A career in the military allows you to serve your country, build friendships that last a lifetime, and have experiences only few can dream of, but does it make sense financially?
If properly planned, a career in the military can make you a multi-millionaire. A financially educated service member can reap rewards from their time served by using pension plans, competitive 401(k) options, and massive tax exemptions. Understanding the ins and outs of these programs can be the difference between retiring early, or working well into your 60s.
Is a Career in the Military Worth It Financially?
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Before we begin, it’s important to understand everything in this article is strictly from a financial point of view.
Choosing to serve your country is a huge decision that can have repercussions for the rest of your life. While many jobs in the military offer lucrative salaries, this is often at great expense to your work/life balance, health (both mental and physical), and personal freedoms.
You should never choose to join the military simply for the benefits, nor should you choose a certain military career path purely for the earning potential it has. For example, while commissioning as an officer will typically make you more money, don’t feel forced to go the officer route if your dream job is to be a rescue swimmer, SWCC, diver, etc.
Joining the military can be difficult for you, your family, your friends, and your loved ones. However, if you decide to serve, here are the factors you need to understand if you want to achieve financial success.
Table of Contents
Biggest Factors to Financial Success In the Military
There are many factors that determine how much money you will make, so simply looking at a military pay chart will not tell you the full story.
The decisions that will have the biggest impact are:
- Officer vs Enlisted career path
- Special and incentive pay
- How your job translates to the civilian world
- Hitting 20 years time in service for retirement benefits
- Percentage (%) of pay contributed to Thrift Savings Plan
Officer vs Enlisted Career Path
It’s no secret that military officers make a considerable amount more than enlisted.
Taking a quick at the 2021 pay scales, the difference is quite obvious.
Officer Pay
| Grade | 2 or less | over 2 years | over 3 | over 4 | over 6 | over 8 |
| O-6 | $7,139 | $7,843 | $8,358 | $8,358 | $8,390 | $8,749 |
| O-5 | $5,951 | $6,704 | $7,168 | $7,256 | $7,546 | $7,718 |
| O-4 | $5,135 | $5,944 | $6,341 | $6,429 | $6,797 | $7,192 |
| O-3 | $4,515 | $5,118 | $5,523 | $6,023 | $6,312 | $6,628 |
| O-2 | $3,901 | $4,443 | $5,117 | $5,290 | $5,399 | $5,399 |
| O-1 | $3,386 | $3,524 | $4,261 | $4,261 | $4,261 | $4,261 |
Enlisted Pay
| Grade | 2 or less | over 2 | over 3 | over 4 | over 6 | over 8 |
| E-6 | $2,774 | $3,053 | $3,188 | $3,319 | $3,455 | $3,763 |
| E-5 | $2,542 | $2,713 | $2,844 | $2,978 | $3,187 | $3,406 |
| E-4 | $2,330 | $2,450 | $2,582 | $2,714 | $2,829 | $2,829 |
| E-3 | $2,104 | $2,236 | $2,372 | $2,372 | $2,372 | $2,372 |
| E-2 | $2,001 | $2,001 | $2,001 | $2,001 | $2,001 | $2,001 |
| E-1 | $1,785 | $1,785 | $1,785 | $1,785 | $1,785 | $1,785 |
As a quick note, the simplicity in these pay scales can be misleading. For instance, you shouldn’t directly compare any two ranks, like comparing O-2 to an E-2. This is because the timeline for officer promotion and enlisted promotion is completely different.
As an example, here are the average ages service members will achieve various ranks:
- O-1 (23), E-1 (18)
- O-2 (25), E-2 (19)
- O-3 (27), E-3 (20)
- O-4 (33), E-4 (22)
- O-5 (39), E-5 (27)
- O-6 (45), E-6 (32)
The large gaps in age are due to a myriad of factors, such as entry requirements and promotion timelines.
While officers may only commission once they obtain a bachelor’s degree, enlisted may join directly out of high school. While officers promote automatically every two years until O-3, some enlisted have the opportunity to reach E-2 or E-3 before they even leave boot camp.
I want to draw attention to these differences to prevent giving an unrealistic view of the pay gap between officers and enlisted. While officer pay is considerably more than enlisted, a better comparison would be looking at age, such as an (O-1 vs E-4) rather than directly comparing O-1 to E-1, O-2 to E-2, etc.
BAS & BAH
As a TAX-FREE addition to the base pay rate, active duty service members are eligible to receive BAS and BAH.
Such a large portion of military pay is often derived from Basic Allowance for Subsistence (BAS) and Basic Allowance for Housing (BAH), that the military salary is much higher than the above pay tables would lead you to believe. Especially when you consider these allowances are tax-free income.
Basic Allowance for Subsistence (BAS)
BAS is straightforward with the monthly additional pay:
- Officers ($257 monthly)
- Enlisted ($373 monthly)
Basic Allowance for Housing (BAH)
BAH on the other hand is dependent on the unique situation of the servicemember, such as:
- Pay grade
- Cost of living at their location
- Whether or not they have dependents.
For instance, a married officer (O-1) living in San Diego, CA would receive an additional $2,982 monthly.
Whereas a single officer (O-1) living in Pensacola, FL would receive an additional $1,416 monthly.
When it comes to being paid BAH the pay discrepancies continue between officers and enlisted.
Not only will officers typically receive more BAH pay, but all officers are eligible for BAH as soon as they commission, whereas enlisted have special requirements they must fulfill in order to receive it.
While these requirements vary greatly for enlisted, generally you must be an (E-6)+ or have dependents in order to qualify for BAH pay.
Example Annual Salary Difference for Officer vs Enlisted
Armed with our newfound understanding of the military pay system, we can compare two different service members to give you a rough idea of what the annual salary difference would be.
For comparison, we will take two single, 23-year-old military members stationed at NAS Pensacola, FL:
Officer
- O-1, less than two years of service, earning BAH
- Base Pay: $3,386, taxed
- BAH: $1,416, untaxed
- BAS: $257, untaxed
- Civilian equivelant annual salary: $63,568+
Enlisted
- E-4, more than four years of service, not earning BAH
- $2,714 base pay, taxed
- BAH: $0, untaxed
- BAS: $373, untaxed
- Civilian equivelant annual salary: $37,204+
*When contemplating a career in the military, the decision to enlist or commission as an officer, is not one to take lightly. While you shouldn’t choose purely for the money, you should be aware of how it may affect your future earning potential.*
Special and Incentive Pay
The military understands that it asks a lot of its servicemembers.
As such, it will offer extra compensation for jobs that are high risk, require additional training, or have historically low retention rates. These can include:
- Arduous Duty
- Language Proficiency Pay (FLPP)
- Retention / Reenlistement bonus
- Hazardous Duty Incentive Pays (HDIP)
- Career Incentive Pay (Aviation, Submarine, Diving, etc.)
With a full list of special and incentive pay (S&I) found here.
Special and incentive pay can add significantly to military members’ paychecks at the end of the month.
Officers and enlisted alike are both eligible for these, either in the form of one-time bonuses, or recurring monthly bonus pay.
Examples Of Bonus Pay
Bonus pay is often given to service members during critical moments in their careers. A few examples could be:
- Aviation Continution Pay (ACP) $75,000+
- Nuclear Officers Extnending Period of Active Duty $90,000+
- Enlisted Bonus (EB) up to $40,000 or Selective Reenlistment Bonus (SRB) up to $90,000
With a focus on retention, these large one-off payments entice more years of service, especially when the additional years of service get the military member closer to the 20-year retirement mark.
As an example, if a Naval Aviator plans on leaving the service, they will often do so near the end of their contract (roughly 10 years after service began). If the Navy were to anticipate a retention problem due to Naval Aviators leaving for the commercial airlines, they may offer up to $75,000 for an additional 3 years of service. The idea being if they can get the aviator to stay for 13 years, then the service member will decide to stay for 20 years of service to receive a pension.
*If you are willing to take a job in the military that exposes you to additional risk, requires additional training, or has historically low retention rates, you will be compensated.*
Compensation for Skills in the Civilian World
In 2017, 68% of employers said if they had two equally qualified candidates, and one is a U.S. veteran, they’re more likely to hire the veteran.
No matter what job you choose in the military, you will have in-demand skills that employers are willing to pay for. Veterans have a reputation for being:
- Discplined
- Possesing leadership skills
- Showing repsect and integrity
- Able to work on a team
- Able to perform under pressure
Military Training Civilian Employers Value the Most
While your service as a veteran will always look good to employers, certain jobs in the military include training that is in high demand in the civilian world.
For example, it may be harder for an infantry veteran to find an employer that can use their skills, compared to a military pilot whose flight hours count for the airlines.
While an entire article could be dedicated to the military to civilian job transitions, we will instead cover the aspects impacting your job prospects in the civilian sector the most.
Bachelor’s Degree (G.I. Bill)
Individuals who hold a bachelor’s degree earn on average $32,000+ than those whose highest educational level is high school.
While officers in the military are required to have their bachelor’s degree to commission, officers can receive financial assistance depending on their commissioning program. Those who enlist can utilize their Post-9/11 GI Bill towards getting a degree. The GI Bill is able to offer 36 months of benefits to include:
- Tuition and fees
- Money for housing
- Money for books and supplies
- Money to relocate
While a college degree isn’t “Military Training”, it is still an advantage that the military can provide for free. This also allows any service member, regardless of their job while in the military to develop a competitive skill set.
Even if you chose a job that may not have a direct counterpart for the civilian sector (infantry, ordinance, etc.) there is nothing stopping you from earning a degree in something like computer science and competing for high salaried tech jobs. Be sure to check out our full guide on Military education benefits!
Specific Civilian Job Counterparts
These are jobs in the military that are so closely aligned with occupations outside of the military, that your experience & certifications easily transfer over.
A few examples could be:
- Medical field
- Police / EMT / Firefighters
- Air traffic control operator
- FBI/CIA/NSA
- Goverment / Federal Jobs that only hire veterans
- Tech (IT, Cybersecurity, Network engineer)
- etc.
Certain military jobs give you such an advantage over civilian applicants that it is almost a prerequisite to possess prior military experience.
Whether it is obtaining a Top Secret clearance, achieving certifications, or establishing rapport with government processes, there are plenty of perfect fit civilian jobs for servicemembers.
*By choosing a job in the military that has a demand in the civilian world, and taking advantage of free education after your time is done serving, the military can set you up for success whether you choose to stay in or get out.*
Military Retirement Compensation
If you are able to serve a full career in the military of 20+ years, you will receive one of the most valuable pension plans in the US, available the day you retire.
How much money you receive for your military pension will depend on three different factors:
- Total number of years served (minimum 20)
- The base pay you earned at time of your retirement (pay grade + time in service)
- Whether you are under the new Blended Retirement System (BRS) or the old Legacy (High-3) system.
Military Retirement Examples
To keep things simple, we will consider two different scenarios.
One officer, one enlisted, both choosing to leave the military at age 42, under two different retirement systems.
Officer
- The typical 42 year old officer will be retiring at the rank of O-4, with 20 years time in service.
- Their equivalent monthly base pay would be: $8,574
- 2.0% x 20 x $8,574 x 12 = $41,155+ annualy in retirement (BRS)
- 2.5% x 20 x $8,574 x 12 = $51,440+ annualy in retirement (High-3)
Enlisted
- The typical 42 year old enlisted member will be retiring at the rank of E-7, with 24 years time in service.
- Their equivalent monthly base pay would be: $5,282
- 2.0% x 24 x $5,383 x 12 = $31,006+ annualy in retirement (BRS)
- 2.5% x 24 x $5,383 x 12 = $38,758+ annualy in retirement (High-3)
Pros and Cons of Military Retirement
Pros: Retiring as early as 38 years old is unheard of for most careers. Don’t forget that the pension value also rises accordingly with inflation as they encompass an annual Cost of Living Adjustment (COLA), based on changes in the Consumer Price Index (CPI). As well as also receiving some of the best insurance for life (TRICARE).
Cons: Unlike some other government jobs, you need to stay promoting in order to make it to 20 years for the pension. This results in over 83% of service members being ineligible for a pension. While of course plenty of service members choose to leave on their own accord, plenty of individuals are forced out from injury, mistakes, or too competitive of a selection board.
Thrift Savings Plan Contributions (TSP)
The Thrift Savings Plan (TSP) is the government’s 401(k) plan for federal employees and uniformed personnel. It’s an amazing opportunity for service members and should play an important part in your retirement plan regardless of years served. I strongly recommend contributing at least 15% of your paycheck to the Roth TSP fund.
The Thrift Savings Plan has:
- No fees
- Low expense ratios
- Great fund selection
- Contribution matching (If under the new BRS retirement system)
If you have already read through the Six Steps to Build Wealth, you understand what makes a good 401(k) plan, and why the TSP is a great 401(k) plan.
Fund Selections
The TSP allows participants to cheaply invest in the US domestic market (C & S fund), international markets (I fund), and more conservative assets like bonds and treasury securities (F & G fund), all for low expense ratios.
Employer Contributions
The plan also allows for an employer contribution match. The match provides 100% on the first 3% of your contributed paycheck, and 50% match on the next 2% contributed, meaning contributing 5% of your paycheck ensures the full match. Over time, these extra contributions can amount to hundreds of thousands of extra dollars in retirement.
While agency matching is only available for service members who joined on or after January 2018 or chose to opt-in during the window, this benefit is still available for millions of service members today, as well as all upcoming generations.
Putting It All Together
Next, we will walk through an example of a servicemember’s journey all the way from commissioning to retirement, and show how a military member could retire from service at 49 years old with 175,000+ to spend annually.
Servicemember Example Assumptions
- Servicemember remains in the military for a total of 27 years
- Earns bonus flight pay monthly beginning at year 2
- Stays single, never buys a home, rents throughout career (for easy calculations)
- Naval Aviator (Officer) flying MH-60 helicopters out of North Island, San Diego
- Recieves $75,000 bonus at year 10 and chooses to put full amount in taxable brokerage account
- Under the Blended Retirement System, contributes 25% of pay to TSP->Roth IRA -> Brokerage account, in that order
- Goes on sea tours between years 3-5, 8-10, 13-15, and 18-20, earning additional income due to partial time in tax exempt zones
| Year | Rank | TSP | Roth IRA | Brokerage Account |
| 1 | O-1 | $15,661 | $0 | $0 |
| 2 | O-1 | $32,418 | $0 | $0 |
| 3 | O-2 | $54,188 | $1,505 | $0 |
| 4 | O-2 | $77,481 | $3,115 | $0 |
| 5 | O-3 | $102,405 | $7,829 | $0 |
| 6 | O-3 | $129,073 | $14,033 | $0 |
| 7 | O-3 | $157,609 | $21,016 | $712 |
| 8 | O-3 | $188,141 | $28,487 | $2,838 |
| 9 | O-3 | $220,811 | $36,481 | $5,114 |
| 10 | O-3 | $255,768 | $45,034 | $67,549 |
| 11 | O-4 | $293,172 | $54,187 | $77,245 |
| 12 | O-4 | $333,194 | $63,980 | $87,620 |
| 13 | O-4 | $376,017 | $74,458 | $101,440 |
| 14 | O-4 | $421,838 | $85,670 | $116,228 |
| 15 | O-4 | $470,867 | $97,667 | $132,051 |
| 16 | O-4 | $523,328 | $110,504 | $147,593 |
| 17 | O-5 | $579,461 | $124,239 | $166,246 |
| 18 | O-5 | $639,523 | $138,936 | $186,204 |
| 19 | O-5 | $703,789 | $154,662 | $209,229 |
| 20 | O-5 | $772,555 | $171,488 | $233,866 |
| 21 | O-5 | $846,133 | $189,492 | $258,478 |
| 22 | O-6 | $924,863 | $208,757 | $288,903 |
| 23 | O-6 | $1,009,103 | $229,370 | $321,457 |
| 24 | O-6 | $1,099,240 | $251,425 | $356,540 |
| 25 | O-6 | $1,195,687 | $275,025 | $394,079 |
| 26 | O-6 | $1,298,885 | $300,277 | $435,496 |
| 27 | O-6 | $1,409,307 | $356,207 | $479,811 |
Final Calculations
First we will determine how much the officer would receive for his/her pension, then how much they could draw annually from their retirement accounts at a 4% safe withdrawal rate.
- Pension Value: [2.0% x 28 x $12,803 x 12] = $86,036 available annual spend
- Asset Value: [$1,409,307 + $356,207 + $479,811] = $2,245,325 x 4.0% = $89,813 available annual spend
- Total: [$86,036 + $89,813] = $175,849 available annual spend
Important Takeaways
Whether you are contemplating a career in the military or already serving, a strong understanding of these concepts is essential.
In this article, we covered a TON of topics. From officer and enlisted pay to special incentive pays, to military pensions, and 401(k) plans…learning all of these at once can feel like you’re drinking water from a fire hose.
It’s okay to feel a bit overwhelmed.
I hope this can be the beginning of your research into these topics, and help energize you to begin/continue contributing to tax-advantaged accounts such as 401(k)s and Roth IRAs.
Feel free to check out my blog and other pages for other awesome military benefits like: