Let's put a real number on something that often gets overlooked when military families start planning for retirement. An O-5 retiring after 20 years under the High-3 system in 2026 receives about $5,444 a month. That's a paycheck that continues for life, rises with inflation, and is backed by the federal government, whether the stock market had a good year or not. Carry those checks to age 95, at a 4% discount rate and a 2.5% cost-of-living adjustment, and that stream is worth about $2.35 million in today's dollars. Most of us never write that number down, and the 25-times rule gets used without it.
Why most FIRE math misses it
A common rule of thumb is 25 times spending. Spend $100,000 a year and you're told you need $2.5 million invested, so a 4% withdrawal covers the bills. That rule was written for a portfolio, where every dollar of spending has to come out of an account that can fall 40% in a bad year.
Military retired pay does not come out of a portfolio. It shows up on the first of the month whether the market had a bad year or not.
I’ve had friends leave the retirement check out of the plan. The nest egg then gets sized for bills the pension was already going to pay, so the goal looks bigger than the gap really is. I’ve also seen the check used as a reason to stop saving, or to skip planning altogether. Then you have a solid pension, but nothing built on top of it. One mistake oversizes the portfolio; the other leaves the family exposed to everything the pension doesn’t cover — and turns the second career from a choice into a requirement.
I built MACH RUN so the pension, VA pay, the TSP, and a spouse's income would sit on one page instead of in four different spreadsheets. The military pension could be used to continue funding investments, cover the mortgage, utilities, or a mix of everyday bills. Whatever it covers, an investment portfolio, second career or spouse’s income would only need to cover any spending gap. Understanding what the pension is worth makes it easier to see how much of the household’s retirement spending it can cover, and how much the rest of the plan needs to provide.
I've always thought one of the biggest mistakes in military retirement planning is treating retired pay as an afterthought. A family might spend years trying to figure out whether they need $2 million or $3 million saved, without first accounting for the income one of them will receive every month for the rest of their life. That's a pretty important piece of the puzzle to leave out.
How the number is built
Here's the basic idea behind present value. If you wanted to replace your military pension with your own pile of money, how much would you need sitting in an account today to write those same monthly checks? That's what this number is. The monthly amount, how long the checks last, and the rate you use to discount them are what move it.
The monthly amount. Gross retired pay is set by the DFAS formula. Under High-3 it is 2.5% times years of service times the average of the highest 36 months of basic pay. Under the Blended Retirement System it is 2% a year. The free calculator runs that arithmetic on the 2026 pay tables. Enjoy the free calculator, and share it with anyone who might need it.
How long it pays. The stream is counted from retirement age out to a planning age. I prefer to use age 95 in order to ensure financial stability well past average lifespan — I would rather the number be a little high than run out of runway at 82. If the same pension is stopped at 85, someone retiring around 40 gives up about 15 percent of the value. The cut is a little deeper when retirement comes later.
The discount rate. This one is a judgment, not a fact you can look up. A low rate treats the pension as close to cash, so the value comes out high. A high rate assumes you would rather have the money now. I chose 4% because it treats the pension as what it is: a safe, inflation-protected paycheck. It is also consistent with a federal military retirement calculator (High-3, BRS, and BRS Comparison). As I write this, a 10-year TIPS pays roughly 2.5% to 2.9% above inflation, which with a 2.5% COLA works out to about 5% to 5.5% nominal. Discounting at 4% values the pension higher than the bond market would. That’s fine for a planning number, but it’s why the 5% and 6% columns are in the table rather than one figure pretending to be the whole story. Changing the rate moves the result by hundreds of thousands of dollars, and the honest answer is a range, or as we say in fighter aviation, "it depends."
For COLA, let's assume 2.5% a year. Retiree COLA follows the CPI-W, and the increase that took effect in December 2025 was 2.8%. Over a long stretch, COLA has often landed between 2.5% and 3%, and some decades were well outside that, but over time 2.5% is good for long-term planning.
Four numbers go into the formula. A is the first year's retired pay. g is the COLA, 2.5%. r is the discount rate, 4%, 5%, or 6%. n is the number of years from retirement to age 95.
PV = A ×1 − ((1 + g) ÷ (1 + r))nr − g
The table treats each year's check as paid at mid-year, then it is rounded to the nearest $10,000. If you drop the same inputs in as an end-of-year annuity, the result comes out about 2 percent lower. When the same math is run month by month, it lands in that same neighborhood. Both are estimates, and neither is a DFAS determination.
What the 2026 calculator says
Retired pay in the table is from the MACH RUN calculator for a June 2026 retirement. The retiring grade was held for all 36 months. The O-6 figure is 75% of basic pay, not the amount that hits the account. The ages are assumptions I picked so the stream has a length, not a rule that comes with the rank. Present value runs to age 95, with a 2.5% COLA.
| Retirement | Monthly | Annual | At 4% | At 5% | At 6% | 25× annual |
|---|---|---|---|---|---|---|
| E-7, 20 years, High-3, retiring at 40 | $2,869 | $34,428 | $1,290,000 | $1,040,000 | $850,000 | $860,700 |
| O-5, 20 years, High-3, retiring at 43 | $5,444 | $65,328 | $2,350,000 | $1,910,000 | $1,590,000 | $1,633,200 |
| O-6, 30 years, High-3, retiring at 52 | $10,682 | $128,184 | $4,050,000 | $3,390,000 | $2,880,000 | $3,204,600 |
The same O-5 career under BRS, full annuity and no lump sum, is $4,355 a month from this calculator. The multiplier is 40%, not 50%. If that retirement is at 43, the present value is about $1.88 million at 4%, $1.53 million at 5%, and $1.27 million at 6%.
Take a moment to look at the E-7 row. Someone retiring after 20 years might not think of that pension as a million-dollar asset. Depending on the assumptions, the checks are worth somewhere between $850,000 and $1.3 million. The same idea applies to the officer rows, and the numbers get considerably larger. This is why I think military retirement deserves a much bigger place in the household financial conversation.
The last column is the bar napkin check — the version you’d scratch out at the squadron bar. Twenty-five times the annual pension is a simplified way to estimate the portfolio size needed to replace that income using the familiar 4% rule. It is a useful comparison, but it is not the same calculation as the present value of a pension. The 4% rule generally assumes an initial withdrawal of 4% of the portfolio, with withdrawals adjusted for inflation over time. The present-value calculation instead estimates what the pension’s future payments are worth today, based on the discount rate and COLA assumptions. That’s why the numbers don’t match. The government backing is an important feature of the pension, but I have not added a separate premium for it. At 6%, the estimated present value falls below the 25-times benchmark. The range is wide, which is exactly why I show multiple discount rates instead of pretending one number tells the entire story.
The FIRE number
Let's bring this down to the household level. Jordan Hale is the example household on the MACH RUN home page. He's 29, plans to leave the military at 41 after 20 years, and the household is targeting retirement at 60. Spending is $8,600 a month. Now you can see what the pension changes. Retired pay in this plan is about $4,643 a month. That check is higher than the $4,355 BRS row because the Hale plan retires in 2038 and includes the raises between now and then. The table above is a June 2026 retirement on the 2026 pay scale. The nest-egg goal is $1.8 million in today's dollars. They keep saving in every version of this plan. On the savings rate in the demo, the nest egg is still short of $1.8 million at 60.
The household spends $103,200 a year. Twenty-five times that is a $2.58 million portfolio if that spending had to come from investments instead of a guaranteed pension. At $55,716 a year the pension covers 54% of that spending for life, and the COLA comes with it. Strictly, that’s gross retired pay against after-tax spending, so the real coverage is a few points lower once federal tax comes out — one more reason the rest of the plan still has work to do. Valued the same way as the table, from age 41 to 95, the check is about $2.06 million at 4%, $1.66 million at 5%, and $1.37 million at 6%.
I don't read any of that as a reason to save less. The second career still has to cover the years after you leave, and the nest egg still has to cover what the pension does not.
VA compensation runs through the same math and is tax-free, though it is not in the Hale demo. A 50% rating with a spouse is about $1,242 a month on the 2026 rates, worth about $551,000 at 4% from age 41 to 95. That estimate also assumes the spouse-dependent status remain unchanged throughout the projection period. Actual VA compensation can change if a disability rating or dependent status changes.
Before you write a seven-figure number next to the pension
It's worth being clear about what that $2.35 million actually represents. It isn't money sitting in an account that you can withdraw, transfer, or leave to your children. It's an estimate of what those future pension payments are worth. That distinction matters when you're thinking about a surviving spouse, because when the retiree dies, the checks stop. Assuming the service member opted into the Survivor Benefit Plan (SBP), that provides an eligible surviving spouse with a separate monthly annuity equal to (up to) 55% of the elected base amount. It does not simply continue the retiree’s full pension, and it isn’t free: spouse coverage costs 6.5% of the base amount you elect, deducted from retired pay before taxes, for as long as premiums are owed. Talk with a CFP who understands military retirement before deciding how to account for it.
Retired pay is taxed as federal income, and many states exempt some or all of it. Under the standard active-duty retirement system, completing 20 years of qualifying service is generally necessary to earn an immediate regular longevity retirement. There are exceptions, including certain disability retirements. The decision to stay to 20 or not is possibly the most valuable money decision most of us make in uniform.
VA compensation and retired pay don’t always stack. By default, VA pay is offset against retired pay dollar for dollar; however, two programs give some of it back. Concurrent Retirement and Disability Pay (CRDP) restores the offset automatically if you have a 20-year retirement and a VA rating of 50% or more; it’s taxable like the rest of retired pay. Combat-Related Special Compensation (CRSC) is a separate application through your service for disabilities tied to combat or combat training, at any compensable rating, and it’s tax-free. You can receive one or the other, not both; DFAS pays whichever is higher unless you elect otherwise. Below 50% with no combat-related rating, the offset stands and the income is not current.
Common questions about military retirement pay and calculations
Is a military pension worth a million dollars?
For a 20-year retirement in 2026, yes, and often more than a million. An E-7 has a pension worth about $850,000 to $1.3 million, depending on the discount rate. An O-5 at 20 under High-3 is about $1.6 million to $2.4 million. The same O-5 career under BRS is closer to $1.3 million to $1.9 million, because the multiplier is 2% a year, or 40% at 20, instead of 2.5% a year, or 50%. The smaller pension is the trade for a TSP match. Contribute 5% of basic pay and the service adds 5% of basic pay: an automatic 1%, plus a match of up to 4% on the first 5% you put in. You can contribute Traditional or Roth, and both are matched, but the service's money always goes into the Traditional balance. The automatic 1% starts about 60 days in, and the match starts after two years of service and continues through a 20-year career.
Should you include your military pension in your net worth?
I wouldn't. It has real economic value, but you can't sell it, move it into another account, or pass the pension itself to your children. I treat it as retirement income, and I count the monthly check when I set the FIRE number and decide what the investments still have to produce.
What discount rate should be used?
I use 4% when I'm pricing the pension as the safe, inflation-protected paycheck it is. Then I run the plan again at 6%. If the plan only holds together at 4%, you're asking the pension to do more work than it should.
Run your own numbers
You already did the hard years. The moves, the nights you were gone, the bag by the door. What you earned on the other side is a paycheck for life, and most of us still never write the number down. We wait until after the next PCS, the next deployment, the next civilian job. I did that too. A few minutes and a few keystrokes in MACH RUN, and that number gets clear, alongside the rest of the household.
The pension, the VA check, the TSP, a spouse's income, and the spending are all on the same team. They do not sit on the same radar unless you put them there. That is why I built MACH RUN. Not to fly the jet for you, but to give you the picture to build on. If you are still in, start planning well before that final day sneaks up on you. If you are already retired, the check is coming whether you planned around it or not. It's there. See what it covers, and what it does not. Then put your family on the same page and run it. Free to start. Do it for the people who are counting on you long after the dress uniform is in the closet.