Selling Your Future Military Pension Payments For A Lump Sum: The Lowdown

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    Many retired military personnel struggle to stay afloat in this sluggish economic climate. Some of these former servicemen and women have even resorted to selling their future retirement payments in exchange for immediate cash. The purpose of this article is to further explore the issues surrounding the sales of military pensions.

    Selling Your Future Military Pension Payments For A Lump Sum: The Lowdown

    Close your eyes and imagine for a moment that you are John, a 43-year-old married father of three teenaged children. After an interesting career in the United States Army that had spanned approximately 20 years, John was able to retire with full benefits at the age of 38.

    He eventually settled in a Midwestern state and secured full-time employment as a maintenance mechanic at a local power plant. In addition, his 37-year-old wife, Abby, is an administrative assistant at the same workplace. Both John and Abby have been working at the power plant for nearly five years while enjoying middle-class comforts such as a modest house, two newer cars, and yearly overseas vacations.

    However, John has recently come to the cold realization that he and his wife have not put aside any money toward their children's college educations. The eldest child is 18 years old, has graduated from high school, was accepted to a regional state university, and will begin attending in the fall. Not too long ago, John saw a magazine advertisement that greatly piqued his interest: Convert your military pension into a lump sum of cash today!

    After deciding that he might be willing to sell his $1,100 monthly pension payments in exchange for one lump sum payment, he discussed the idea with his wife. Abby swiftly frowned upon the idea and said, "We need your retirement income as a safety net, John."

    Military pension payments can readily be converted into large lump sums of cash. Numerous financial companies offer to purchase the future retirement payments of retired servicemen and women by utilizing advertising space in the back of magazines, on websites, and even on commercials that air during the daytime hours. Selling one's military pension has several pros and cons:

    Pros to selling a military pension:

    • Since the transaction is not a loan, the retiree who sells his/her pension does not need to repay anything.
    • Retirees are not obligated to sell their whole pension. In fact, most financial entities will purchase all of a retiree's payments for a period that lasts either six, eight, or ten years.
    • Once the six, eight, or ten-year period has ended, the retiree can resume receiving his/her monthly pension payments.
    • The retiree will receive a lump sum of cash to satisfy immediate financial needs.


    Cons to selling a military pension:

    • These transactions are very costly and normally pay less than 50 percent of the benefits that a retiree would receive over an eight-year period. For example, a retired serviceman sold eight years worth of monthly pension checks for a lump sum of $42,000. He would have received $103,000 worth of payments over the eight years if he had not sold any future pension payments.
    • Some veterans accept offers to sell their pensions without fully understanding the future ramifications of these types of transactions.
    • If the retiree changes his or her mind and wishes to back out of the deal after having consented, no recourse exists.


    In case you were wondering, John and Abby ultimately decided against selling any future pension payments. Although their eldest child is still planning to attend classes at the state university, the teen will work will part-time and obtain student loans.

    Should you sell your future military retirement payments for instant cash? This decision should not be taken lightly and needs to be thought out. As you can see, the decision to sell one's pension is permeated with pros and cons. A slumping economy has tempted many retirees to trade future payments in for lump sums today. However, a person can save tens of thousands of dollars by delaying one's gratification.
    Last edit by Joe V on Jan 10, '15
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    4 Comments

  3. by   Grace Oz
    G'day Commuter, thanks for this article.

    As the wife of a retired military man - 36.5 years married, "served" right alongside as all military spouses do! - I found your article interesting.

    Here in Australia, after 20 years service, upon retirement/discharge, you can elect to commute part of your retirement pension enabling you to receive a lump sum there and then. No reduction in value whatsoever. Only tax paid as required and also receive - upon retirement/discharge - fortnightly payments of the rest of your- reduced amount from what it would have been without commutation -pension. For the rest of your life. Upon the death of the service person, their spouse continues to receive a percentage of the pension for the rest of his/her life.
    Our military pensions are taxed the same as any income.
    Upon reaching age 60, you no longer pay tax on your military pension.

    I wonder why the US doesn't also have this scheme whereby the retired service person can elect to commute part of their pension on retirement/discharge?
    And, without any loss or penalty for doing so!

    From reading your article, the offer to "sell" their pensions and at a lesser value, is a rip off and insulting to those who have served their nation.

    The US government should do far better for it's serving personnel. JMHO.
  4. by   TheCommuter
    Quote from Grace Oz
    From reading your article, the offer to "sell" their pensions and at a lesser value, is a rip off and insulting to those who have served their nation.

    The US government should do far better for it's serving personnel. JMHO.
    I totally agree. Our government should do more for current and former military men and women who have sacrificed so much in exchange for so little.

    By the way, in the US, it is always a for-profit financial company unaffiliated with the government who buys the military pensions. The financial companies take the huge profits that are generated from these transactions and then pay private investors with the funds.
  5. by   Grace Oz
    [QUOTE=TheCommuter;6615790]I totally agree. Our government should do more for current and former military men and women who have sacrificed so much in exchange for so little.

    By the way, in the US, it is always a for-profit financial company unaffiliated with the government who buys the military pensions. The financial companies take the huge profits that are generated from these transactions and then pay private investors with the funds.[/QUOTE]

    Disgusting!
    Totally reprehensible!

    I just told DH about your article and we were wondering about this ^^^^
    He's gobsmacked to hear about this and just shook his head in disgust and sadness for his allies up/over.
    We can't fathom wht the US doesn't take better care of their servicemen/women.
    Whenever we've met with and discussed issues with members and retired members, of the US military, they're in awe and impressed at how well our people are treated and looked after.

    PS:
    What we cannot understand is: how come the US government is even allowing this criminal activity to take place given that the military pensions are paid to the veteran by said government?!
    By allowing the veteran to "sell" their pension, it alleviates said government from having to pay the vet their rightful - and hard earned! - full amount of pension value.
    This is just plain wrong AND surely, illegal?!
    What government permits this kind of fraudlent activity involving it's military personnel/veterans?!
    Reprehensible!
    Appalling!
    Last edit by Grace Oz on Jun 19, '12
  6. by   TheCommuter
    Quote from Grace Oz
    By allowing the veteran to "sell" their pension, it alleviates said government from having to pay the vet their rightful - and hard earned! - full amount of pension value. This is just plain wrong AND surely, illegal?! What government permits this kind of fraudlent activity involving it's military personnel/veterans?!
    It is perfectly legal here in the States.

    The US government is actually paying the military veteran the full amount of their pension value. However, the vet who chooses to sell their future pension payments to a financial company for a specified number of years must mail now give their monthly checks to the financial company in exchange for the lump sum.

    In the example I provided in my article, the gentleman who received a lump sum of $42,000 had agreed to sell 8 years worth of military pension payments. So, for 8 years, he mailed his $1,083 monthly pension check to a financial services company that profited heavily off his financial issues. The 8 years worth of retirement checks have amounted to $103,000.

    Click on the link below if you wish to read more about the story:
    'Bad deal' lump pension payouts for veterans draw new scrutiny - Red Tape
    Quote from Grace Oz
    Reprehensible!
    Appalling!
    Yes, I totally agree with you.

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