Hey everyone! Today I have an awesome article for you from Mil$ of MilitaryDollar.com. We've all heard stories of people making six figures in cushy jobs reaching financial independence before 40, but I'm more interested in some of the creative strategies that people are attempting out there right now. Enjoy! ~M$M
The views expressed are those of the author and may not reflect the views of the US Government, the Department of Defense, or the United States Air Force.
When Bobby asked if anybody wanted to write a guest post about financial independence/retiring early (FIRE), my (virtual) hand immediately shot into the air. I’m an advocate for this movement and have been for years, especially among military members.
I think the benefits we receive in the military can make FIRE significantly easier to achieve than your average job in America.
And whether military members want to retire early or work forever, I think being financially independent is a goal everybody should strive for. So I’m going to share with you just some of the many ways being in the military can make reaching FIRE easier.
Before I start, I want to address the elephant in the room.
I know a career in the military isn’t for everybody. Personally, it’s been great for me. It’s been less great for some of my friends. If the military isn’t your bag and this isn’t an option for you, that’s cool. It’s definitely not for everyone.
On the flip side, don't get so excited by the money that you rush into a military commitment. The financial benefits are generally not a good enough reason to join the military. Make sure it’s something you really want to do!
So that being said, let's look at some of the benefits the military offers that can make FIRE possible!
One of the things that’s available to all military members that can help them financially is free college education. That’s right, I said free. If you join the military and you don’t end up with at least an associate’s degree, it’s probably because you didn’t want one.
I received a scholarship that paid for 3/4 of my undergraduate tuition and fees. I’ve also completed two master’s degrees. Total cost to my wallet for the master’s degrees? $FREE.
There are a bunch of ways to get free education through the military. The most famous is the GI Bill program. Depending on how you choose to use the GI Bill, qualified recipients (those who have served at least three years active duty or the equivalent of Reserve time) can get a 4-year degree, plus books and housing, for free. And, you can pass the benefit on to your spouse or child if you don’t want to use it.
There are other programs, such as Tuition Assistance, Army Enlisted Education Program, and others that can help you earn a degree while you are serving. There are also professional military education programs through each service that offer advanced degrees. There are even programs where you can earn a doctoral degree!
You’ll also receive job training that can help you land a good career in the civilian world. In the military, you can go to culinary school, learn to weld, become an air traffic controller, or be taught how to fly helicopters.
All things you would have to pay to learn how to do “on the outside.”
And did I mention the cost was FREE? I’ve saved tens of thousands of dollars over the years through these programs. That’s money I’m able to put towards my financial future.
Tax-Free Pay and Allowances
The military also gives you some or potentially all of your paycheck tax-free – in a completely legal way, of course. We have three types of common pay and allowances that basically everybody gets, plus dozens of other pays and allowances for special skills or situations.
Base pay is based on your rank and years of service and makes up the biggest portion of most members’ paychecks. Additionally, we are given separate tax-free allowances for housing and subsistence (food), unless you live in government housing and eat at facilities where you aren’t charged. Either way, the point is to get you tax-free housing and food.
To get tax-free base pay you have to deploy to a combat zone tax exclusion area. I’m not telling you that this is the easiest or best plan of all time. Tax-free pay certainly isn’t a good reason to head to the middle of Afghanistan.
A sense of purpose in defending your country from those who wish it harm is what should motivate you. But tax-free pay is a nice side benefit of being in a combat zone.
Based on my current, high cost of living duty location and tax bracket, I estimate the tax-free allowances save me about $10,000 each year. Again, that’s money I’m able to invest to reach financial independence.
In the military, we get free healthcare. We get free prescriptions. We get free vision and dental.
I didn’t realize how large of a benefit this really was until talking about healthcare became a national pastime. $420 per month plus a deductible for a healthy 35-year-old? And I found out that at one point my parents were paying $1,400 per month for their health insurance! The day they qualified for Medicare was a relief to all of us.
The most expensive purchase I’ve made for medical care in my life was buying a first aid kit for my house. Oh, and I did pay $85 for glasses once but that’s because I wanted some designer frames instead of the ones they issue at the clinic. Otherwise, my medical costs each year amount to basically some Band-Aids and the occasional Ibuprofen.
Healthcare for family members can cost a little depending on which plan you choose, but it's still a significant savings over what you'd pay in the civilian sector.
Is it the cream of the crop healthcare? No, probably not, at least not for primary care. Part of that is because we have a lot of young doctors who join the military to get the education without crushing student loan debt, so I imagine the average age – and therefore experience level – is lower than the average in the civilian sector.
But in general, the medical care is fine. I’ve only had one real issue with a doctor who brushed off my pain. For the most part, my experiences have been average-to-good.
The Big One: Military Retirement System
Now we get to the benefit that can really make FIRE possible. If you stay for 20+ years of service (less than 20% of military members do), there is a big, shiny pot of gold in the form of a lifetime, inflation-adjusted pension. Plus access to cheap lifetime healthcare and other retirement privileges!
While all the things I previously mentioned make it easier to save money so you can invest for your own financial independence, this one is the kicker that can really push you over the edge.
Having a guaranteed income for retirement is a financial opportunity that few Americans receive these days. And it’s not an insignificant amount of money.
An enlisted member can expect to receive a pension worth $26,000-$30,000 per year after serving only 20 years. Considering they might be only 38 years old at that point, that’s a huge financial advantage. Work a few more years, and the amount goes up. Officers can receive larger pensions due to their higher paychecks.
Combine the pension with all the money you’ve been able to save and invest because of your education, healthcare, and tax savings, and suddenly FIRE starts to look very achievable. I’ve run several case studies; check them out at my Retiring On A Military Pension page if you are interested in learning more.
Like I said, serving in the military isn't something I recommend on the basis of the financial benefits alone.
But if you are already compelled to serve, it can be an unexpected bonus. Between the sense of service, the opportunities, and the security my career has given me, I can't imagine having made a better choice.
Military Dollar is a United States Air Force officer who is working to make personal finance easier to understand for all military members. Whether it's navigating the military pay system, learning about investments, or just trying to figure out how much money to save in an emergency fund, Military Dollar has your back.