Join the Military to Retire Early?
Today’s guest post is brought to you by Doug Nordman, author of “The Military Guide to Financial Independence and Retirement”.
If you’re reading this blog then you’re thinking about financial independence and early retirement. You’re aware that two of your biggest concerns are dealing with decades of
inflation during retirement and finding cheap health insurance. You may have to contend with these challenges for four or even five decades!
U.S. military retirees have solved these problems. After 20 years of active duty they earn a pension that’s adjusted every year for inflation, just like Social Security. Military retirees also have cheap Tricare health insurance, which currently charges under $50/month for your entire family.
I can understand how the military looks like the road to riches. The answer seems so simple:
- Join one of the services at age 17.
- Save your income and endure frugality for a couple decades.
- Retire at age 37.
The military even teaches the skills needed for early retirement. Servicemembers learn the discipline to live frugally, save money, and persist until they reach their goals.
[Yeah, I know, right now you military readers are snickering (or groaning). Control yourselves
for a few minutes while we explain this to the impressionable young recruits. Why did you guys join up? If you’re not getting rich, then why would you put up with this life?]
First we should explain the “riches”. The U.S. military pay tables show how much servicemembers earn in taxable “base pay”. The total compensation package also includes tax-free allowances for food, housing, and uniforms. Additional pay and bonus money is earned for longer service obligations, advanced training, and deploying to combat zones. Even more incentive pay is awarded for volunteering in submarines or the special forces. Some pay can be sheltered in the Thrift Savings Plan (the federal version of a 401(k)). The military does not match contributions but in special situations (like deploying to a combat zone), military pay is tax-free and servicemembers can deposit over $50,000/year in the TSP.
Military pay varies widely with training and experience. New enlisted recruits (at paygrade E-1) earn only ~$18K/year in base pay– plus food, housing, and uniforms. Depending on housing expenses (which vary by location) the total compensation package is nearly $30K/year. The first few promotions and pay raises happen within two years, which is relatively rapid compared to most civilian careers. After a 4-6 year commitment that E-1 has advanced to the E-5 paygrade to earn ~$32K/year (plus the other allowances) for total compensation of $45K-$50K. They’ll have competitive technical skills for a civilian career and may also be halfway through their college degree.
Officers (college graduates) start at a total compensation of about $55K/year. After six years, they’ll be O-3s earning total compensation of about $80K/year. They’re also in strong demand for civilian careers in management or engineering. Nuclear-trained officers in the submarine force can volunteer for an additional service obligation that will raise
their total compensation to $130K/year.
Next there’s the benefits. Medical care on active duty is free, and the family copay is only $12. 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 tuition assistance and the GI Bill will even help pay for you or your family to get a college degree.
How does this compensation stack up against a civilian job? For the first 20 years of service, about the same. The military expends an incredible effort to encourage servicemembers to stay in uniform, and money is a powerful incentive. Analysts adjust pay & bonuses to stay competitive with the equivalent civilian careers. For most of the last decade, Congress required the military’s annual pay raises to close the gap with the Employment Cost Index and is now expected to keep up with it.
And after 20 years of service you’ll earn that righteous retirement. There’s your riches!
Yes, but the pension only vests at 20 years of service. It only starts immediately after retirement if that 20 years was all active duty. You can also complete 20 years in the Reserves or National Guard (“a weekend a month and two weeks per year”) but that pension usually only starts when you reach age 60. All pensions are calculated on base pay, not total compensation. For most servicemembers a pension is barely a quarter of their total compensation.
If the E-5 stays in the service then at retirement they can reasonably expect to be an E-7 earning $85K/year, which would equate to a retirement income of nearly $24K/year. The submarine officer will get at least one more promotion (and several pay raises) to retire at over $40K/year.
That’s enough for early retirement, especially with inflation protection! Even better, if you can save 50% of your gross income for 17 years then you’ll reach financial independence even without a military pension. Best of all, the military will teach you the skills, initiative, motivation, and perseverance to reach that financial independence. If you can hack the military then the rest of your life is easy.
Heck, everyone should join the military.
Yet consider these statistics:
– During most of America’s history, only 1% of the population has been on military duty.
– Only 17% of the military’s servicemembers stay for at least 20 years and a pension.
If the retirement system is so good, then why do only one percent of Americans join the military, and five out of six of them quit before 20?
Let’s look at the first glaring issue: workplace mortality. That pension looks pretty good, but a few of your battle buddies aren’t going to live to collect it. Overall the military is a less hazardous occupation than firefighter or police officer. However this is not much consolation if you’re in the Marine Corps or Army infantry, and future wars may be much more hazardous to all servicemembers.
Next is “wear & tear”. It’s an active lifestyle with high stress. Chronic fatigue is the norm, as are workweeks in excess of 40 hours. (No overtime pay, either.) Combat mortality may be at an all-time low, but the wounded warriors have ever-more severe injuries and disabilities.
Servicemembers spend most of their time outside of a combat zone, but 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 professional football, but 20 years of daily abuse takes a toll. One mistake or a 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 federal prison. Soldiers and Marines regularly train in harsh conditions. If you’re not sure about joining your local police force or being a firefighter, let alone doing other filthy or exhausting chores, then you probably don’t want to risk your health in the military either.
Then there’s the regulations. The military imposes strict rules on personal behavior, some of which would be illegal in a Fortune 500 corporation. Servicemembers are required to maintain ridiculously high standards of conduct, appearance, and fitness. Drug use is out of the question, even on leave or liberty. They’re actively discouraged from smoking or chewing tobacco, having tattoos or piercings, riding motorcycles, or drinking alcohol. Hair coloring, nail polish, and makeup are heavily regulated. There is very little consideration for work/life balance, let alone a day off to take care of a sick kid. Military records are far less private than for civilians. Even military families are subject to constant scrutiny by their chain of command– especially in base housing. The mission takes priority over everything else.
Five out of six servicemembers quit the military before 20 years because they’d seen enough.
Maybe the question should be: Why would you join the military in the first place?
For some recruits the military is the only way out of a dead-end life or a bad environment. Others didn’t know what they wanted to do, as long as it wasn’t college or fast-food shiftwork. In my case it was the irresistible challenge: I could prove myself and be a part of an incredible team. Other veterans joined to learn motivation, commitment, and self-discipline. You’ll have far more responsibility and leadership 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.
However the initiative and perseverance have to come from within. “Getting rich” will not fuel your motivation 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 help you succeed in life– not just financial independence.
The best reasons to join the military are for yourself and for your country. The worst reason to join is for the money.
Doug and his spouse both reached financial independence and retired from the U.S. Navy in their 40s. They’ve had a total of over 50 years of active-duty and Reserve service. Their daughter is a college senior (on a Navy ROTC scholarship) who will soon be an ensign on a destroyer. Doug answers lots of questions about the military and financial independence at The-Military-Guide.com.
Root of Good’s comments:
I want to thank Doug for writing this detailed article outlining the financial aspects of serving in the military, and why (or why not!) it might be a good strategy to reach financial independence and retire early.
I still remember the posters in undergrad engineering school advertising a $60,000 sign up bonus for nuclear sub duty. Very tempting, but they didn’t get me! I think Doug outlines the reasons why I didn’t sign up – it is a very serious commitment and goes beyond simply receiving $60,000 (plus a decent base salary and benefits) to do a job for four to six years. And you can’t bring your family on a nuclear submarine for the months long deployments.