Let’s give a warm welcome to Spencer, who is sharing his insights on achieving financial independence while serving in the Air Force. Spencer, who writes at the Military Money Manual, explains how he aims to achieve financial independence before turning 40 by leveraging his military pay and benefits.
Achieving financial independence isn’t just for million-dollar bloggers and investors. Serving in the U.S. armed forces is one of the best professions for those aiming for financial freedom or early retirement.
Military life is challenging, with constant deployments, temporary duty assignments (TDYs), long separations from loved ones, low pay, long hours, intensive training, and tough combat conditions. However, military service also offers unique benefits that can help you save, invest, and make the most of your time in service.
Although serving for 20 years to get a military pension and retirement benefits is an option, less than 15% of servicemembers reach this milestone. Military retirement is the simplest path to financial independence, but it requires 20 years of service, which can be tough given budget cuts and reduced personnel.
Three key opportunities to achieve financial independence while serving are:
Deployments and TDYs:
Deployments can significantly boost your finances. With housing, food, and entertainment covered, your expenses drop dramatically while your income rises. Your income is tax-free, and you receive additional pay for hardship duty, hostile fire, and family separation. This is the perfect time to save and invest heavily.
Maximize contributions to your Roth TSP and Roth IRA while deployed. Since deployment income is not subject to federal income tax, you can invest tax-free for life. By depositing untaxed deployment income into Roth accounts, the money grows untaxed and can be withdrawn tax-free after age 59 ½.
TDYs also offer savings opportunities. Often, your per diem rate exceeds your actual expenses. Investing your TDY money or using your regular pay for investments can substantially boost your savings. Treat TDY pay as if you never received it and save it.
Unique Military Investments:
Military personnel have access to unique investment opportunities. During deployment, you can use the Savings Deposit Program (SDP), which offers a guaranteed 10% annual return on up to $10,000. That’s a free $1,000 each year.
You can also contribute up to $17,500 per year to the Thrift Savings Plan (TSP), the government’s version of a 401k. The TSP comes in Roth and Traditional options. With the Roth TSP, you pay upfront taxes, but your investments grow and can be withdrawn tax-free. The Traditional TSP delays taxes until withdrawal.
The Roth TSP is particularly beneficial for deployed servicemembers due to tax-free contributions from deployment income. Moreover, the TSP is the lowest-cost investment vehicle available, even cheaper than Vanguard funds.
Military Education Benefits:
The military offers various education benefits, such as:
– The Montgomery GI Bill or Post-9/11 GI Bill
– Tuition Assistance
– ROTC, Military Academies, or Loan Repayment Program
The GI Bills help veterans pursue college degrees or technical courses, offering up to 36 months of benefits. The Post-9/11 GI Bill provides book stipends, monthly housing allowances, and tuition coverage. Many universities have “Yellow Ribbon” programs to help cover tuition costs.
Tuition assistance offers up to $4,500 per year for degrees while on active duty. Most servicemembers find online courses work best with their schedules.
ROTC and the Military Academies provide free or discounted education in exchange for service commitments. ROTC students attend standard colleges with added military training and incur a 4-10 year service commitment post-graduation.
Academies offer education and training in exchange for service commitments, while the Loan Repayment Program can pay off student loans up to $20,000 per year served. This is particularly beneficial for medical students with high debt.
Using these education benefits can set up a successful military or civilian career post-service.
Financial Independence:
Reaching financial independence before 20 years of service is achievable without sacrificing a quality lifestyle. Spencer is striving to achieve financial independence before age 40 while on active duty in the Air Force.
He used the ROTC benefit to reduce his college debt and saved thousands from tax-free deployment income to pay down loans. He has maxed out his SDP and is maximizing Roth TSP contributions.
You can follow a similar path to achieve financial freedom while serving in the military. Use your service time wisely to build a lifetime of financial security!
