I’m out of town for the week taking some kids to Young Life camp so they can have the best week of their lives. Today I have a guest post from guest post from Doug Nordman, author of “The Military Guide to Financial Independence & Retirement“.
When you’re in your 20s, just starting out and perhaps punching some debt in the face, the military might seem to be a sweet financial deal.
Or maybe not.
Here’s our credentials for this debate: my spouse and I graduated from the U.S. Naval Academy. I retired a decade ago after 20 years in the submarine force. She served in Navy meteorology & oceanography and in the Reserves before retiring. Our daughter is attending college on a Navy ROTC scholarship (she listened to our USNA stories) and she’s thinking of joining the submarine force too (so maybe she didn’t listen very well). Collectively we have five decades of experience in military personal finances.
I can understand how the military looks like the road to riches. After you’ve read about it for a while, the answer seems so simple:
- Sign up at age 17 (or in your 20s or 30s).
- Endure frugality for a couple decades while exploiting your awesome military benefits.
- Retire (as early as age 37?) with an inflation-fighting pension and cheap health care.
- You’re set for life!
Upon further reflection, the military seems to be the perfect way to gain control over your finances. Who’s better at understanding how to optimize resources, save money, develop a disciplined goal-setting approach, foster teamwork, and maximize mission accomplishment?
Yeah, I know, you military veterans are laughing your assets off right now. Straighten up for a second while we try to get the point across to the impressionable young recruits. If you’re not getting rich, then why would you put up with the martial life?
First we should explain the “riches”.
U.S. military pay tables are at this Department of Defense link. The benefits package includes “basic pay”, a housing allowance, a food allowance, and a clothing allowance. Pay is taxed but allowances are not. More pay and bonuses are earned for longer obligations, advanced training, combat duty, or volunteering for submarines or special forces. Some before-tax pay can be sheltered in the Thrift Savings Plan (the federal version of a 401(k)) but the military does not match contributions.
Military pay varies widely: the most junior enlisted (E-1) earn only $18K/year in basic pay, along with (mostly) free food, housing, and uniforms. Depending on housing expenses (which vary by location) the total compensation package is $28K-$30K. The first few promotions and pay raises are relatively rapid compared to civilian careers. After six years that E-1 has advanced to the E-5 paygrade and is paid ~$32K/year (plus the other allowances) for total compensation of $45K-$50K.
Officers (college graduates) start at a total compensation of about $55K/year. After six years, a submarine nuclear-trained engineering officer can volunteer for an additional service obligation that will raise their total compensation to just under $130K/year. Ship drivers, aviators, and some other military communities have similar programs (with smaller bonuses).
Next there’s the benefits. Medical & dental care on active duty is free. Family medical & dental insurance is cheap, as is $400K of term life insurance. Disability benefits are included. Vacation is 30 days per year. You get plenty of free training (frequently during off-duty hours!). Active-duty benefits and the GI Bill will even pay for you or your family to get a degree.
Finally, how does this compensation stack up against a civilian job? For the first 20 years, about the same. The military compares its specialties to their equivalent civilian careers, and adjusts pay & bonuses to encourage retention. For most of the last decade, Congress required the military’s annual pay raises to close the gap between total compensation and the Employment Cost Index. Today both officers and enlisted are in the 80th-90th percentiles of their equivalent civilian careers, and that’s expected to keep pace.
Yet after 20 years there’s still that righteous retirement, right?
Yes, but the pension only vests at 20 years– if you resign before then you’re not eligible. (But you keep your TSP account.) You can leave active duty to complete 20 years in the Reserves or National Guard, but that pension is much smaller and only starts paying when you turn 60. All pensions are calculated on basic pay, not total compensation. For most servicemembers it’s barely a quarter of their former compensation– and then more is deducted for federal taxes, survivor benefits, and health insurance. Yes, the retirement does have the same inflation-fighting cost-of-living adjustment as Social Security. Yes, Tricare retiree medical insurance is incredibly cheap (~$45/month) as long as your doctor accepts the reimbursement rate.
At 20 years an enlisted servicemember can reasonably expect to be an E-7 earning $85K/year in basic pay & allowances, which would equate to a gross retirement income of about $24K/year. The submarine officer will get at least one more promotion (and several pay raises) to retire at $40K-$45K/year.
For a frugal lifestyle, especially with inflation protection, that’s more than enough. Even if you’re not financially independent, you can choose a family-friendly bridge career or go part-time.
Yet consider these statistics: During most of America’s history, only 1% of the population has been on military duty. Today’s total active-duty force is only 1.4 million, and the services are starting another round of cuts which may drop that as low as 1.2 million. Only about 17% of the force stays for at least 20 years.
If the retirement system is so good, then why do five out of six servicemembers quit before 20?
Let’s look at the first glaring issue: workplace mortality. That pension looks pretty good because a few of your battle buddies aren’t going to be alive to collect it.
Next is “wear & tear”: it’s a high-stress and physically-active lifestyle. Chronic fatigue is the norm, as are 60-hour workweeks. (No overtime pay, either.) Combat mortality may be at an all-time low, and servicemembers spend most of their time outside of a combat zone. However they still risk their lives every day by training with high-power equipment, explosives, hazardous substances, and hostile environments. It’s not as bruising as construction or firefighting, but 20 years of daily abuse takes a toll. One moment of inattention can wipe out years of safety.
Although death and serious injury are relatively rare, there’s still the workplace environment. For example, submariners and aviators have less personal space than convicts in the federal prison system. Soldiers and Marines routinely live in harsh environments. There is very little work/life balance, let alone for a day off to take care of a sick kid. If you and your spouse are both military parents, you’re required to have someone else care for your kids when (not “if”!) you’re both deployed at the same time. No waivers or unpaid leave.
If you’re not sure about joining your local police force, let alone cleaning toilets or doing other humbling jobs, then you probably don’t want to risk your health in the military either.
The military imposes strict rules of conduct that would be illegal in any Fortune 500 corporation. Servicemembers are required to maintain ridiculously high standards of appearance and fitness, including hair and body fat. They’re actively discouraged from smoking or chewing tobacco, tattoos or piercings, riding motorcycles, or drinking alcohol. Hair coloring, nail polish, and makeup are heavily regulated. Drug use is out of the question, even on leave or liberty. Military records are far less private than for civilians. Even families are subject to constant scrutiny by the chain of command– especially in base housing.
Maybe those five out of six servicemembers quit because they’d seen enough. Maybe the question should be: Why would you join the military in the first place?
For a few it’s the only way out of a bad life. Others didn’t know what they wanted to do, as long as it wasn’t school or shifts at Taco Bell. In my case it was the irresistible challenge: I could prove myself and be a part of an incredible team. Other veterans joined for the crash course in motivation, commitment, and self-discipline. You’ll have far more responsibility in your 20s (especially in the Marines) than most civilians will get in their 30s. Even better, you’ll have the training & experience to handle it. Recent college graduates manage million-dollar budgets and make life-or-death decisions before they get their graduate degrees.
Above all, the initiative and perseverance have to come from within. “Getting rich” will not fuel those drives through the first service obligation, let alone for two decades. You keep going because you’re “making something better of yourself“, and your military skills will also keep you on the track to early retirement.
The best reason to join the military is for yourself.
The worst reason to join is for the money.
Doug Nordman blogs at The-Military-Guide.com and also posts to a number of personal-finance forums as “Nords”.