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