Sometimes I get emails asking me whether I think joining the military (with its early pension benefit and paid education, etc.) is a good idea. Seeing that I don’t know how to answer this (I grew up in a country where the military relies on a very small professional core and drafting about 1/3 of all young males (determined by a lottery) for 6-24 months) I asked Nords who wrote The Military Guide to Financial Independence and Retirement for some advice.

Here’s our credentials: my spouse and I graduated from the U.S. Naval Academy. I retired after 20 more years in the submarine force. She did most of her career in Navy meteorology & oceanography and spent a few more years 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 to everything we said). 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:

  • Join the military at age 17.
  • Endure frugality for a couple decades while exploiting your benefits.
  • Retire at 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 match for extreme early retirement. Who’s better than the military 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 extreme early retirement isn’t what the military is all about, then why did you guys join up? 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 tax-free. Additional pay and bonus money is earned for longer obligations, advanced training, deploying to combat zones, or volunteering for duty like 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 junior enlisted 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 nuclear-trained engineering officer in the submarine force can volunteer for an additional service obligation that will raise their total compensation to just under $130K/year.

Next there’s the benefits. Medical care on active duty is free. 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 of service, about the same. The military expends an incredible effort comparing specialties to their equivalent civilian careers, and adjusting pay & bonuses to encourage servicemembers to stay in uniform. 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. Congress declared victory in 2008 and is expected to keep military compensation competitive with the ECI.

Yet after 20 years there’s still that righteous retirement, no?

Yes, but the pension only vests at 20 years– if you resign at 19 years and 11 months then you’re not eligible. (But you keep your TSP account.) You can complete 20 years in the Reserves or National Guard, but that pension 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 the former compensation, and then more is deducted for federal taxes and survivor benefits. Yes, the retirement does have the same inflation-fighting cost-of-living adjustment as Social Security. Yes, Tricare retiree medical insurance is incredibly cheap (slated to rise to ~$45/month) as long as your doctor accepts the reimbursement rate.

At retirement the E-5 of the earlier example can reasonably expect to be an E-7 earning $85K/year, 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.

By ERE standards, especially with inflation protection, that’s more than enough.

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 that’s down by nearly 30% since the 1991 Gulf War. (The services are about to embark on another round of cuts which may bring them as low as 1.2 million.) Only 15% stay for at least 20 years. The Air Force (with its well-deserved reputation for comparative "luxury") has as many as 30% of its members make it to retirement. In the Marine Corps (with its own hard-earned reputation) the fraction is 8%.

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". Even in the Air Force, it’s a high-stress and physically-active lifestyle. Chronic fatigue is the norm, as are workweeks far in excess of 40 hours. (No overtime pay, either.) Combat mortality may be at an all-time low, but that means the wounded warriors have ever-more severe injuries and disabilities. Although servicemembers spend most of their time outside of a combat zone, 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 the federal prison system. Soldiers and Marines regularly train in harsh environments. There is very little consideration for work/life balance, let alone for a day off to take care of a sick kid. If you and your spouse are military parents, you’re required to inform your chain of command who’ll care for your kids when (not "if"!) you’re both deployed at the same time. Those caregivers have to sign a statement affirming that they’ll do so, or you’ll have to leave the service.

If you’re not sure about joining your local police force or being a firefighter, 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 professional and personal conduct, some of which 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, having 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 military family lives are subject to constant scrutiny by their 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 some it’s the only way out of a bad life or a dead-end environment. 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 ER.

The best reason to join the military is for yourself. The worst reason to join is for the money.