Smart Military Money
Personal finance tips andadvice for the military lifestyle.
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There are pros and cons of staying in the military or taking a civilian job.
Is leaving the service the right thing for me to do? This question poses a dilemma for military service members when they reach a financial impasse in their military careers — typically at 20 years in the armed forces — to stay in the military or get a civilian job.
Both choices have pros and cons, and a person’s decision comes down to their individual situation.
“It really is a case-by-case thing, but I think the thing that surprises most people is you can’t just look at the salary differences,” said Kim Lankford, Kiplinger Contributing Editor. “When you factor in the lost benefits, you have to earn a lot more.” A service member should base the outcome on criteria including taxes, benefits, life insurance and retirement savings, she said.
You should also base your decision on long-term conditions rather than short-term ones, according to an article from G. I. Jobs. Short-term conditions, such as a bad boss, can change, but long-term financial goals should be considered more carefully.
One point to consider when choosing whether to stick it out in the military or head for civilian life is housing costs. Service members receive a tax-free housing allowance that goes toward their rent or mortgage and vanishes when they leave the military, according to a Kiplinger article by Lankford. You should compare the loss of the housing allowance to the increase in civilian salary to determine the smart move.
Another issue is state taxes. If you hold residence in a state with no income tax even if you’re stationed elsewhere, you won’t have to pay income tax as long as you’re in the military. When you leave the service, you’ll have to pay that tax again, which can be quite costly.
Health and life insurance can also prove to be large areas for consideration, according to Lankford. Military members can obtain life insurance inexpensively, but they might also be able to find a good deal in the civilian world. As for health insurance, staying more than 20 years in the military means receiving health insurance during retirement. If you leave before your 20 years, you’ll have to find other health coverage, which may or may not be detrimental to your finances.
If you have a family, you might want to consider education benefits provided by the military. Service members who stay in the military for a long time (at least 10 years) can have college tuition paid for their children as well as a housing stipend, according to Lankford. This factor could make a difference for those with children.
Two final financial considerations when choosing to stay in the military of get a civilian job are retirement and a pension. If you’re in the military, you can contribute to a Thrift Savings Plan, unlike civilians. However, a new job might provide similar accommodations and match part of your savings. You should compare military retirement plans to that of your potential job to see if either is more beneficial. And if you stay in the military more than 20 years, you can receive a pension up to 50% of your base salary, according to Lankford. This pension might be worth staying in the service, but it might not.
The financial decision to remain in the military or get a civilian job can be complicated, but considering all these issues will be helpful in the long run. According to an article by Adam Stone for Military Times Edge, “The military’s total compensation package goes well beyond basic pay, and it can be tricky to take into account all those perks when comparing military to civilian paychecks. It’s rarely apples to apples.”
Lankford says it is beneficial for service members to start thinking about this situation in the few years preceding the decision and figure out how their skills could translate to civilian jobs if need be. But be sure to consider all the financial facts before coming to a conclusion.
“People really underestimate how much they would have to pull out of their own pockets,” she said.
Photo courtesy of 4o1(K) 2012
8 Comments
In my personal experience I can’t overstate the truth in this
publication. After 10 years of active duty service I walked away. It
was a hard decision, though for me the right one. My biggest surprise
was the yearly letter “Cost of Adjustment” (name?) Letter I received in
the mail describing and comparing mil vs civ benefits. After getting out
I realized that letter was far more accurate than I gave it credit
for!!
Mostly I appreciate the perspective of the letter, as it is
the same as mine: an accurate comparison is very difficult and time
consuming with more important variables than one might think, but is the
absolute best idea for anyone considering to do. There is no right and
wrong without defining what is important for each person about how
position himself or herself for their desired path/future.
Oh yeah… and 11 years later… I’m back! (in the Reserves this time!! Now i get the best of BOTH worlds!!)
I walked away. It was a hard decision but the BEST decision of my life. Right now I am making 10+ times more money than I would have been making if I was to stay in the service with unlimited growth potential (I am in marketing/sales with a company that is only going to grow)
I like my field of work because if I want to make extra money one week I put in more hours and make more sales. Something that is not possible in the military because my pay was fixed and set and only a COLA or promotion would do.
As for health benefits yes I do have to pay $800 a month out of pocket for my
family and I share of medical coverage but you hardly feel it when you
are making a lot. I am eligible for VA benefits but not my wife and kids so I put in the extra money so we can all have coverage. Unlike the military we are able to see some of the best physicians in the nation unlike in the military where they give you an ibuprofen and call it a day.
I might have lost out on a pension but if I save/invest properly as I currently am I am on a path of being able to retire by the time I am 38 (as I would have if I stayed in and did my 20) and make more than I would have with a pension.
If you are willing to work hard then civilian life might be for you.
I was in the Navy, I wanted to have a family, and be able to come home every day. I like to say, ” going into the Navy was the best thing I ever did, second best thing I ever did was get out.” after leaving the Navy I started a family and now we are making over 100,000 a year. and I get to tuck my girls in the bed every night. the important thing weather you stay in or get out is to continue to set goals and accomplish them.
there are a lot of holes in this story so one need to take a good look at everything before deciding what to do however there is life after 20 yrs of service.the part about the kids going to school free if you do 10 yrs must be knew the housing lots of questions. I feel doing 20 yrs is great the military isnt for everyone. what job can you work 20 yrs and start getting 50% of your base pay for the rest of your life there are a lot more pro that come with 20 yrs. of service.
Its a hard adjustment especially when you got forced out with honorable discharge & good conduct medal, for wrecking my bike & destroying my body but not bad enough to be forced out of the one job i loved (combat engineer), i wrecked my motorcycle & broke my back in three places broke my pelvis in three places, broke my pelvis & torn both acl/mcl, TBI, PTSD & worst of all got 0% from the marines for they found me out of the line of duty but it was an accident where i passed a car legally, i mean its been 5 years now & im in the police academy been going to school non stop the past 3yrs & ran 1 1/2 miles in 16minutes in this academy not as good as i once was running 3 miles in 19 minutes, but it has been a hard thing to try & overcome all by myself out here with no help from the va or marine coro other then getting $25,000 for TSGLI butits the fact of me not ready to get out nor done fighting my PEB board. Email me if you know any way to help me on these situations i found myself in after 3 years & 4 months in & cant get a job right now for all the pain i still feel, one reason i went police academy was to better my shape & try to get a job close enough to what i was use to & have a 2yr old daughter to raise by myself. Gbpackers2525@gmail.com
So I was in the Navy for 20 years and was wondering what I have to do to get a home loan for my home I own, to do some renovations? Any suggestions would be great, alsonot the best credit rating.
thanks for assistance
Erik,
Thank you for your service and for sharing your story. I’m sure other readers appreciate your priceless insight. All the best.
-Christian L.
If eligible, you could refinance to receive cash through the VA home loan program. But if you’re concerned about your credit, I’d recommend talking to Veterans United Department of Secondary Approval (DSA). You can contact DSA by calling 800-698-5158 between 7 a.m. and 7 p.m. Central Standard Time. DSA is a credit rebuilding branch of Veterans United.
-Christian L.