Retirement Decision

"The Retirement Decision"

Decision Summary: I am at the 17.5 year point in my career and need to decide if I want to stay in the Navy past 20 years or retire and pursue other interests. My naval career to date has been successful and I consider myself competitive for promotion to O-6. However, I am not hard over on being a Navy Captain. In fact, considering the family ramifications of becoming a Captain in my career specialty, I may not want to be one at all. However, staying in the Navy for Captain may be economically advantageous. The decision to retire or not must be made by myself and my family within the next few months before we start negotiating with the detailer for the next set of orders.

Executive Summary

Four alternatives were analyzed for the decision problem. These are:

* Retire at 20 years of service and seek employment in the local Dahlgren area

* Retire at 20 years of service and seek out the very best career alternative

* Stay in the Navy to make O-6 while trying to "homestead" in Wash DC

* Stay in the Navy to make O-6 and be detailed in the best interests of the Navy

Three attributes were developed to base the decision problem on. These are:

* Net present value of expected salaries and income stream over my lifetime

* Number of moves my family would be expected to make

* Satisfaction level of the various military and civilian job opportunities

Utilities and relative weights were developed for each of these attributes. A decision tree was modeled for the expected scenarios. Based on the expected utilities and weightings the preferred choice is to Retire at 20 years of service and seek employment in the local Dahlgren area. Sensitivity analysis was developed for the weighting of each attribute and "Retiring at 20 years" was always preferred to "Staying in the Navy to make O-6".

An Excel spreadsheet using PrecisionTools is included justify the decision.

Objectives Hierarchy

The overall fundamental objective is to maximize happiness with my career choice. The Navy has been very good to me but there has been a cost in upheaval when moving my family and from family separation due to deployment. I am currently in the very best job of my Navy career and all future job opportunities do not seem as attractive. Factors that seem important to me in order to maximize my career happiness are

* Stable family life. This would be done by minimizing moves to new geographic locations and reducing family separation as a result of deployments.

* Satisfaction with my job. This would be achieved if I worked for a good boss and did interesting work. Alternatively, I would also enjoy being my own boss and running my own business.

* Adequate compensation. I would like to maximize my salary for whatever my career specialty would be. If maximization required excessive work hours, I would at least want to optimize the salary level to sustain my current life style. Fortunately, with a military retirement and spousal income this is easily achieved.

A graphical representation of this hierarchy follows:

I have elected to use three attributes in the decision problem. These are:

* Minimize moves. Moves have always been stressful for my family. Now that my children are approaching their High School years this has even more significance. The expected number of moves for alternative will be compared. Family separations are not as much of an issue since I have "paid my dues" with four deployments to date. Future Navy jobs are not likely to include deployments.

* Income level. The net present value of all future income streams over my lifetime (through age 80) will be compared for each of the alternative. The income stream will include my job salary, military retirement and spousal income.

* Job Satisfaction. A constructed measure will be developed using each of the base objectives (boss type and nature of work) within the scale.

The Alternatives

Four alternatives have been prepared. These are

* Retire at 20 years of service and seek employment in the local Dahlgren area. This alternative would allow for no moves, but there are uncertainties concerning job satisfaction and salary due to the limited market to be seeking job opportunities after retirement.

* Retire at 20 years of service and seek out the very best career alternative. Since this could be anywhere, this alternative provides a wide open opportunity for jobs and salary. At least one move and maybe more are possible.

* Stay in the Navy to make O-6 while trying to "homestead" in Wash DC. This is an attempt to minimize moves while staying in the Navy. My career specialty does not have a "homestead" option so this could only be done at the whims of the detailer and maybe by taking less than satisfactory positions (certainly the case for me as I do not consider myself a fan of the "DC Staff" positions!).

* Stay in the Navy to make O-6 and be detailed in the best interests of the Navy. This alternative makes better positions (not all are good!) available but comes at a price of having to move several (many) times.

In some ways, this decision is really about the choice to retire at 20 or stay in the Navy for O-6. This is the critical choice my family and I must make, as the immediate decision is to discuss with the detailer about the next assignment or extend in my current position until retirement.

Utility Functions

* Income level. This is based on the natural scale for money. The NPVs for the different money streams when varied for different discount rates vary from $1M to over $7M. The most likes amounts are in the $2-3M range. The exponential utility function with an R values less than $400,000 are all very close to 1, so this seemed somewhat meaningless. The natural log scale provides more clarity between the various income levels. I normalized the logarithmic results between $1M and $7M for 0 to 1 respectively.

* Moves. The number