by Doug Nordman
This article is written for military servicemembers, veterans, and their families. For everyone else, there are many good reasons to join the military, but they're not discussed here. I'm not suggesting that people should sign up just because of these two particular benefits. Instead, think of them as an extra boost toward financial independence and retiring on your terms. People who are planning to join the military for other reasons, perhaps even for an entire 20-year career, can benefit greatly from these rewards.
These must be really great benefits if they can accelerate financial independence and retirement, right? First let's look at the obstacles standing in the way of those goals.
All retirees have to accumulate the resources to last for the rest of their lives, but early retirees (before age 65) have two daunting challenges: paying for healthcare and contending with decades of inflation.
Health insurance is largely a workplace benefit, and many civilian workers feel "locked in" to their jobs by it. Health insurance can be hundreds of dollars per month without an employer’s subsidy, and it’s difficult to obtain individual coverage for pre-existing conditions. The American healthcare system is the main reason that traditional retirees stay in the workforce until age 65, when Medicare starts to cover much of their health expenses. Even after age 65, retirees still have to contend with rising insurance premiums, higher prescription medication costs, and long-term care concerns.
Inflation is far more insidious. While a health crisis can wipe out a retiree’s finances, inflation is at least as deadly because it’s hard to notice the corrosive long-term effects. At just four percent a year, a decade of inflation can raise retiree expenses by nearly 50%. Retirees in their 60s may only have to contend with two or three decades of inflation, but retirees in their 40s will have to survive four or five decades of inflation that could easily triple their expenses.
A military retirement beats both of those obstacles. You can be financially independent and make your own retirement decision years or even decades ahead of others.
Unbelievable as it may seem to some in the military, Tricare is among the nation’s premiere affordable healthcare systems. It covers far more for active-duty veterans (and their families) than civilian health insurance while charging far less. Unfortunately, many veterans don’t learn this fact until they leave the service, while others with pre-existing conditions may feel locked into military or civil service in order to be able to afford their healthcare costs. In 2010, an active-duty retiree pays less than $40/month for comprehensive Tricare family coverage that, for civilian retirees, would cost hundreds or even thousands of dollars.
As good a financial deal as Tricare may be, the military pension is even better! Military veterans can earn a defined-benefit pension in an era when employers are moving toward defined-contribution 401(k)s. Despite the risks that servicemembers, families, and veterans bear to qualify for that government pension, it’s paid by one of the world’s best-funded institutions with the power to raise its own money.
Not only is the federal government likely to pay military pensions long after corporate pensions hit the skids, that pension includes a cost of living adjustment (COLA) for inflation. This is extremely rare in the business world. Federal pensions (as well as Social Security) rise each year by the inflation rate measured in the Consumer Price Index (CPI). That index may have its own flaws and detractors, but there is no better measure of the nation’s inflation. You may experience a personal inflation rate that’s smaller (or perhaps bigger) than the CPI, but veteran’s pensions will keep up with inflation far better than any other system.Doug is the author of
The Military Guide to Financial Independence and Retirement, coming from Impact Publications in mid-2011 to military exchanges all over the world. It's written by military for military, and ALL royalties will be donated to military charities. Read more at The-Military-Guide.com. Doug is a retired U.S. Navy submariner living in Hawaii with his spouse (a retired Navy Reservist) and their daughter, who's learning even more about the Navy in her college NROTC unit.
Doug is also one of our newest forum members. In addition to his blog, he'll be moderating a new section of our forum especially for military family finances. He's always looking for new material and questions about military financial independence and retirement, so please share your story with him and the rest of our military readers!