others have approached this. I have 5 years AD from my previous career, 2 reserve, a 5 year residency ahead of me and a 4 year payback. I think it makes sense to stay until 20, based on the lifetime value of a military pension (estimating for me $2.5-3 mil) but I’m also in a relatively high paying specialty (mean income ~ $450k). I was curious if any prior service folks had determined their “break even point” to stay in/get out, based on purely financial reasons and what variables they looked at.

If you're doing a 5 year military residency, then your payback should be 5 years, not 4, right? Or are you doing a civilian residency?

 

[Niwrad]

Not sure if it applies to all branches but in the AF, intern year is neutral for ADSC iirc

 

[pgg]

Has anyone done a detailed analysis on lifetime earnings on active duty, vs. reserves and civilian practice, vs. pure civilian practice?

I’ve done some rough math but would like to know how others have approached this. I have 5 years AD from my previous career, 2 reserve, a 5 year residency ahead of me and a 4 year payback. I think it makes sense to stay until 20, based on the lifetime value of a military pension (estimating for me $2.5-3 mil) but I’m also in a relatively high paying specialty (mean income ~ $450k). I was curious if any prior service folks had determined their “break even point” to stay in/get out, based on purely financial reasons and what variables they looked at.

It's complicated and there are some leaps of faith and assumptions ...

We've had threads on this before but my search abilities aren't really up to finding the better threads right now.

My post #12 in this thread more or less sums up my thoughts on the matter: Starting to question military pay < civilian pay

Short version (and it's not really that short) - if you're ONLY considering the financial break even, here's how I think you should do the math:

1) Put a dollar value on the pension, if you were to stay for 20. Several ways you can do this: you could get a quote for a single premium immediate annuity for a person your age @ military retirement, with COLA adjustments, that would pay the same as the pension; you could look at your life expectancy on the Social Security actuary table and calculate the $ value of TIPS you'd need to buy as a lump sum to duplicate the pension until you die; you could divide the annual payout of the pension by the withdrawal rate of your choice to estimate the portfolio you'd need to duplicate the pension (here you can be fairly aggressive with the % since a fair comparison isn't the usual 3-4% SWR that leaves principal behind when you die). This is extremely fuzzy and uncertain math.

2) Divide that dollar value by the # of years between your ADSO is up, and your eligibility for retirement. This figure is essentially what the military is paying you in addition to your usual pay (including the expected post-ADSO retention bonus contracts), as if it's going into a pre-tax 401(k) style account.

3) Compare the income you'd expect to earn in private practice if you got out at ADSO completion, to the military income + the virtual "401(k)" pension value. If the PP value is still higher, you might come out ahead in PP.

Caveats
1) It's unlikely the PP job will include any kind of pre-tax investment vehicle comparable to the pension value.

2) Earlier entry into PP has the potential for other benefits, like establishing a referral base sooner, opening up side businesses related to your practice (we have an ex-military ENT here who makes significant money from hearing aids his practice sells)

3) PP income may escalate substantially after a few years, depending on things like partnership, profits from ancillary ventures, a growing/improving referral base, etc

4) There's a risk of becoming "institutionalized" by the slow pace and low case volume of the military if you stay too long and don't or can't aggressively moonlight - we don't really like to talk about it, but there are some military physicians who retire and really aren't fit to work in a lean private practice. If you stay for the full duration you may not want or be able to do the kind of work and hours to really earn top PP income at that point.


Regardless - in the end you're going to be Just Fine whatever you do. I think it's important to do the financial math carefully and honestly, but there's more to life than money.

If you're not working a job you hate and you spend less than you earn, you'll be happy.

 

[Chonal Atresia]

It's complicated and there are some leaps of faith and assumptions ...

We've had threads on this before but my search abilities aren't really up to finding the better threads right now.

My post #12 in this thread more or less sums up my thoughts on the matter: Starting to question military pay < civilian pay

Short version (and it's not really that short) - if you're ONLY considering the financial break even, here's how I think you should do the math:

1) Put a dollar value on the pension, if you were to stay for 20. Several ways you can do this: you could get a quote for a single premium immediate annuity for a person your age @ military retirement, with COLA adjustments, that would pay the same as the pension; you could look at your life expectancy on the Social Security actuary table and calculate the $ value of TIPS you'd need to buy as a lump sum to duplicate the pension until you die; you could divide the annual payout of the pension by the withdrawal rate of your choice to estimate the portfolio you'd need to duplicate the pension (here you can be fairly aggressive with the % since a fair comparison isn't the usual 3-4% SWR that leaves principal behind when you die). This is extremely fuzzy and uncertain math.

2) Divide that dollar value by the # of years between your ADSO is up, and your eligibility for retirement. This figure is essentially what the military is paying you in addition to your usual pay (including the expected post-ADSO retention bonus contracts), as if it's going into a pre-tax 401(k) style account.

3) Compare the income you'd expect to earn in private practice if you got out at ADSO completion, to the military income + the virtual "401(k)" pension value. If the PP value is still higher, you might come out ahead in PP.

Caveats
1) It's unlikely the PP job will include any kind of pre-tax investment vehicle comparable to the pension value.

2) Earlier entry into PP has the potential for other benefits, like establishing a referral base sooner, opening up side businesses related to your practice (we have an ex-military ENT here who makes significant money from hearing aids his practice sells)

3) PP income may escalate substantially after a few years, depending on things like partnership, profits from ancillary ventures, a growing/improving referral base, etc

4) There's a risk of becoming "institutionalized" by the slow pace and low case volume of the military if you stay too long and don't or can't aggressively moonlight - we don't really like to talk about it, but there are some military physicians who retire and really aren't fit to work in a lean private practice. If you stay for the full duration you may not want or be able to do the kind of work and hours to really earn top PP income at that point.


Regardless - in the end you're going to be Just Fine whatever you do. I think it's important to do the financial math carefully and honestly, but there's more to life than money.

If you're not working a job you hate and you spend less than you earn, you'll be happy.

PGG is 100% correct....multiple assumptions and leaps of faith must be made in order to make a true monetary comparison between the two options. I will use my situation as an example:

ENT with 12 years active duty service when I left in 2014 (USUHS grad). If I had stayed in for the retirement AND tried to retire as an O-6 (assuming I was promoted to 0-6 at 18 years TIS), I would be retiring this upcoming summer (ouch!) at the age of 49.

- Assuming an 85 year life expectancy and using the official military compensation calculator, the pension would be worth roughly $2M (present value).

- Average salary for the last 9 years as a military ENT would have been around $250,000/year.
- My actual average salary in private practice for last last 9 years has been $650,000/year.
- I have participated in my practice's 401K program (which has profit-sharing so around $55-60,000/years pre-tax contributions) and cash balance plan. I currently have $600,000 and $100,000 in cash balance.
- We also have an abundant amount of real estate owned by the practice (multi-specialty surgical practice with over 40 surgeons and over $100M in revenue generated in 2022). The current value of my real estate points are $575,000 with an "estimated worth" of $4.5M if I retire at 65.

So.....

I started out $2M in the hole by leaving the military with NO retirement benefit (I did snag the post 9-11 GI Bill for my kids, though).

-$2,000,000 + $3,600,000 (difference in salary over the last 9 years) + $600,000 (401K) + $100,000 (cash balance) + $575,000 (real estate) = $2.875M.

I have come out $2.875M ahead as compared to where I would have been if I stayed in the military.

Lots of assumptions made above (no moonlighting as a military physicians and no contribution to TSP) but would be nowhere near enough to make up that $2.875M number. I am very fortunate as I am in BUSY surgical practice (I see 50+ patients/day) with significant ancillary income (i.e see the predicted real estate value when I retire at age 65).

 

[Gastrapathy]

13.75 years precisely

 

[militaryPHYS]

Purely financial most calculations will say get out.

Now factor in lifestyle, tricare for life, other non-salary benefits, tax benefits if living in high COL area, etc., now you've got yourself a real question to perseverate on and build self-doubt around. Good luck!

I for one am very financially conservative and like my non-deployed military family lifestyle...still trending towards staying until 20 despite it being a horrible salary-based decision.

 

[deleted1158195]

 

[Correlate Clinically]

It's something I keep debating and going back and forth on.

Unless you are really close to retirement it's probably a financial win to get out. It's going to vary by specialty and what type of job you are interested in.

I sometimes wonder if it might be worth it to stay, and then join a very lifestyle oriented practice and accept lower PP income (or, at least I wonder about it until something new happens to ruin my day and drop more paperwork or something in my lap).

If you have a large number of AD years, then reserve time is an attractive way to get pension similar in dollar value but delayed until age 62. The reserves can be an imposition on your life, especially if you need to maintain it for several years to be eligible for a pension. It can push your breakeven point out significantly, if it works for you. I've known a few guys who went that direction and were happy, but also a few who got frustrated and just made a clean break after a year or two.

I think the bigger question is tolerance and overall satisfaction. If you are happy in the military, then a few more years probably doesn't seem too bad. If it drives you nuts or you are stuck in a command/leadership role you can't escape, then even a reasonable dollar loss probably starts to look like a fair trade. It's really hard to estimate at what point you get so fed up you want to jump ship; it's different for everyone and varies with their experience in the military.

It's all sunk cost, but people aren't pure rational actors (myself included). There's a big emotional/subjective component to where the "real" breakeven point is versus the purely financial.

 

[haujun]

I did 4 years enlistment prior to medical school. After 4 year HPSP payback I got hem-onc fellowship I wanted in the military. After finishing fellowship it was no brainer to spend several years until 20 year 0-5 retirement.

Few years before retirement I did huge numbers of locum assignments to prepare myself for civilian medical sector and one of this locum assignment actually became permanent job in private practice! I am very busy in private practice hopefully become partner next year.

I used to 6-8 patients in the military but now I am seeing 15-22 patients daily. It is tough but support is so much better in the civilian sector and I don’t have to deal with military BS. If I don’t become partner in my practice I just work as locum physician working 6 months out of year. No pressure! Will do just fine with military retirement pay with 100% VA disability.