Another Simple Way to Get Rich in the Military – Become a Super Saver

by | 03Jan2018 | Military Millions, Saving | 3 comments

In the military, there are a few advantages you’ve got that can allow you to sock away more of your income than the average Joe. They include:

  • Government housing or a tax-free housing allowance
  • Government provided or subsidized meals
  • Free medical and dental care
  • On base services (exchanges, commissaries, gyms, auto shops, child care, etc.)
  • Uniforms to wear instead of expensive business clothes
  • Military discounts
  • USAA insurance
  • No income lapse when you change jobs

If you can put these advantages to work, allowing you to save more than the average American, invest appropriately, and combine these savings with just plain staying in the military for 20 years, you can be rich.

How Much Should I Save?

One of the most important moments of my early financial career that had a major impact on my ultimate net worth was the day I decided to reach David Bach’s The Automatic Millionaire. In the book (based on my memory of it), it said that your savings rate was a major determining factor of whether or not you became rich. If you wanted to work your whole life and have a comfortable retirement at the age of 65, you needed to save 15% of your income for retirement. It said that if you saved 20-30%, you’d get rich. Period.

What did I do? I saved 20-30%, and it worked.

What If You Saved 20-30 Percent?

Here are two charts that use a pretty typical enlisted and officer promotion, the 2018 basic pay chart, and various savings rates applied to basic pay. The charts assume a 4 percent real return on investment and dollar amounts are in today’s dollars.

20 Year Enlisted Career

YEAR RANK MONTHLY BASIC PAY PERCENTAGE SAVED FOR RETIREMENT
15% 20% 25% 30%
1 E-1  $1,638  $2,948.40  $3,931.20  $4,914.00  $5,896.80
2 E-2  $1,836  $3,304.80  $4,406.40  $5,508.00  $6,609.60
3 E-3  $2,052  $3,693.60  $4,924.80  $6,156.00  $7,387.20
4 E-3  $2,177  $3,918.60  $5,224.80  $6,531.00  $7,837.20
5 E-4  $2,490  $4,482.00  $5,976.00  $7,470.00  $8,964.00
6 E-4  $2,490  $4,482.00  $5,976.00  $7,470.00  $8,964.00
7 E-5  $2,925  $5,265.00  $7,020.00  $8,775.00  $10,530.00
8 E-5  $2,925  $5,265.00  $7,020.00  $8,775.00  $10,530.00
9 E-5  $3,126  $5,626.80  $7,502.40  $9,378.00  $11,253.60
10 E-5  $3,126  $5,626.80  $7,502.40  $9,378.00  $11,253.60
11 E-5  $3,291  $5,923.80  $7,898.40  $9,873.00  $11,847.60
12 E-6  $3,564  $6,415.20  $8,553.60  $10,692.00  $12,830.40
13 E-6  $3,777  $6,798.60  $9,064.80  $11,331.00  $13,597.20
14 E-6  $3,777  $6,798.60  $9,064.80  $11,331.00  $13,597.20
15 E-6  $3,842  $6,915.60  $9,220.80  $11,526.00  $13,831.20
16 E-6  $3,842  $6,915.60  $9,220.80  $11,526.00  $13,831.20
17 E-6  $3,889  $7,000.20  $9,333.60  $11,667.00  $14,000.40
18 E-7  $4,493  $8,087.40  $10,783.20  $13,479.00  $16,174.80
19 E-7  $4,625  $8,325.00  $11,100.00  $13,875.00  $16,650.00
20 E-7  $4,625  $8,325.00  $11,100.00  $13,875.00  $16,650.00
TOTAL ASSUMING 4% REAL RETURN $162,330.18 $216,440.25 $270,550.31 $324,660.37
VALUE OF A 20 YEAR PENSION  $689,299.00  $689,299.00  $689,299.00  $689,299.00
TOTAL NET WORTH $851,629.18 $905,739.25 $959,849.31 $1,013,959.37

 

20 Year Officer Career

YEAR RANK MONTHLY BASIC PAY PERCENTAGE SAVED FOR RETIREMENT
15% 20% 25% 30%
1 O-1  $3,108  $5,594.40  $7,459.20  $9,324.00  $11,188.80
2 O-1  $3,108  $5,594.40  $7,459.20  $9,324.00  $11,188.80
3 O-2  $4,078  $7,340.40  $9,787.20  $12,234.00  $14,680.80
4 O-2  $4,696  $8,452.80  $11,270.40  $14,088.00  $16,905.60
5 O-3  $5,528  $9,950.40  $13,267.20  $16,584.00  $19,900.80
6 O-3  $5,528  $9,950.40  $13,267.20  $16,584.00  $19,900.80
7 O-3  $5,793  $10,427.40  $13,903.20  $17,379.00  $20,854.80
8 O-3  $5,793  $10,427.40  $13,903.20  $17,379.00  $20,854.80
9 O-3  $6,083  $10,949.40  $14,599.20  $18,249.00  $21,898.80
10 O-3  $6,083  $10,949.40  $14,599.20  $18,249.00  $21,898.80
11 O-4  $7,053  $12,695.40  $16,927.20  $21,159.00  $25,390.80
12 O-4  $7,053  $12,695.40  $16,927.20  $21,159.00  $25,390.80
13 O-4  $7,404  $13,327.20  $17,769.60  $22,212.00  $26,654.40
14 O-4  $7,404  $13,327.20  $17,769.60  $22,212.00  $26,654.40
15 O-4  $7,648  $13,766.40  $18,355.20  $22,944.00  $27,532.80
16 O-4  $7,648  $13,766.40  $18,355.20  $22,944.00  $27,532.80
17 O-5  $8,530  $15,354.00  $20,472.00  $25,590.00  $30,708.00
18 O-5  $8,530  $15,354.00  $20,472.00  $25,590.00  $30,708.00
19 O-5  $8,771  $15,787.80  $21,050.40  $26,313.00  $31,575.60
20 O-5  $8,771  $15,787.80  $21,050.40  $26,313.00  $31,575.60
TOTAL ASSUMING 4% REAL RETURN $324,305.67 $432,407.56 $540,509.45 $648,611.34
VALUE OF A 20 YEAR PENSION  $1,332,882.00  $1,332,882.00  $1,332,882.00  $1,332,882.00
TOTAL NET WORTH $1,657,187.67 $1,765,289.56 $1,873,391.45 $1,981,493.34

 

A couple of comments…first, no one has any idea what the investment returns will be over the next 20 years. I can guarantee you that no matter how you invest, you won’t get a 4% real return every year. It may be more, it may be less, and it will definitely vary annually. This is just a conservative estimate to show you how what seems like a small amount of money can grow and compound over time to over $1 million in 5 of the 8 scenarios.

Second, I would argue that you should save 20-30% of your total compensation, and not just your basic pay. In other words, include all of your allowances and extra pays (if you have any) in addition to your basic pay. Include literally every dollar that enters your household. Add them all together, and that is your total compensation. Multiply that by your savings rate, and that is how much you should invest every year. Again, using basic pay only is an intentionally conservative way of looking at these scenarios.

In other words, the numbers in the charts are conservative estimates. The actual results you’d achieve could be much higher if you’re smart about it and the markets comply. Combine this super saving with just plain staying in for 20 years and the value of the pension, and you’re rich.

USAA
Personal Capital

3 Comments

  1. carlos

    Agree with most everything above, especially allowances and how they are tax exempt, for which there is no civilian job equivalent. Pay-scaled child care is key for many single enlisted parents as well. However, I have to contest two points:
    1) uniforms are their associated regalia, for multiple jobs and events, are not cheap either! I figured I’ve spent 5k on uniforms to include dinner wear, which is more than I would have ever spent on business clothing, and I’m certain to spend more still.
    2) it’s a bit disingenuous to say “no income lapse when you change jobs” when the military gives you different jobs every couple of years.

    Reply
    • Still In

      Some people spend a lot of money on suits/business clothes! Sounds like that is not you, which is good.

      I agree uniforms can be expensive, but sometimes not. I’ve used thrift shops or other places where you can buy cheap, used uniforms multiple times. My last set of uniforms (NWU Type IIIs x 4 sets) were given to me FOR FREE due to a deployment, so uniforms don’t always have to cost a lot.

      I hear you with the new jobs issue, but your pay continues and doesn’t change. In fact, if you PCS you get dislocation allowance (another tax-free allowance)!

      Thanks for reading and commenting.

      Reply
      • Was In

        Re: uniforms… What you all have is an officer problem. Enlisted folks in all services get an annual clothing allowance. In my experience if that’s all you spend, the First Sergeant is going to chat with you about your appearance, but it does go most of the way to offsetting the cost.

        The amount varies by time in, service, gender, uniform transitions etc.

        Here’s a discussion of the amounts for 2018:
        https://www.military.com/benefits/military-pay/allowances/clothing-allowances.html

        Reply

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