Members of our armed forces face unique financial challenges during and after their service. At the same time, military members may be eligible for benefits — the Thrift Savings Program (TSP) and VA loans to name two — that civilians are not. To launch new ongoing coverage of military money issues here on Money Under 30, I invited friend and fellow blogger Ryan Guina to provide an overview of personal finance for servicemen and women. To everybody who has served, thank you. We hope this series will be helpful. -David.
When many people think of joining the military, they think of boot camp, living on a military installation, wearing a uniform and working with high tech equipment such as fighter aircraft, tanks, and other cool “big boy” toys. All of this is true. But what many people don’t consider is how joining the military is like joining a new culture. There is a distinct language in the military — full of new acronyms and phrases you won’t find anywhere else. New military members also need to go through months of training to learn how to do their new jobs, assimilate into the military culture and be a part of one of the largest subcultures in the United States.
Somewhere near the bottom of the list of concerns most new military members have is learning the pay and benefits system. The base pay is easy to figure out – you can find the charts online. But what many new military members don’t consider are the many disparate benefits they may be eligible to receive as part of their basic pay and compensation package. What looks like a small starting base pay actually turns out to a fairly competitive compensation package for most military members – especially those who are just starting their military careers.
Military Base Pay and Benefits
What follows is a basic overview of how the military pay system works for most military members. At the minimum, most military members will receive some or all the following pay and benefits:
- Base Pay – Based on rank and time in service. (taxable benefit)
- BAS – Basic Allowance for Subsistence (food allowance). Officers and Enlisted receive different pay rates. (non-taxable benefit)
- BAH – Basic Allowance for Housing. Based on rank and location. Some members receive military housing in lieu of an allowance in their paycheck. (non-taxable benefit)
- Uniform Allowance – Usually enlisted only. Some career fields may have uniforms or specific equipment issued to them in addition to their uniform allowance. (non-taxable benefit)
You will notice that base pay is the only benefit listed above that is taxable. The other benefits are non-taxable. Additionally, military members may receive their base pay tax free if they serve in a combat zone.
Special Duty and Retention Pay
Not all military specialties are created equal. The military does its best to keep everyone on an even pay schedule, which works for the most part. However, there are some specialties which require a special level of training or education, and the military compensates these individuals based on their skills. Here are the common benefits that fall under this category:
- Special Duty and Incentive Pay. These benefits are paid to certain military members based upon their career fields and specialties. Some specialties such as pilots, medical personnel and other high tech or highly skilled career fields may qualify for these special duty pays. Here is a list from the DoD.
- Retention Pay. Some specialties offer a retention bonus to keep highly skilled personnel in their career fields. These bonuses are usually paid in return for another four to six year commitment to the military. This is normally a taxable benefit.
- Hazard Pay & Combat Pay. Some career fields are deemed hazardous, and those who perform those duties on a daily basis may receive a monthly stipend. Those serving in combat zones generally receive a non-taxable combat pay bonus and tax-free base pay.
Additional Military Benefits
There are other benefits military members receive outside of their paychecks. These include benefits such as medical, base exchanges (stores), and certain recreation programs and facilities.
- Free medical care. Military members receive free medical care through TRICARE, the military medical system. This includes all regular health programs as well as dental and vision. Their family members receive many free health programs as well and have access to inexpensive dental and vision programs.
- Base commissary and exchange. These are stores found on military installations. The commissary is a grocery store and base exchanges are general stores that carry a range of products, from clothes to electronics, household items and more. The prices at these stores are often competitive to stores found on the civilian economy and have the benefit of being tax free. These stores provide an excellent shopping opportunity overseas!
- Base activities and recreation. Every base has a different range of facilities available to military members and their families. Some examples include a base theater, outdoor activities, wood working shops, auto hobby shop and more.
- Base lodging. Military members are able to stay at inexpensive base lodging on a space available basis. This is an excellent way to save money when traveling.
Retirement and Investing Benefits
Military members are eligible to participate in the Thrift Savings Program (TSP), which is more or less a government version of a 401k plan. It works the same as a civilian 401k plan. A recent addition to the TSP is the Roth TSP. The primary difference in the TSP is that it has a more limited range of investment options. However, the options they offer are among the least expensive you will find anywhere. Military members are also eligible for civilian retirement plans such as IRAs.
The military retirement system is one of the best retirement programs you will find anywhere in the world – after 20 years of active duty service, military members are eligible to retire at 50% of their base pay, plus full medical care for themselves and their qualified dependents under TRICARE (there is a small annual enrollment fee). Military members can also earn a larger retirement by serving longer than 20 years. Each additional year served can earn them an additional 2.5% of their base pay. So serving 22 years would equal 55% base pay, 30 years would be 75% base pay, etc. (Please note, this is a simplified version of the military retirement system; there are several different retirement options, depending on when the service member joined the service, which option they selected if they had a choice, etc.).
Military Veteran Benefits
Military veterans also have access to a variety of benefits programs once they leave the service. Benefits eligibility is always on a case-by-case basis, and can be complicated (it literally takes an entire website to cover everything!). Here are a couple programs which are common to many military veterans:
- GI Bill. There are two primary versions – the Montgomery GI Bill, and the Post-9/11 GI Bill. Both of these programs give veterans education benefits to help them pay for college courses or professional certifications.
- VA Loan. The VA Loan is a government sponsored home loan guarantee program to help service members buy a house. Military members still must qualify for the loan, but the government will back the loan if the buyer defaults.
- VA Health Care Benefits. Virtually all veterans are eligible to qualify for VA health care benefits, depending on a variety of factors including their service dates, whether or not they have a service-connected disability, their income and other factors. If you are a veteran and are in doubt of your eligibility, please apply for benefits – you may just find you are eligible.
- Additional VA Benefits. There are many more VA benefits for veterans. Again, it is a complex topic, so we created a veterans benefits guide to help veterans find different programs the may be eligible for.
Just the Tip of the Iceberg
Again, the military pay and benefits system is very large, and very complex. Hopefully this article will be a good starting point to help you understand the basic benefits many military members and veterans are eligible to receive. If you are looking for more information about joining the military, then contact your local recruiter, or even better, speak with someone you know who is currently serving – they will give you a better idea of what to expect, without trying to sell you anything.
If you are a veteran who is looking for more information about veterans benefits, then I recommend contacting the VA, or a veterans organization such as the Disabled American Veterans (DAV), Veterans of Foreign Wars (VFW), American Legion, Iraq and Afghanistan Veterans of America (IAVA), or another similar veterans organization. They all have trained individuals who will offer free assistance to help you apply for veterans benefits. You can also contact me via the contact page of my sites, or via Twitter and I will do my best to point you in the right direction.