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November 13, 2017

Can Serving In The Military Make Reaching FIRE Easier?

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Can Serving In The Military Make Reaching FIRE Easier?

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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!

Free Education

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.

Free Healthcare

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.

Live differently. Your bank accounts will thank me later. ~M$M

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Comments

  1. Great post. As a retired military officer, I can tell you all the points made in the article are spot on and have been key to me acheiving FI. I didn’t fully appreciate the tax advantages of allowances until after I retired and began a second corporate career and saw the huge amount of taxes paid. My retired medical benefit also saves us tons of money every year. Don’t join the military soley as a reason to achieve FI. It’s a huge commitment and sacrifice for the member and family. But if you are in the military, don’t bail out thinking the grass is greener on the outside. It’s not necessarily the case! I can now make decisions for life that I would not have been able to do if it weren’t for my military pension.

    Reply

    • Mr. Muckles,
      Thank you for your comment and your service! Indeed, while the military is a huge sacrifice, it also comes with numerous benefits both financial and otherwise. My friends who separated before retirement are discovering just how much more they have to earn “on the outside” to make up for the financial benefits. It’s a lot more than I expected!
      Mil$

      Reply

  2. My grandfather served 29 years (through a combination of active duty and reserves) in the USMC. He lived off his retirement pay and modest savings until his death at the age of 84 and was always most appreciative of his retirement benefits and pay; though I often reminded him it was well-earned as he flew over 100 missions in Korea and Vietnam (including many near misses) and he and my grandmother made many sacrifices over those three decades.

    I would definitely recommend the military route for those exiting high school without a strong desire to enter college or learn a trade.

    Reply

    • Yes, definitely don’t do it just for the money! There are much, much easier ways to make a dollar. But if it’s something you are called to do, the money isn’t bad and the non-financial benefits can be outstanding!

      Reply

    • Ha – so true! I’d say I enjoy the perks as a spouse more now that my husband isn’t active duty 😉

      4 years definitely doesn’t get you all these benefits, but a VA loan allowed us to buy a home in the Seattle area at 23 while my husband was in school on the GI bill and USAA insurance generally rocks.

      Reply

  4. Agreed. I answered a few interview questions from Mil$, he was gracious enough to post the article – improving my accountability and openness to any questions.
    The ability to achieve FIRE is certainly not hampered by military service.

    Reply

  6. Thanks for the post, and thank you for serving the country. IMO I’d have to say the healthcare is the biggest advantage, at this point. As career educators, my wife and I can (hopefully) see a pension in the near future, but that doesn’t include healthcare.

    The older you get the more you the more you can appreciate the crippling (pun intended) state of healthcare in our great nation.

    Thanks again 🙂

    Bruce

    Reply

    • Thanks, Bruce. It has been an eye-opening experience for me seeing the healthcare debate in the country over the last few years. I truly had no idea what it was like for civilians until I started discussing it with my parents. I hope all military members recognize how great that benefit is.

      Reply

  7. Great article! If I may add, saving thru SDP and TSP are additional benefits that could be utilized. Using GI Bill is a spot on! I, myself, used this benefit. From a young buck paratrooper to a stable corporate job in the tax world. I’ve always respected people like you who always share their experiences. All the way, Airborne!!

    Reply

  8. My husband has served 8 years active duty Navy and is planning to get out next year and transition to the Reserves. As we prepare for the transition, we are astounded at healthcare costs, which is the main reason why he plans to move into the Reserves instead of relying on a civilian job. We are so grateful for the opportunities the military gave us—namely to pay off my student debt ($38k) while my husband was deployed. Instead of planning on a pension @ age 38, we’re planning for one around age 60 from the Reserves. Either way, the military benefits are a huge part of our FI Plan.

    Reply

    • Congrats on the transition! While you may lose some in the way of financial benefits, the lifestyle gains will probably be huge. And remember – he can earn earlier pension payments by completing active service as a Reservist. Maybe you’ll see that pension a little sooner!

      Reply

      • Military Dollar—Can you elaborate on what you mean or link to posts? It was my understanding that no matter when you achieve the points necessary to retire, you won’t actually see the money until age 60.

  9. So much truth to this! Military life is definitely not for everyone, but it is also vastly different from what is often portrayed on TV. The military offers a huge variety of job roles and positions, everything from HR to nursing to Intel to pharmacists to administration. (I thought I was fairly knowledgeable about it and I was still surprised by the variety of roles). I was commissioned into the Navy reserve this past year as an officer (healthcare administration) and the financial/career benefits were certainly part of the reason. The ability to work on active duty assignments if I lost my civilian job and get my healthcare through the Reserves was a huge draw. Wanting to serve as prior generations have and the great people you meet was a huge reason as well. There are scores of benefits to take advantage of—discounted VA home loans, access to financial counselors, etc. It is definitely an option to consider if you’re taking the long view on your career and retirement. Thanks for the article!

    Reply

  10. One side note, this article addresses active duty. The National Guard/Reserve is slightly different.

    The Guard is part time but still has many of the benefits. For example, my bachelors was completely paid by the Guard. On top of that, I got the GI Bill which is tax free money for going to school.

    I have to pay for healthcare. It’s called Tricare ($217 a month), but I get to go to any civilian doctor that takes it. Plus the most out of pocket I pay is $1000 for healthcare a year (not including the premium).

    Lastly, the retirement isn’t nearly as good as active, but something is better than nothing.

    Reply

    • Great points – yes, this article is geared toward active duty benefits. Guard/Reserves has many of the same types of benefits available, but in a modified manner. In exchange for maybe paying more for healthcare or getting less for retirement, Guard and Reserve members have more flexibility in where they live and in their career. There are definite tradeoffs and both sides are worth looking into!

      Reply

  11. i loved my USAF career. it had some difficult times, but not that i didn’t expect never to see combat. the only problems i’m having now is with the VA System. i was medically retired after i had to do an emergency crash landing in a huge aircraft. i had 14 crew onboard who i promised to get home safely. the USAF took care that i was properly repaired and my income would be safe. the VA System has dragged its feet for over a decade, even though i’m 100% service connected, permanent and totally disabled. but i had two teens who needed college funds, so i had a post-military career that gave me great long term retirement, plus the military retirement and VA disability pay. i have been begging since the year 2000, when i finally accepted work was no longer an option. i need an adaptive transportation grant for a van to hold my power chair, a new powerchair, a home adaptation grant to make my home h/c navigable. i paid for my current service dog, but will need a new one within 18 months. i served post Vietnam but pre-9/11, so, per my VA Regional Office, i am not entitled to any of the above because i served during peace time. i know my job and there where many non-peace time events that looked like combat to me. can i afford to do this on my own? yes. BUT! when i took that oath to protect and defend the United States of America, i feel it is the VA’s responsibility to care for me. i live comfortably income wise, but i will need long term care that i do not want to burden my children with. i’m not married and i am the only living member of my birth family. i enjoy your blog. i’m a dedicated budget nerd who prefers to pay cash for everything. i would recommend the USAF to anyone who has the desire to served this great Nation. the only caveat is, be prepared once you are no longer active duty. i think my case has flaws because i’m a female. sadly, female Veterans get the short stick. this imho, only. Sen. Jeff Sessions was less than useless, but he is no longer our State’s problem. any suggestions on how to wake up the VA System in Alabama?

    Reply

    • Hi Jeanne. I’m sorry to say I don’t have too much to offer here as I have no experience with the VA system. However, this is what I was able to find if you are having trouble with claims:

      VA Benefits Information: Call 1-800-827-1000. Includes disability, pension, education, burial, and other Veterans’ benefits.
      VA Health Benefits: Call 1-877-222-VETS (8387) or visit the Board of Veterans Appeals help desk to answer questions, give a status on your case, or direct you to the best referral source to answer your questions.

      If you aren’t having luck with your state VA, that’s who I would try next.

      I hope you are able to find some help. The VA System is improving, slowly, but not fast enough to help our veterans.

      Good luck!

      Reply

  12. If you choose to join, don’t be like me and do it AFTER you already have lots of debt from a PhD. It makes many of the financial benefits less compelling (although I guess I could get my rescue diving certification paid for if I really want to). However, I do agree that the non-taxable portion of the income is nice, ESPECIALLY if you find yourself somewhere in a high cost of living area. I was most recently stationed in Hawaii, where I chose to live in a studio apartment and banked a thousand bucks each month from my housing pay that I didn’t spend. The free health care is nice, although I have had some very poor experiences with the dentists. But hey, I got my wisdom teeth out for free. And starting in 2018, service members can elect to get matching on the 401k if they opt for a lower pension, which makes sense for those who don’t want to stay in as long.

    Reply

    • Yes, the Blended Retirement System is a huge step forward in the benefits package for most of our servicemembers. I’m very glad we are moving in that direction!

      Reply

  13. Great post, I work with a lot of former military folks who got out around age 38 – 40 and are now making a nice salary in the private sector. That 20-30K pension on top of their salary is really nice. I know some former officers getting more like 40-something per year.

    Another thing that I might have missed from your post is that the housing allowance while you’re in the military is paid in full, regardless of whether you spend it all on housing or not (I think this is still true at least) I used to know some young officers at the lieutenant/captain level that would room up together and their rent would be about half of what they were allowed. But they got to keep the extra. So they were getting way ahead of the others who automatically found the biggest apartment to max out their allowed housing stipend.

    Reply

    • Yep, that’s still how it works! There is pretty frequent talk about changing it, but for now that’s a great way for people to keep an extra chunk of their money each month.

      Reply

      • This has not been the case for us if we choose to live in base housing. When we moved on base in 2013, we got to pocket the difference since we lived in a 2 bedroom home as opposed to a 4 bedroom ($200/month). The following year, it was changed so that the rent cost on base was ALL of our BAH, no matter what size home we received (although we were grandfathered in). When we PCS’d, all of our BAH was taken, even when there was an increase in BAH due to COL. They took the extra $75 before it hit our bank account!

        We now live in civilian housing. LOL.

      • FImama,

        Yes, being able to keep leftover BAH only applies when you are living in the United States and off base. It does not apply to OHA (Overseas Housing Allowance) or on base housing.

        BAH is intended to ensure you can afford housing that is commensurate with the military member’s rank and to some level the member’s family’s size. It is not intended to put money in the member’s pocket – that is just a side effect of the way the program is run. Since on base housing assures the government that you have received housing commensurate with the rank and family size, they don’t allow you to keep any extra money.

        Mil$

  14. I was pretty excited to read your article! You highlighted some of the advantages I’ve realized we as military members have on this path to FIRE. Both my husband and are active duty officers and are well on our way to FI. I can retire in just under a year and he can in just over 5. In reality though he could stop when I do since we’ve been saving and building rental income on the side.
    As we plan for our future as FI, I realize we have a lot of benefits and security other FI families may not have.
    We’ll have pensions, medical largely taken care of, and between the two of us we’ll have 5 years of the GI bill that we have transferred to split between our two kids. That takes care of a lot of the uncertainty I hear others on the path to FI worry about.
    In addition, while on our path to FI we have lived below our means, stretching our dollars by using the benefits of the commissary (grocery store on base which is cheaper generally) and getting military discounts frequently from dining out, to movie tickets, to no airline baggage fees, to home repairs, and more. As a result, we’ve been able to live on one of our incomes and invest the other. We’ve saved enough that we could withdraw the 4%, but will likely not need to if we continue our frugal living. In addition, we’ve built up rental income as another cash flow stream, so we are pretty diversified.
    I know I am tooting our own horn here, but I am excited. It’s been a long journey and I’m proud of what we’ve done. I definitely realize we have done huge advantages here. We’ve given a lot to the military, and others have done so much more, but overall the military has been great to my family that has some awesome benefits if done right. Sadly? A lot of young military m members spend all time their money in a big truck and don’t invest anything where they get out not as far ahead as they could have been.
    While there are huge benefits, I agree though, only join if you want to be in the military.

    I share our success in hopes that others in the military realize that FI is well within their grasp!

    Thanks to all the FI bloggers out there, it made us realize we could do this and that there was such a thing as enough!

    Reply

    • Melanie, toot that horn all you want! It sounds like you two have worked hard to achieve this. Now it’s almost time to enjoy all of that hard work and sacrifice.

      Reply

  15. I joined the Air Force for the pay after job market wasn’t giving me what I wanted. Though I have a BA, I joined enlisted. I am now trying to become a nurse through the Air Force’s nursing commissioning program. I have never taken our benefits for granted. I love the paid vacation time, the health benefits, and the tax-free income! If you’re smart, you can pocket a lot of the BAH and BAS they give you every month. It really is a win for a childless couple, and even more of a win for people who have children. I remember paying for health insurance that I never used, feeling so hopeless.

    I recommend the military to people all the time now, especially new high school graduates who don’t know what to do with their lives. Even serving for four years is worth more than gold, in my opinion. I graduated college with $40k in debt, and now I’m paying the price. I wish I had joined when I was 18.

    Great post here! I am also looking forward to the BRS TSP, as I haven’t been in very long and think this will be a great opportunity to grow more wealth.

    Reply

    • Thanks Liz! Make sure you sign up for TSP now so you can get your account all set up before the new year. And enroll in BRS on January 1st – you don’t want to miss out on any of that matching! After you’ve been in TSP for a couple of months, go into the program and make sure your money is allocated in the way you want – until BRS is in place it will default to the G Fund and that’s not a great fund if you want to grow wealth!

      Reply

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