Sounds like a modern day fairytale! What does financial independence mean if you’re looking at a military career?
Well first, let’s take a look at the meaning of financial independence.
If you read personal finance blogs, you will see many people reference the goal of financial independence, often shortened to FI. In a nutshell, the goal of FI is to have enough money saved that you can live off the interest it generates without touching the principle. (In case you were wondering, you can spend about 4% of your nest egg without witling down the principle). People achieve this in two ways: by building up a large nest egg, and by restricting their expenses so they need less money to live on. Read more about financial independence here.
Financial independence is clearly an alluring idea. I’m sure many of us would love to quit the rat race and I often joke about being a stay-at-home-dog-mom to our Chihuahua.
Many bloggers treat reaching Financial Independence as a race with the goal of early retirement, and when I say early I mean early! There are many blogs of people who retire in their early 30s. In order to do this they make sacrifices, such as living in a cheaper country and living extremely frugally, but to these people it is worth not having to work.
However, this idea of a very early retirement is not compatible with a military career. As I explain my reasoning, I want to make it clear that by “early retirement” I do NOT mean a full military retirement. I mean a self-imposed retirement where you just stop working and live off your savings.
The first reason why early retirement is not feasible is time commitment. If you owe a certain number of years to the military, you obviously cannot retire early. Davin is locked in until 2025 which will place him in his mid-40s. Clearly an early retirement in his 30s isn’t an option.
Another deterrent to early retirement for military careers is the pension. Even if you are a civilian and you are looking to earn a pension, early retirement doesn’t really make sense. For example, once Davin ends his time commitment in 2025, he will have 13 years of service. If he works another 7 years he’ll be able to retire with 24 years of service (he will retroactively get 4 years of credit for being active duty at USUHS) which will earn him a pension of 60% of his base income for the rest of his life and the rest of my life. We personally feel like it’s worth the extra 7 years to earn that pension as that will add up to hundreds of thousands of dollars. We crunched the numbers and while he would earn a much higher income as a civilian, the pension over even twenty years more than makes up for the seven year disparity in income.
Lastly, military retirement offers many financial advantages, including access to the commissary, legal assistance, and most importantly health insurance. Health insurance is incredibly expensive, especially as you age. Having these advantages in our retirement will help us to keep our costs low and to make our money last longer. Without these, our expenses would jump much higher. Again, an extra seven years of service for a lifetime of medical insurance seems like a fair trade! Additionally, some states offer higher education incentives to the children of retired veterans, such as in-state tuition or sometimes even free tuition. Again, this is tens of thousands if not hundreds of thousands of dollars in savings from taking the full military retirement rather than stopping to retire early
Although early retirement is not our goal, we are still aiming for financial independence. Why?
Our first reasoning is a healthy dose of skepticism. Honestly, even though both Davin and I stand to earn a pension, we’re afraid to completely rely on that. Government can always change and we would rather rely on ourselves than rely on politicians. Plus, I’m not too confident that I will get my full pension since its dependent on working in California and I’m not sure how many years I will be able to work in this state with military moves.
Secondly, FI allows a second career to be an option rather than a necessity. Davin changes his mind all the time whether or not he wants to continue working after he retires from the military. With financial independence it can be based on his wants and desires rather than his family’s needs.
Lastly, FI means freedom from worry. Government shut-down? Lay-offs? Way less of a stressor when you’re already able to live off your savings! Money and finances are such a large source of stress for such a majority of our population, as you can read about in this article here. Removing that overhanging worry would make your life much more tranquil and smooth.
So in conclusion, while an early retirement in your early to mid-thirties isn’t the best choice or even an option really for those with a military career, it doesn’t mean that you still shouldn’t strive for financial independence. By achieving financial independence, you will allow your future self to be self-reliant and to make options based on desires rather than needs, as well as being able to have less stress and worries later in life.