Enlistment and Reenlistment Bonus Guide – Everything You Need to Know about Bonuses

Enlistment bonuses and reenlistment bonuses are just one way that the military entices people to join the military or choose to reenlist for additional service. These bonuses aren’t available to everyone, however. Bonuses are most often used as a tool to get people to sign up for hard to fill jobs, those which require a lot of training, and jobs that offer high paying jobs in the civilian sector. Let’s take a look at enlistment and reenlistment bonuses, including how much they can run, how they are paid out, and what you can expect if you receive one.

Enlistment Bonuses

reenlistment bonus guide

Read this guide before reenlisting!

Some jobs in the military are eligible for an initial enlistment bonus of up to $40,000. Keep in mind this is only for the most difficult to fill positions, and bonuses are not available for every job. The size and availability of bonuses depends on your branch of service, job specialty, and the length of your enlistment (typically between 3 and 6 years). As you can imagine, a 6 year enlistment bonus generally pays more than a 3 year enlistment bonus. If your job is eligible for a bonus, you will typically receive it after you finish your basic training and initial technical training.

Reenlistment Bonuses

Reenlistment bonuses may be available to current service members when they reenlist for another term, again, usually in 3 to 6 year increments. As previously mentioned, reenlistment bonuses aren’t available for every career field. Each branch of service is able to determine which specialty (Rating, MOS, or AFSC) is eligible for a reenlistment bonus.

You may be eligible for a reenlistment bonus if you are a member of the uniformed service who:

  • has completed at least 17 months of continuous active duty (other than for training) but not more than 20 years of active duty;
  • is qualified in a military skill designated as critical by the Secretary of Defense, or by the Secretary of Homeland Security with respect to the Coast Guard when it is not operating as service in the Navy; and
  • reenlists or voluntarily extends the member’s enlistment for a period of at least three years in a regular component of the service concerned; or in a reserve component of the service concerned, if the member is performing active Guard and Reserve duty (as defined in section 101 (d)(6) of title 10).
  • You are not currently receiving special nuclear-training pay.
  • You reenlist or voluntarily extend your enlistment for a period of at least three years.
  • You enlist in a regular component of the service concerned; or continue in a reserve component of the service concerned.

How much can you receive as a bonus? Reenlistment bonuses cannot exceed the lesser of:

  • The amount equal to the product of 15 times the monthly rate of basic pay to which the member was entitled at the time of the discharge or release of the member; and
  • the number of years (or the monthly fractions thereof) of the term of reenlistment or extension of enlistment.
  • Reenlistment bonus not to exceed $90,000.

Note on Special Retention Bonuses: Some specialties are eligible to receive retention bonuses of more than $90,000. These are usually limited to those in the medical field, aviators, and those in select nuclear specialties. These are all on a case-by-case basis and are spelled out in US Code: 37 U.S. C, Chapter 5.

How (Re)enlistment Bonuses Are Paid

This is the section everyone wants to read! If you qualify for a bonus, you want to know when you get paid, right? Fair enough. If your bonus is less than $20,000 you can generally expect to receive it in a lump sum, upon completion of the terms in your contract. This is generally after completion of your initial technical training. If your bonus is more than $20,000, you can generally expect to receive half up front (again, upon completion of training), and the remainder spread out among annual installments. The Navy pays out their annual installments on October 1, which is the start of the fiscal year. The other branches of the service pay their enlistment and reenlistment bonuses on the anniversary of the date you received your initial installment.

Why annual installments? The military wants to ensure they are getting their money’s worth. You must continue to meet standards for your Rating/MOS/AFSC in order to be eligible to continue receiving your anniversary bonus payments. Failure to meet the technical standards for your career field, or failure to meet other standards may make you ineligible to receive your bonus payment.

Example: If you have a $40,000 bonus, you would expect to receive a $20,000 lump sum upon completion of training (or when your reenlistment actually begins). You would receive the remaining $20,000 in 5 annual installments of $4,000 each on the anniversary of your reenlistment beginning, or on Oct. 1 if you are in the Navy.

Don’t forget about taxes! You will also have taxes automatically withheld from your bonus, generally at the 25% or 28% rate. This is automatically done by the government, and not something you can change. If the withholding is too high for your tax bracket, then you will likely receive a larger than normal refund the following year.

What About Tax-Exempt Bonuses?

Count yourself lucky if you reenlist or receive your bonus while you are in a tax exempt combat zone. If you reenlist in a tax-free combat zone, you will receive your entire bonus tax free, which can be a substantial savings. Even better – your anniversary installments will also be considered tax-exempt, even if you receive them after you leave the tax-exempt zone. This is because you signed the contract in a tax-exempt zone. It’s not uncommon for people who are due to reenlist to request to go on an overseas deployment and reenlist at that location so they can receive a tax-exempt bonus. This tax exemption has another important factor which we cover in the next section about the Thrift Savings Plan.

Contributing Bonuses to the Thrift Savings Plan

You are eligible to contribute some or all of your enlistment or reenlistment bonus to the TSP, from 1-100%, provided your contributions do not exceed the federally mandated TSP contribution limits ($17,500 for 2014; $23,000 for age 50 and over). However, there are some exceptions. The $17,500 contribution limit only applies to taxable income. If your bonus is tax exempt, you can contribute up to the Annual Addition Limit of $52,000 ($57,500 for age 50+). You would be able to contribute up to $17,500 of your base pay, and up to $34,500 of your bonus pay, to reach the $52,000 limit. Taking this a step further, tax-exempt TSP contributions are extremely valuable as the income has never been taxed. This gives you some advanced retirement planning options should you choose to go that route (we’ll save that for another article).

Refunding a Bonus

This is the part no one wants to read, but it must be understood. If you receive a bonus, you are on the hook for the term of your contract. You may owe a prorated refund to the government if you are unable to fulfill the terms of your contract. This will be based on the amount of money you have received and how much time remains on your contract. Reasons you might have to repay your bonus can include, but are not limited to: voluntary separation, misconduct, failure to meet standards, failure to meet technical qualifications, and possible other reasons.

You aren’t generally on the hook to repay a portion of your bonus if you aren’t qualified to serve due to illness, injury, or other reasons for which you aren’t at fault.

Note on repaying a bonus due to early separation: Voluntary early separation often requires you to repay a portion of your bonus, but it may depend on why you separate. Repayment of bonuses has been waived at times during Reduction in Force (RIF) measures, but only in cases when the branch of service specifically waived the requirement. In other words, don’t take it for granted! Be sure to read the contract you signed when you received your bonus, and the contract you will sign to separate early. The terms will spell out whether or not you will need to repay your bonus.

Meet with your finance and/or personnel  office for more information: If it is determined you will owe a refund to Uncle Sam, be sure you know how much you will owe, and how you will be required to pay it back. Your finance or personnel office should be able to help you with this.

Which Jobs Offer an Enlistment or Reenlistment Bonus?

Great question, and I’m sorry, but it’s one I can’t answer because it’s a moving target. Each branch of service determines which specialties are eligible for enlistment or reenlistment bonuses, and they frequently change as the needs of the service change. If you are considering joining the military, then you will need to speak with a recruiter to find out if a bonus is available to you. If you are currently in the service, you can generally find a list on your service’s website, or by contacting your personnel or retention office.

Word of advice: Don’t just do it for the money. A bonus is nice, but make sure 1) you want to serve; you aren’t just joining the military for a fat bonus, and 2) you want to serve in the job that is offering the bonus. Nothing will make the next few years drag more than a job you hate. Secure happiness first, then worry about the money.

More reading:

  • Enlistment and Reenlistment bonuses are part of the US Code: 37 U.S. C, Chapter 5, subchapter 1 (§ 309 – Enlistment bonuses), (§ 308 – Reenlistment bonuses)
  • There are special sections of the US Code that cover certain hard to fill specialties, particularly those in the medical, aviation, nuclear, and other professional fields. These are also listed in subchapter 1.
  • Contact your recruiter or personnel office for more specific advice regarding any bonuses you may be eligible to receive. And as always, get it in writing!

Lesson Learned from the Government Shutdown

The government shutdown affected just about everyone in some way. And for many of us, it was scary. Would we get paid? Would veterans benefits continue?

The answers changed depending on the day of the week. Until laws were changed, no one would get paid. Congress eventually passed a law that ensured active duty military members would get paid, but many non-military government employees were furloughed without pay (many of them will get back pay, but that doesn’t account for the problems many people incurred while they were without pay).

There were other problems: many members of the Guard and Reserves had their drills canceled, reducing their points for the year, and leaving them without their expected pay. Numerous base activities and benefits were temporarily canceled or shut down. The Commissary, base exchange, child care, and other base benefits were unavailable.

In short, it was a bad dream for most military members and government employees. And here is the worst part: it can, and likely will, happen again.

Like the last few times dealing with the debt ceiling, the government placed a band aid on the wound. They didn’t make a permanent fix. This has been going on for the last two years, and it is likely to continue unless the government passes a permanent solution. In the mean time, it is up to all of us to do as much as we can to take control of our lives. Here are some tips we can all use to get on a better financial footing so the next time something like this happens it will still be an inconvenience, but hopefully, it won’t be catastrophic.

We Need to Take Control of Our Finances

It is hard to be in control when you are in the military. You go where they tell you to go, you get paid when the government says you get paid, etc. I get that. But there are things we can all do to help ourselves be in more control of our financial lives.

It starts with our day-to-day and week-to-week living. Living paycheck to paycheck is tough, and for many, it is a reality. But we all need to try to get ahead of the paycheck game. (Yes, I know it is hard to live on an enlisted salary, but tens of thousands of military families do it every day).

Getting our of the paycheck-to-paycheck cycle: There are no secrets here. The only way to get out of the paycheck-to-paycheck cycle is to spend less than you earn (or earn more than you spend). It won’t happen any other way. Here are some recommended tips to get you started:

  • Build an emergency fund. An emergency fund is nothing more than a savings account you set up for a rainy day. You don’t touch it unless you absolutely need to. There is no magic number for how much money you need in your emergency fund, but a recommended starting point is $1,000 (you don’t have to stop there, just set that as a target to get started). That is a lot of money, but you don’t have to put it all in right away. Start saving $25 a week, or $50 a paycheck, or whatever you can afford to put away. The money in your emergency fund will help you deal with any unexpected expenses that pop up, such as a flight home, a car accident, or a government shutdown. Your emergency fund will help you avoid relying upon credit cards or other loans in an emergency.
  • Reduce your debt. Debt is nothing but an anchor to your financial growth. It is hard to cut back your spending when you have a large portion of your income tied up in payments every month. Every bit of debt you reduce now is less money you have to spend before it hits your bank account, making it easier to weather the storm of a government shutdown or other event that limits your cash flow.
  • Increase income. Increasing your income is a great way to supercharge your savings or reduce the time it takes you to get out of debt. Not everyone can work a part-time job when in the military (and most military members shouldn’t). But there are other ways to earn more money, including having a side business, or a hobby that can generate income. Spouses may also be able to work part-time, either in or out of the home. Any additional income can make cash flow problems easier to deal with.

Stay informed

The government shutdown was not a static event. There was news about it in the weeks leading up to it, and a constant news stream during the shutdown. There was no permanent solution, so it is very possible this can happen again. Be ready if it does. If you see anything about this in the news, start preparing as soon as you can. Cut expenses where possible, save what you can, encourage your spouse to look for part-time work if possible, etc. Look at your personal situation and adjust as necessary. Preparing even a month out can reduce your stress levels.

Bank with Someone Who Understands

I recommend banking with a military financial institution such as Navy Federal Credit Union, Pentagon Federal Credit Union, or United Services Automobile Association (USAA). (There are likely other good financial institutions out there, I am recommending the ones I am most familiar with). All of these financial institutions are built to serve their members first, not shareholders like corporate banks. (Credit Unions by definition are owned by their members, and USAA is under a unique charter; they too are owned by their members). Because of these differences, these financial institutions are able to do things for their members that other financial institutions won’t do, such as offer interest free loans during a government shutdown or other forms of assistance to help members get through a difficult period. They may also offer member benefits during a PCS or deployment, better customer service than most large commercial banks, better financial products, fewer fees, and more. I recommend looking into joining one of these institutions if you aren’t already a member.

Take Control Where Possible

At the end of the day, the government shutdown was a major inconvenience for many people. And that is unfortunate, because the shutdown harmed the people the government is supposed to protect. That makes for an eye-opening experience for many of us. For me, it reinforced that I need to take as much control into my hands as possible.

Will Military Members Get Paid if Government Shuts Down?

The government still hasn’t passed next year’s funding bill, leaving the possibility of a government shutdown if the funding bill isn’t passed by September 30, 2013. How would a government shutdown affect the average American, and just as importantly, what would it mean for our men and women in uniform?

These are great questions. A government shutdown would affect a large segment of our population, including federal government employees and military members. But what about military retirees, Social Security Recipients, and recipients of other government and military benefits such as TRICARE, VA benefits, and more? The answers to these questions vary, depending on several situations.

What Happens if the Government Shuts Down?

First, let’s start with a little background on the situation: The US government is required to pass a spending bill each year. Essentially, this is their budget – without it the government ceases many operations and as a result, many government agencies will stop work and many will stop paying employees. The current spending bill ends September 30th, and without passing a new spending bill, the government will essentially shut down.

Will Military Members Get Paid?

Update: The government has passed approved military pay during the government shutdown. However, most government civilians will not receive pay during the shutdown, and man government and military support facilities will be closed. Check with your base for a list of current closings.

The answer is yes, and no. Military members will receive their paycheck on October 1st, but there is the possibility that service members won’t get paid beyond October 1st if the government shutdown extends beyond that date. The Air Force Times recently quoted Rep. C.W. “Bill” Young, R-Fla., chairman of the House defense appropriations subcommittee, as saying“All military personnel will continue to serve and accrue pay, but will not actually be paid until appropriations are available.” 

In this case, employees would be paid for their work up to the day the spending bill expired, or September 30th. Earnings through September 30th would be paid on October 1st, 2013. So the first possible missed paycheck would be the mid-month paycheck due on October 15th.

What does this mean for military members? The first thing to consider is that this hasn’t happened yet – the government has a tendency to burn the midnight oil when a showdown looms, often working until the early morning hours to either pass the funding bill, or pass a bill that gives them a deadline extension. At this point, a band-aid is better than nothing. Should they fail to reach a new agreement on the funding bill, it is possible that the government could shut down many services and stop making payments.

How much will you be paid, and when? If the government shuts down, you will receive your pay earned through the date at which the government shuts down. At this time the deadline is September 30th, which would make for a normal paycheck on the regularly scheduled October 1st payday. As stated above, military members would continue working and accruing pay after the cutoff date, so the next paycheck would be normal as long as the funding bill was passed in enough time for payments to be made.

Military members will receive back pay. If the government shuts down and military members don’t receive paychecks, they will receive back pay for missed paychecks.

Some government employees may not be required to report to work. If a funding bill is not passed, most government employees will be temporarily furloughed and will not be required to work until a spending bill is passed. However, there are exemptions, especially for those whose work is required for national security, including most military members. These groups of military members will be broken into exempt and non-exempt categories. So operations in war zones, humanitarian relief, and many people involved in fields such as medical, security, and transportation will continue to work.

What about other benefits? Benefits related to your pay, such as BAS and BAH will not be paid during a potential government shutdown, however, other benefits may still be around, such as health care. Military members may also be forced to cancel leave because technically the government is not allowed to permit government workers to take paid leave while there is no spending plan, due to the way paid leave works from an accounting standpoint. At this point, much is still in the air, and these concerns may not have all been determined at this time. The Pentagon is awaiting more information before releasing official guidance for military members and their families.

Military related payments not expected to stop. The government shut down will only affect paychecks for government spending which must be approved on an annual basis. Some military related payments are made from a separate pot of money and likely won’t be affected. The following payments are expected to continue without interruption:

What about Social Security Benefits, Veterans Health benefits, Medicare, Medicaid, etc.? During the last shut down, the government continued sending Social Security Benefits to recipients. This should continue again. However, many non-emergency veteran health care services were curtailed during the shutdowns. Medicare, Medicaid and VA health care benefits would continue during a shutdown, but payments for the care may be later than normal. So be aware of this when planning any non-emergency or low-priority medical care.

UPDATE: Here are some tips for Dealing With a Missed Military Paycheck. These tips can show you how to get by on your own or how to contact your lender, landlord, or financial aid service to get help with this situation.

Interview with Jeff Rose, Author of Soldier of Finance

One reason I started The Military Wallet was to help myself and other military members and veterans navigate the often-times confusing world of benefits and financial topics. No one is going to hold your hand and show you how to balance your check book, invest in your first mutual fund, open a Thrift Savings Plan account, or prepare for retirement. It’s up to each individual or family to get it right. And it’s not always easy.

Soldier of FinanceJeff Rose is a living example. He started off like many of us – living paycheck to paycheck, and not quite sure how to handle his money the right way. Then he became interested in learning more about money management, investing, and related topics. Today, Jeff is a Certified Financial Planner, blogger at Good Financial Cents, life insurance agent, and now, a published author, as he is in the process of launching his first book, Soldier of Finance: Take Charge of Your Money and Invest in Your Future.

Did I mention that Jeff served in the Army National Guard for 9 years and used his GI Bill to help him earn his college degree and financial planning certifications? Jeff leans heavily on his military background to bring you Soldier of Finance. In it, you will learn about how his military training prepared Jeff for a life of financial planning, how he learned to roll with the punches and recover from financial mistakes. He shares his experience with his year-long deployment to Iraq and how it helped shape his desire to create a stable financial footing for his family when he returned.

Jeff Rose - Soldier of Finance

I’ve read dozens of books on money management and financial planning, but I’ve never read one with the approach Jeff uses. He shares his background and personal anecdotes to distill difficult financial topics into a language every one of us can understand. Even better, Jeff lays out a road map to help you get your own finances in order. This book contains a lot of excellent information and is best treated as a manual for long term financial planning. Using this resource, you can learn how to manage debt, understand your credit report and credit score,identify your financial goals, begin saving for the future, start investing, save for a home, and insure yourself, your family, and your belongings. In short – it’s a manual you can keep on your shelf and use for reference at virtually any stage of your life.

Jeff graciously spent a few moments answering some questions for us. I hope you will take a few minutes to read through this, and learn more about his book on his website, or visit Amazon for more information (also available at Barnes & Noble and other retail stores).

1. Congratulations Jeff on the new book Solider of Finance. I know it’s been a lot of work in the making, and I’m sure you’re excited to finally see it in print form! Can you give us a brief overview about the book, including what inspired you to write it and who the target audience is?

First off, thanks Ryan for allowing me to share my story with your community. Secondly, I would like to thank my fellow service men and woman who have sacrificed for the country that they love.

The inspiration behind the book is simple. I’ve been a financial planner for over 10 years now and along that way, I’ve seen so many men and women who make poor financial decisions. This has to do with investing, budgeting, saving for retirement. You name it. I’ve seen it. This book looks to address those that need help just getting started in getting their financial house in order.

The underlying message behind the book is that we’ve all made poor financial decisions in our past; me included. I struggled with credit card debt and student loans. I dropped out of college and was going nowhere fast.  I made the conscious choice that I wanted more out of my life; I took action and made things happen.

I’ve personally seen dozens of cases where people got into really bad credit card debt, had to file bankruptcy, procrastinated, and didn’t save anything for retirement and despite all these shortfalls, they still have been able to get their financial life in order.

This book is for those that want more out of their money and are willing to put forth the effort to get there.

2. The concept of a battle buddy is not a new concept to most people in the military, but many military members don’t apply this concept to other areas of their lives, including their finances. Can you share why having a battle buddy is so important for helping with financial management?

As you alluded to, most people in the military get the battle buddy concept. Having somebody that has your back no matter what and knows everything about you.  Every deep, dark secret, and isn’t afraid to speak their mind if they feel that you need it and deserve it. The same thing applies with your financial battle buddy.

For example, in my case, my financial battle buddy is my spouse. She’s the one when we first started dating that called me out when I tried to convince her that I needed to buy a brand new 42 inch flat screen TV. Now keep in mind I wanted to buy this when my income was next to nothing, and I already was racking up credit card debt. Her simply asking me, “Can you really afford that?” was a wake-up call.

Initially, I was miffed that she would ever question this purchase, but after sitting on it for a few days I realized that she was right.

A financial battle buddy isn’t afraid to speak their mind when they know what you need to hear. If your battle buddy knows that you’re struggling with debt, they should be the first one to speak up if you’re getting ready to head to the mall to buy something you don’t need, or go on a trip that you really just can’t afford.

3. Many people are afraid to admit their mistakes to themselves, much less write about them, but you have done just that as you list several financial mistakes that you have made throughout your learning years. Can you share a financial mistake that you made and how you learned from it?

My gosh…where do I even start?  :)

I think the biggest mistake I made early on was my thinking in regards to credit cards “My payment will be a $100 per month.  I can totally afford that.

Because of my flawed logic my credit card debt went from a simple $500 store card to $10,000 of total debt.  And this was before I graduated college!

My spending was spiraling out of control and thankfully my wife was there to kick my financial butt again.

Since then I always ask myself “Do you really need that?” before I purchase anything.  That’s not just for big purchases.  I do that for small purchases like a $15 t-shirt.  It might sound silly but small “innocent” purchases it where it all begins.

4. When I first enlisted in the military, I saw how many youngsters made a variety of financial mistakes (I even made a few of my own!). What mistake do you see the most often among younger individuals or young families and what advice do you have for them.

I think the biggest mistake that most young people make is that they don’t save enough for their financial future. Most young individuals nowadays will not have the luxury of fruitful pensions and social security to take care of their retirement income needs. What that means is that it’s all on their shoulders to make it happen.

Because of this, younger individuals need to be saving a good chunk of their income. And I define a good chunk of income as a minimum of 20%, but in reality 25% is where you want to be.

A common misconception a lot of young people that I talk to assume  is that they can’t afford to start saving right now because it takes a lot of money to get started.  That’s a huge mistake.  It doesn’t take a lot to get going, but not getting going at all will have dangerous ramifications later on.

5. In your day job, you’re a financial planner and insurance agent. Many of your clients are more established in their lives and in their finances. What are the biggest financial problems you see when you visit with a new client? What advice do you have for them?

Some of the biggest problems I see are having way too much debt. Many of my clients are approaching retirement and have to watch their monthly spending fairly closely. By having too much debt, i.e., a mortgage, credit cards, car loans, etc., it puts that much more pressure on having enough money to live off in retirement. My advice to anyone who wants to retire with little to no stress is to get rid of the debt. Do what you can to pay off everything before you finally retire.

For the younger generation, don’t get caught up in keeping up with your peers. Know what you can afford. If at all possible, pay cash.  Not blowing your paycheck on the latest gadget or fad and putting that money away will reap huge benefits down the road.

6. So far, we have discussed reacting to mistakes, but you can’t win a war by only playing defense. Can you give some examples of how your readers can be proactive with their finances?

First and foremost people need to be in tune with what’s going on with their finances. This can be having a simple budget, having routine financial discussions with your spouse, knowing exactly how much money you’re saving and where it’s going. One of my pet peeves as a financial planner is that I see countless people blindly putting money into their retirement plans but have no idea what their money is actually invested into. Since your 401(k), TSP, 403(b) will eventually be your largest asset that you own, even larger than your home, wouldn’t you want to know where your money’s being invested?  I would hope so!

In addition to staying on top of your savings and your investing, it’s also wise to keep in tune with your credit. If your credit report changes constantly, this also affects your credit score. Doing simple routine audits of your credit report (since it’s free) will make you aware if there are any drastic changes that you need to be on top of.

Jeff, thanks so much for spending a few minutes sharing your insight with our readers. For anyone looking for a good financial resource, I recommend checking out Jeff’s new book, Soldier of Finance: Take Charge of Your Money and Invest in Your Future.

5 Priceless Money Tips from the WWII Generation

The World War II generation is fading away, and with them goes a lifetime of lessons this generation could certainly use today. If you were to sit down with one of these wise men or women, what would they tell you about life and money? Likely, you’d learn a thing or two about surviving difficult circumstances and how to foster strong business relationships with your fellow man. Let’s take a look a few of the priceless money tips you’d learn from these brave souls.

1. There’s no such thing as “too frugal.”

Money tips from the Greatest GenerationGrowing up in the Great Depression, the World War II generation knew what it meant to be frugal. The difficulties they encountered pale in comparison to the recession of late. Many didn’t have enough money for food, and every purchase was carefully considered. They were frugal because they had to be, but would likely tell you that it’s good to be frugal even when you don’t have to be. If they could’ve saved money for a rainy day, they would have. In fact, they are notorious for their frugal ways even during these times of plenty.

2. Work really, really hard.

The World War II generation understood the value of a job, and they worked very hard at the task at hand. Back in their day, they often didn’t have a wide variety of jobs to choose from. Today, typing a job search into Google will show you some results in the blink of an eye – an advantage non-existent to those living 70 years ago.

Complaining was not an option. You worked hard because if you didn’t, there was someone standing in line waiting to take your position. Finding your dream job probably never came to mind; instead, finding any job was a dream come true.

3. Find contentment in what you have.

Consider the words of Larry, an 89-year-old:

Let me tell you, in the 1930s we had the Depression . . . . We’d maybe get a nickel once in a while. We were half a block from a wonderful park, they had lots of activities there for kids, and wading pools, and we had a huge skating pond down there. And they’d have band concerts down there in the summer the whole neighborhood would go down there. There were popcorn wagons parked all around there. We kids would have a nickel and we’d sit there for several minutes trying to decide “What I should I have?” And these poor guys, they’re trying to wait on you, they’re patient waiting for you to decide: Do you want popcorn or do you want ice cream? You want a Holloway sucker or what do you want? And once in a while at the movies, they would have Saturday matinees for kids, for ten cents. And after the movie if we had another nickel we’d stop at a place that had ice cream and popcorn and we’d get that. And boy, we really had a Saturday afternoon.

Do you ever hear kids today saying such things after a movie and ice cream – “And boy, we really had a Saturday afternoon?” It’s clear from Larry’s story that he was content with much less than children are today. Movies, ice cream, and popcorn with friends were all a kid needed to have a blast. And these aren’t even small things. Something tells me Larry was content and happy even when he couldn’t afford such entertainment.

4. Don’t let inflation catch you off guard – because it’s real.

Take a twenty-dollar bill out of your wallet if you have one. As of this writing, that twenty-dollar bill has the same buying power as $1.19 the year World War II started (1939). Inflation is real, and you should figure it into your financial planning. While nobody can predict future inflation rates, this calculator will give you some more ideas about the effect of inflation on money.

5. You shouldn’t rely on credit cards.

Credit cards wouldn’t land in the hands of consumers until about a decade after World War II, making access to credit more difficult for that generation. While sharing supplies with your neighbor was a common occurrence in the early 1900s, borrowing at interest was far more difficult than companies make it today.

While the World War II generation would eventually, in part, adopt credit card use later in life, you’ll still find many from that generation using checks and debit cards as a means to spend money they actually had – what a novel idea. ;)

Bottom Line

If you have the opportunity to sit down with a senior and talk with them about life back in their youth, do. Ask them about some of their best money tips, and be open to taking their advice. You’ll be glad you did.

About the author: Bob is a full-time blogger who writes almost exclusively about personal finance. You can find more from him at Christian Personal Finance.

Is an Early Military Retirement a Good Option? A Look at TERA

The military last went through a draw down in the 1990′s, following the Cold War and the first Gulf War. During that time, the military contracted in many ways, including the retirement of weapons systems, base closures, and the mass attrition of personnel. Following a decade of relative peace, the world was rocked by the terror attacks of September 11th, which brought us into the War on Terror. Instead of decreasing in size, our military increased its numbers, and even implemented measures to temporarily prevent some members from leaving the service. Many military members were unable to leave the service when they originally intended to, as several branches enacted stop-loss measures that kept servicemembers in uniform long past their initial separation date.

However, as the war slowed, the need to keep as many servicemembers in uniform decreased. In recent years, each military branch has used different methods to reduce their force size, including offering servicemembers the opportunity to get an early transition from active duty to the Guard or Reserves, transition to another branch of the military, or even get an early out through Force Shaping or other measures.

Now, the military is offering select servicemembers the opportunity to retire with only 15-19 years of service, a substantial reduction from the normal requirement of 20 years of good service. This program, called the Temporary Early Retirement Authority, or TERA, was last available to servicemembers during the end of the Cold War era, or during the 1993-2001 fiscal years.

The National Defense Authorization Act signed in 2011 reauthorized the branches to offer the Temporary Early Retirement Authority program to select members who meet certain criteria. (This law is currently set to be on the books until 2018). The time in service requirement, which is more than 15 years and less than 20 years, is set by law. The other criteria are set by each branch so they can determine how best to shape the quality of their force. Generally, this program is only available to servicemembers who are in overmanned career fields. You will need to check with your respective service to determine if you are eligible for early retirement under TERA.

Is Early Military Retirement a Good Decision?

There is no one-size-fits-all answer to this question, so let’s look at the how the program works so you can decide for yourself. First, let’s assume the military member is working toward a normal military retirement under the High-3 system, or the Career Status Bonus (REDUX) retirement system.

How to Calculate High-3 Retirement: This retirement plan gives the servicemember a pension based on their average basic pay for their highest 36 months of service. Under this plan, each year served is worth 2.5% toward an annual pension. For example, serving 20 years would result in a pension worth 50% of their average base pay. Each additional year served increases their base multiplier by 2.5%. So 30 years of service would be worth a 75% pension. Under this plan, the annual Cost of Living Adjustment (COLA), is based on the Consumer Price Index (CPI). More info.

How to Calculate REDUX Retirement: In 1986, the military began offering servicemembers their choice of the High-3 retirement system or the Career Status Bonus/REDUX retirement. With the CSB/REDUX plan, servicemember would receive a $30,000 cash bonus at their 15 year mark in return for accepting a reduced retirement multiplier and COLA rating. REDUX is calculated in a similar fashion as the High-3 retirement plan, with a few notable differences. Instead of using a 2.5% multiplier across the board, the REDUX plan uses a 2.0% multiplier for the first 20 years, then 3.5% for each additional year of service. In this example, a 20 year retirement would be worth 40% of base pay, while a 30 year retirement would equal 75%, the same multiplier as the High-3 system. However, there is one more catch: under the REDUX plan, the annual Cost of Living Adjustment (COLA), is based on the Consumer Price Index (CPI) minus 1%. Since the annual Cost of Living Adjustment is less, the pension grows more slowly over time. Read more in this article about deciding if REDUX is worth it.

How to Calculate TERA Retirement: The Temporary Early Retirement Authority retirement plan is based on the above retirement plans, but it is reduced by a Reduction Factor equaling -1% for each year under 20 years served. For example, 19 year served would be 99%, 18 years would be 98%, 17 years would be 97%, etc.*

Start with whichever retirement system you chose, the High-3 or REDUX, then apply the following formula:

Active duty pay x Percent Multiple x Reduction Factor (-1% for each year short of 20 years) = TERA Retired Pay

In this formula, your Active Duty Pay is the average of your highest 36 months of pay, the percent multiple is the multiple based on your retirement plan and number of years served, and the Reduction Factor is a percentage that further reduces your retirement because you didn’t serve the full 20 years. Here are two examples for someone who served 15 years:

  • High-3 Plan at 15 years: Average pay x (15 years x 2.5% * 95%) = 35.625%
  • REDUX Plan at 15 years: Average pay x (15 years x 2.0% * 95%) = 28.5%

As you can see, taking the TERA early retirement option results in a much smaller retirement benefit, especially under the CSB/REDUX option.

*Calculating more than 15 years of service, but less than 20 years: It gets a little more complicated if you want to calculate your retirement benefits if you served over 15, but less than 20 years. The military gives credit for months served, so you your base multiplier wouldn’t necessarily be a round number, such as the 95% we used above. Here is a pdf that explains in more detail, and an article which also discusses the value of an early military retirement.

Other Retirement Benefits

To be clear, this is a full military retirement, complete with TRICARE and TRICARE for Life, starting immediately, the same COLA adjustments, base access, and access to the same benefits available to other military retirees. There is no special decal on your military ID card, and no one will have to know if you don’t tell them. The biggest considerations include your final pension and your quality of life.

Is Early Military Retirement a Good Decision?

Now all you need to do is run the numbers and look at your future income potential and take into consideration quality of life issues. To be clear, there isn’t always an easy answer. If you are financially secure and are ready to move on to the next stage of your life, then an early retirement may be well worth it from a quality of life standpoint, even with the reduced pension. This may also be the case if you believe you have a high income potential after your military service. Many civilian jobs pay much better than a comparable military job, and the difference in the pension can be easily made up with the higher civilian salary.

On the other hand, if you aren’t financially secure right now and your income potential isn’t as high, then you may consider avoiding the early retirement option. This isn’t a decision to take lightly. Take your time, run the numbers, consider your quality of life if you stay or get out, do some soul searching, and speak with your spouse or significant other. This is a major decision and one you should spend some time on.

Sequestration Will Not Affect Military Pay – DoD Civilian Pay to Be Cut

Sometimes the decisions of the past can come back to haunt us. As we sit here in early 2013, we look back at August 2011 and have to ask, “What were they thinking?” In August 2011, Congress passed the Budget Control Act of 2011 to avoid surpassing the debt-ceiling, the Congressionally mandated limit to how much our country can legally borrow. The threat of exceeding the debt-ceiling threatened to shut down the government and cause harm to our country’s ability to borrow money in the future. As a result of the Budget Control Act of 2011, Congress enacted a sequestration, which essentially means mandated spending cuts across all virtually all government spending, including civilian and military programs, homeland security, health care, the Department of Transportation, education programs, Congressional spending, and more.

sequestration military payThe Budget Control Act of 2011 was more or less rushed through Congress at the last hour, with the intent on changing the language before the sequestration took effect. Unfortunately, Congress has not agreed upon new language to the act, and the spending cuts went into effect on March 1st. Unless something changes soon, the military will see many changes. Here are a few changes we expect to see, unless something happens soon.

Military Pay Safe – Some Benefits Will Be Cut

DoD Officials have stated that pay for military members will be exempted from the sequestration cuts enacted on March 1, 2013. Base pay and benefits such as BAH and BAS should remain intact.

However, the military has already stated some non-monetary benefits many service members take advantage of will be impacted. For example, military tuition assistance has already been cut from the Army and Marines. It is likely these changes will also affect all branches of the military. Other programs that may be affected include MWR programs and education programs.

DoD Civilian Pay will be Impacted

DoD civilian pay will be cut in the form of furloughs, virtually across the board. The furloughs will affect approximately 800,000 DoD civilians. To put this in perspective, the US Air Force will furlough approximately 168,000 DoD civilians, to the tune of $1.3 billion in missed pay. Here is an infographic showing the pay cuts, courtesy of AF.mil.

usaf civilian furlough lost pay

USAF Civilian employees stand to lose $1.4 billion in the sequestration.

According to AF.mil, “Civilians may be furloughed without pay for up to 22 discontinuous (or 30 continuous) days spread over a maximum number of pay periods possible with no more than 16 hours furloughed in pay period. The covered pay periods are from April to September 2013.”

Some reports state the furloughs could cost civilians one day pay per week for the next five months, or until Congress approves a new budget. One day per week would equate to a 20% cut in pay. Each branch of service will be able to approve a limited number of exemptions for high-impact mission related jobs. These will be few and far between.

Many temporary employees and contractors have already been given layoff notices.

Image credits: U.S. Department of Defense Current Photos, AF.mil

Sequestration Impact on Air Force Operations & Civilian Jobs

Senior leaders in the US Air Force recently addressed the possible affects of operating under the sequestration through the remainder of the fiscal year if the US Government doesn’t make changes to the current rules which recently went into effect.

The sequestration was enacted as part of the 2011 Budget Control Act which mandated federal budget cuts designed to save the government $1.2 trillion over the next 10 years. There are $85 billion in cuts scheduled for FY2013.

According to a memorandum released to all the major commands, Air Force officials stated, “”On 1 March 2013, we expect to absorb over $12 billion in sequestration reductions while we simultaneously work to mitigate an (overseas contingency operations) shortfall of $1.8 billion and operate under a highly restrictive continuing resolution. These events are unprecedented for the department and the USAF.”

The sequestration will cause a 9% decrease in budgetary spending across the board. Which means some programs will be unilaterally cut, while others will be scaled back. The good news is that military pay will remain unaffected. Unfortunately, the services won’t have full control over how to implement those cuts. In some cases, vital programs and jobs will be cut or scaled back.

Sequestration impact on US Air Force

Civilian DoD jobs will be affected if the government doesn’t act soon.

Civilian jobs will also be affected, as some civilian employees have already received furlough notices. Air Force officials expect approximately 168,000 civilian jobs will be affected by the furloughs.

Operational Impacts

The Air Force will also need to make operational changes. Examples include decreasing flying hours to reduce expenses and maintain operational readiness, decreasing the number and duration of temporary duty assignments, and other cost reduction methods.

The Air Force has also decided to stop aviation support to public events, including ceasing aerial flyovers, air shows, and other aerial displays. Unfortunately, this includes standing down the Thunderbirds aerial demonstration team.

Education and Training will also be impacted. Most scheduled joint training exercises will proceed as planned, but Air Force officials have stated they will reduce scheduled attendance at Q3 professional military education (PME) courses.

In addition to the above changes, there will also be reductions in modernization and construction projects across numerous bases.

Civilian Air Force Jobs to Be Affected

The Air Force just released this infographic showing the effects of sequestration if they have to furlough nearly 180,000 people, and congress does not pass a budget.

USAF civilian furlough lost pay

USAF Civilian employees stand to lose $1.3 billion in the sequestration.

According to AF.mil, “Civilians may be furloughed without pay for up to 22 discontinuous (or 30 continuous) days spread over a maximum number of pay periods possible with no more than 16 hours furloughed in pay period. The covered pay periods are from April to September 2013. The memo noted that only the Air Force vice chief of staff or other high-level designees can approve limited mission-driven exemptions.”

Infographics courtesy of AF.mil

Taxes, Savings, & Investments for Service Members and Veterans

This past week I had the honor of participating in a Google Hangout with the folks from Veterans United and Jeff Rose, a fellow veteran, financial planner, and author. Jeff writes for the site Good Financial Cents, and his book, Soldier of Finance, is being published this fall.

Jeff Rose CFP

Jeff Rose, CFP and Army Veteran

In the Google Hangout we discussed Military Saves Week, saving and investing opportunities for military members and veterans, taxes, and much more.

Here is a preview of some of the topics we covered:

  • Military Saves Week
  • Thrift Savings Plan and the Roth TSP
  • How to start investing
  • Military taxes
  • The Debt Movement
  • Why Jeff and I started our blogs
  • Jeff’s new book coming out this fall
  • Disability compensation benefits
  • Where to get help for VA claims
  • Our best advice for how military members can start saving
  • and much more.

Here is the YouTube video (and there is more detailed information and additional links below the video):

Saving Money on Deployments

Deployments are an interesting time for everyone involved. You live a life without a lot of luxuries, at a time when you are earning more money than you normally earn. The combination of doing without and having money in your pocket when you get home makes it easy for many military members to go on a buying spree when they return. A new truck, motorcycle, stereo system, or similar large expense seems logical at the time, but it can be painful in the long run, especially if you put it on credit.

Were you a saver while you were in the military?

  • Jeff: Yes. He was already a financial planner for three years prior to his deployment to Iraq. Jeff shared a story about calling home to buy stock while he was deployed.
  • Ryan: Yes, I was a saver. I was single while I was in the military, and I didn’t have many expenses. I deployed five times in six years, and used the money to fully fund my IRAs, invest in the Thrift Savings Program, and invest in the Savings Deposit Program.

Roth Thrift Savings Plan & Investing

Ryan: The Roth TSP is new, but there are a lot of questions about it. Like IRAs, there are two versions, and they are similar to each other. With the Traditional IRA or Traditional TSP, contributions are made before the income has been taxed. The money grows until retirement age, then it is taxed when you make withdrawals. The Roth TSP and Roth IRA are the opposite. The contributions are made after taxes have been withheld, and you can make tax-free withdrawals in retirement age.

There are some huge benefits to investing in the Roth IRA or Roth TSP. For example, you can make Roth TSP contributions while deployed. The benefit of this is you are making an “after tax” contribution with tax free money. Meaning your contributions will NEVER be taxed – either now, or when you make the withdrawals in retirement age. The other benefit concerns tax brackets. If you are in a lower tax bracket now, the Roth is generally the better way to go. This is because yo will pay a low tax rate now, and avoid taxes later. This is important because we don’t know what tax rates will be when we reach retirement age. Chances are good that taxes will be higher in the future.

Jeff: Jeff gives examples of how turning a $30,000 investment into a $250,000 nest egg that is tax free. It’s an amazing possibility. But it takes the discipline to get started.

Jeff also shared that you don’t need much money do you need to start investing. You can do it with $25 or $50 a month. The key is to make the commitment and get started.

Military Taxes

We covered a few topics for military taxes, including the tax deadlines. It’s important to know that April 15th is the deadline to file and pay anything you may owe to the government. However, you can file an extension which will allow you to file by Oct. 15th, which is the extension deadline. Money due by April 15th, regardless of whether you file an extension.

Military extensions: Military members who ares stationed overseas or deployed are eligible for an automatic extension. However, the IRS may not know you are overseas or deployed, so be sure to file an extension. This is free and easy to do – you can do it with tax software, or by filling out a simple from from the IRS. Here are tips for filing a tax extension.

More tax tips:

Thanks so much to Veterans United for inviting Jeff and I to their Google Hangout

Military Saves Week

Many Americans struggle with their finances, and military members are no exception. The difference, however, is compounded by the lifestyle required of military members. It’s not uncommon, for example, for military families to move every few years, or for the servicemember to deploy away from his or her family for months at a time. These conditions can make it difficult on family members, particularly for military spouses who may have a more difficult time advancing in their career or finding work with frequent moves.

Military Saves Week

Military Saves Week supports good financial health!

This is why Military Saves Week is beneficial for military members and their families. This program highlights the need for military members and their families to create a savings plan and reach their financial goals.

What is Military Saves Week? Military Saves Week is a joint program between the DoD and AmericaSaves.org. The program is designed to help bring awareness to good financial habits, saving, and investing. You can learn more at MilitarySaves.org, or learn more about a similar initiative called American Saves Week.

Military Saves Week

Here are some of the major points highlighted during Military Saves Week:

Save for Emergencies. Creating an emergency fund is one of the most important things you can do from a financial perspective. The idea is to save until you have at least $1,000 saved in an account where you can access the funds in an emergency. $1,000 is a recommended starting point because it is large enough to help pay for most medium size emergencies, such as replacing an appliance, paying a car insurance deductible or for minor car repairs, a flight home for a family emergency, etc. Having these funds available can help you avoid using a credit card or taking out a high interest loan and digging yourself further into debt.

Pay Off High-Interest Debt. Once you have your emergency fund in place, it’s a good idea to start working on eliminating any high-interest debt you may have. For example, you want to pay off any credit cards or other loans with high interest rates. Paying off your debt does two things: increases your cash flow and gives you an automatic return on your investment. With more cash flow each month, you can pay off the rest of your debt more quickly, or get started on the next step: saving.

Save Automatically. It’s great to have a savings plan at all times. But it may not be a good idea to ramp it into overdrive until you pay off your high-interest debt. This is because any debt you pay off gives you an automatic return on your investment. With current interest rates so low, it makes sense to use as much of your cash flow as possible to repay debt. But once your debt is gone, it’s a good idea to ramp up your savings. There are a couple ways you can do this. The easiest way is to make it automatic.

Save for Retirement. You can save for retirement while you are saving for other goals. The key is to find a balance. A great way to get started is to save a portion of your paycheck in your Thrift Savings Plan, or in a 401k or other employer sponsored retirement plan. Opening a Traditional or Roth IRA is another good idea, as both of these offer excellent long term tax benefits.

Save for a Large Purchase. Banks are incredibly kind. They are often happy to let you make a major purchase with no money down. Isn’t that wonderful of them? Don’t fall for it! Making a large purchase with no money down does two things: increases the amount of money you have to borrow, and increases the amount of interest you pay over the life of your loan. It’s always best to pay cash when possible, or at least make a large down-payment. It’s also a good idea to keep the loan terms as short as possible. In other words, don’t go for a 7 year car loan. Buy a less expensive car if you can’t afford a shorter term.

Home buyers often have the choice of a 15 or 30 year mortgage. Buying a home with a 15 year mortgage is often a good idea if you can afford the monthly payments, but a 30 year mortgage may give you more long-term flexibility. Go with the one that best fits your budget, but always try to make a down-payment if you can. This will help reduce your payments and the amount of interest you pay over the course of your loan. Final note about home loans: you can buy a home with no money down when you use a VA Loan. This isn’t usually recommended since it increases the amount of money you are borrowing. Always try to make a down-payment when possible.

Take some time, create a plan, take action

Everyone has a unique personal and financial situation. Because of this, there is no one-size-fits-all savings plan. It’s up to you to examine your situation and create a plan that works. But there is help available. Almost every base has someone who can help you look at your budget and find areas where you can cut back on your expenses so you can funnel that money toward savings or paying off debt. If you are no longer in the service, you can visit a fee-only financial planner or a non-profit debt-management organization to come up with a solution to help you reach your financial goals. The key is recognizing that you need a plan, and then taking action.

Here are some more resources about Military Saves Week: