If you want to start an argument between military service members, start a conversation about taking terminal leave or selling back your leave. There are so many variables that you can't compare apples to celery, and everyone is absolutely sure that their answer is correct. But the reality is that there's no single right answer to this question, because everyone's situation is different.
Per your advice, I'm figuring out how much money we need to have in a transition fund for when I leave the military. I was calculating the amount that I would get for selling my leave back, but it seems like everyone is saying that I shouldn't sell leave. Why?
It's true: many people say that you shouldn't sell back leave. However, it's a personal decision based upon a bunch of different factors, and what's right for many people won't always be right for you.
Great job on planning ahead! I absolutely love that you're putting together a transition fund!
The reason that most people don't advise selling back leave is because you don't receive BAH and BAS when you sell back leave. When you take terminal leave, you continue to receive your base pay, most other pays, basic allowance for subsistence (BAS), and basic allowance for housing (BAH.)
Plus, you continue to accrue leave while you're on terminal leave, meaning that 30 days of terminal leave nets you another 2.5 days of pay (either more terminal leave, or leave that is going to be sold.)
On the other hand, from a strictly cash perspective, selling leave will give you more money overall. If you are able to work right up to your separation date, you can get the full pay and benefits, plus get a payout for your unused leave. The amount is calculated by dividing your base pay by 30 (days in an average month) and multiplying it by the number of days of leave you are selling. Federal income taxes are withheld at 22%, though your actual tax burden will depend on your entire tax situation for the year. State and local taxes may also be withheld. (Note: leave earned in a tax-exempt combat zone is not subject to taxation.)
Things to consider include:
Your overall financial situation: Would a chunk of cash from selling leave be helpful? Do you need those extra days of Tricare to bridge the gap to new health care coverage?
Your family's schedule: Do you want to get to a new place before the school year starts, or does the service member start a new job on a certain date?
Housing: If you're in base housing, what's the timeline for moving when separating from the service? If you are renting from a civilian, what's your lease situation?
Personal happiness: Perhaps the service member is just DONE with their job, or maybe they love it so much that they want to work as long as possible.
Job restrictions: By statute or by practice, many employers can't or won't hire someone who is still on terminal leave. If this is your situation, retiring earlier will help you get started on that new career.
Medical questions: You're still on active duty while you're on terminal leave, so you still have access to Tricare, military shopping and base facilities. This can be a big deal for those who are separating from the service before reaching retirement, or at least worthy of consideration if you have some important medical needs that would be covered more if you're still an active duty family.
Of course, you may not have a choice. Authorization for terminal leave is (mostly) up to the discretion of the command. I've heard of plenty of people who have been denied terminal leave, or only permitted to take a portion of the leave that they have available. Be sure your plan doesn't rely on selling back leave or being able to take terminal leave. The military is going to make you stay flexible until the very end!
Thanks for writing in,
Everyone has their own reasons for preferring to take terminal leave or selling back leave, but you can't make an informed decision without knowing how it all works. If you're facing this decision, verify everything I've said with your finance or transition assistance folks - things do change!