Military Financial Independence

While you’re pursuing your path to financial independence: are you ever tempted by the military’s specialty pay or bonus programs?

One of our family’s (many) military-retention discussions reminded me of a sea story behind our financial independence.

I was certainly tempted from the day I joined: all the way back in 1978 when we midshipmen could get extra liberty by donating blood. (Not that much extra liberty— we were still limited to one pint every eight weeks.) For the next two decades of my service I was constantly pelted by offers of submarine pay, sea pay, nuclear bonus pay, and even “free” college degrees.

Note: I am not a member of any service’s Command Retention Team.

Which brings me to my next point: have you ever wondered why the military is being extra nice to some of us? Shouldn’t we already be compensated well enough (with benefits and entitlements as well as pay) that our services wouldn’t have to dangle more retention carrots in front of us?

Today this bonus & retention topic is still perpetually relevant among military families, especially with one servicemember who I’ve known for years.

They’ve been on active duty over a decade, and they’re already financially independent. However (in their ideal world) they would personally prefer to earn a military pension without sacrificing their family’s quality of life.

Their feeling persists even after paying the price for their highly successful tour in an all-consuming career-enhancing 24/7 operations billet. They’ve transferred (with a great performance report and a medal) to a new command and they’ve leveled up to greater responsibility.  Fortunately they’re recovering from burnout, and their work/life balance is improving.

Yet similar to the slow-boiled frog, even this scorched servicemember was briefly tempted by the possibility of signing up for more active duty. I see my role in our discussions as mentoring and facilitating their Reserve transition on their terms. They’re considering that move to the Reserves in another 12-24 months, and we’ll keep talking about it.

 

The Sea Story:  40 years ago.

In 1986 the Cold War had reached a new peak. The Soviet Union was castigated as the Evil Empire while America worked on a new shield against ballistic missiles. (The Strategic Defense Initiative was cleverly marketed as “Star Wars” to tie in with the Return Of The Jedi movie.) Today’s historians have documented that Moscow’s 1980s leadership was seriously concerned about a preemptive nuclear strike, and they expected it to come from the U.S. Navy’s ballistic missile submarines.

America was building a 600-ship Navy, and the new OHIO-class submarines were launching from the shipyards. With our existing 41 SSBNs and another 50+ attack submarines, our new Navy required over 1500 nuclear-trained submarine officers. Now we had to figure out how to recruit— and retain— those steely-eyed killers of the deep.

Back then I was finishing my junior officer nuclear-engineering tour on my first submarine. I was very much ready for shore duty, and I could have left active duty at my five-year mark of June 1987.  Instead I’d requested orders to the Naval Postgraduate School in Monterey, CA to be stationed with my spouse! We’d just married (after four years of doing distance) and we were among the Navy’s newest dual-military couples. At NPS she’d earn her oceanography & meteorology graduate degrees and I’d earn mine in weapons engineering. (Of course our highest priority was enjoying a lot of each other with quality liberty time around and in Monterey Bay.)

During this tour we’d also pick up our new service obligations– mine would be four more years after NPS. After graduation I’d go straight back to submarine sea duty as a department head and follow up with yet another shore tour.

A few months before I obligated for those NPS orders, the Navy rolled out a new nuclear-power bonus program.  As nuclear-qualified officers finished their initial obligation, they could start a contract for an additional 3-5 years. Each year of that contract was worth $10K, paid at the start of the year. (That’s $30K in 2026 dollars, although in 2026 the current submarine bonus contract pays $40K-$45K/year). The 1980s bonus was a big improvement over a 1970s bonus program (which had been savaged by stagflation), and we lieutenants were all excited about the opportunities.

The fine print of the new program even included an “annual incentive” bonus for those who’d finished their initial obligation of five years of active duty. If we didn’t want to obligate up front for $10K/year over the life of the contract, then at each anniversary after our commissioning obligation we were still eligible for a smaller $7200 bonus (over $21K in 2026 dollars) just for sticking around to finish the year.

I guess BUPERS wanted to let us switch between bonus contracts and annual incentives to optimize our retention while we kept earning the big (or bigger) bucks.

 

The problem.

In early 1987, as I was about to apply for my bonus contract, BUPERS sent one of the assignment officers to Monterey to meet with us nuclear-trained students. It turned out that Naval Reactors had intended for the contract’s service obligation to be served concurrent with other service obligations (for example, graduate degrees from NPS)— but the BUPERS legal staff had recently concluded that the Congressional legislation implied consecutive obligations.

BUPERS had put out incorrect information and inadvertently let us sign contracts that didn’t comply with the federal law.

A few months earlier, one of my classmates (we’ll call him “Rick”) had signed up for what he thought were concurrent 4-year NPS and 5-year bonus obligations. He was the first to be told that he was now expected to stay on active duty for nine more years after NPS— effectively serving a grand total of 16 years of active duty. I don’t know what Rick said to his assignment officer, but BUPERS had already approved a bunch of contracts with nukes who were now arriving at NPS. Rick was persuasive enough for BUPERS to send their submarine representative out to Monterey to negotiate a solution.

When the assignment officer entered the auditorium, he was facing a hostile audience of at least two dozen O-3s and a few O-4s. All of us had already incurred a new service obligation by starting our NPS tours. Like Rick, a few had signed a nuclear bonus contract before reporting to NPS and were not happy about their new consecutive obligations. A few of us had planned to sign nuclear bonus contracts, but now we wanted to get the facts.

Have you ever wanted to get your assignment officer alone in a room with your peers (no senior leaders!), where you could just speak truth to power? Yeah. This time we had an entire platoon of people who wanted to speak a lot of truth.

Fortunately for the nuclear-power assignment officers, BUPERS had already figured out the right answers. Nobody on that staff (least of all the admiral) wanted to see this controversy discussed on the front pages of Navy Times. After the assignment officer spent 15 minutes describing “how we got here”, he was ready to make a deal.

His first offer was to let any of us who wanted to leave NPS (without incurring an obligation) as long as we quit this week.

Ha-ha! Yeah right. A few years ago he’d served his own tour at NPS, and he already knew none of us would take that deal. Besides, if we left NPS right now then we’d go right back to sea duty— especially if the bonus contract was our only reason to leave. Back-to-back sea tours didn’t hold much appeal, especially when all you had to do at NPS shore duty was publish your thesis.

He paused for questions. As everyone expected, nobody took him up on his first offer. We moved on.

His second offer was to let anyone out of their bonus contract that day— right now— even if they’d already signed one.

We all knew we’d have an NPS obligation anyway, and BUPERS was all right with canceling our contracts. He pointed out that instead of getting $10K up front in each year of a contract, we’d still get $7200 at the end of the year. The catch was that we’d have to serve our NPS obligation before we could sign any nuclear bonus contracts. The $7200/year consolation prize would last through NPS and for at least 3-4 years after graduation before we were free to sign up for a bigger bonus. That’s assuming we even wanted to continue on active duty in the first place, let alone commit for a bonus.

Oh, and if we’d already received a $10K tranche from the bonus contract, then we’d have to give back $2800. BUPERS knew we’d stick around long enough to earn the $7200 and they weren’t going to quibble over the timing. They’d even helpfully deduct the $2800 from our pay.

As you might imagine, there was some grumbling over this offer. People who’d already accepted orders to NPS and then also signed a bonus contract had felt seen and validated by the career boost. The Navy had finally acknowledged their value with a twofer of serving simultaneous obligations, and now that could be revoked by a legal technicality.

Federal convicts got concurrent prison sentences and credit for time served, right? Then why not us nukes?

As the grumbling spread through the audience, the assignment officer played his ace card: “But wait, there’s more!”

 

The BUPERS solution:

He shared that the BUPERS lawyers and the Congressional liaisons had worked out a proposal for corrective legislation. The existing nuclear-bonus law would be amended to specify “concurrent” instead of the default “consecutive”, and the Navy policy directives would be updated to match the new legal language.

This would make us nukes happy, it would make BUPERS’ lawyers happy, and our higher retention rate would make Congress happy. We still needed to win the Cold War! Legislators would take a quick voice vote during the current session, and BUPERS would handle the rest of the details.

It also made the assignment officer happy.  He was confident this correction would happen in a matter of days… but now there was another catch.

The only people at NPS who’d benefit from Congress changing the law to “concurrent” were the officers who’d already signed a bonus contract. After Congress clarified the law, the officers who were already under another obligation (like NPS) but had not signed the bonus contract would be locked out of it until they’d served their existing obligation.

Admittedly we were still eligible for the $7200 annual retention incentive while we served off our NPS obligation. Yet this $2800/year difference would sting if we passed up the bonus contract and then watched Congress pass the corrective legislation.

The assignment officer’s next words: “We need to know the headcount for tomorrow’s meeting with the admiral. If you want to sign a bonus contract for a concurrent obligation, you have to act today or get locked out!” He’d brought a stack of blank contracts for us to fill in— at that very moment— and he was leaving on the next flight back to BUPERS.

A hush fell over the group. We could all do the math, and the corrective-legislation tactic seemed straightforward.

The room exploded with happiness, and a crowd stampeded to the front to fill out their contracts.

 

“How Could This Possibly Go Bad?!?”

All the way from our back row, another officer raised his hand. We’ll call him “Steve.”

Steve: “Sir, what happens if we sign a contract and the corrective legislation isn’t approved this session? Will our obligations still stay consecutive?”
Assignment officer: “Well, sure, I guess that could happen. But this corrective legislation is a done deal and Congress is just waiting for us to bring them the paperwork for the voice vote.
Anyone have any other questions? No? Then sign here please.”

I turned in my seat and locked eyes with Steve. We acknowledged our mutual skepticism. A few more of us gathered in the back to pessimistically assess the likelihood of a failure of the corrective legislation. We’d already seen some “sure things” in the fleet which had mutated into failures, and we were wary of the assignment officer’s smooth delivery with his time pressure.

The assignment officer (probably) wasn’t evil, but he was a trained sales professional. To us, it was personal. To him, it was just business.

This time (unlike The Godfather movie’s platitudes), we had the choice of refusing an offer. While the eager crowd at the front finished filling out their contracts and signing them, our small group of skeptics quietly left the room.

And yes, I already felt the impending sting of giving up the extra $2800/year.

I shared the news with my spouse.  Seeing the horrified look on her face, I assured her that I’d decided to pass by this “opportunity.” We both wanted to be stationed together, but we also wanted to (someday) leave the Navy together. I didn’t need to add my new obligation drama to our new marriage.

You military servicemembers & veterans can already predict how this story ends:

• Congress tabled the submarine force’s corrective legislation that month.
• They deferred a vote on it for the rest of their session.
• Subsequent Congresses ignored it and never approved it.

Over a decade later (coincidentally after all of the consecutive obligations had run their course), the Navy rolled out a new nuclear bonus contract that clearly specified “concurrent.”

By then Rick had finished his consecutive obligations and could sign a contract for a little more money. He did very well in the rest of his career, and he probably would have stayed on active duty even without a bonus.

I don’t know how Steve’s Navy career turned out, but for the rest of his time at NPS he got free adult beverages from us grateful fellow nukes who didn’t sign a contract. Ironically, after the military he became a lawyer. Maybe it was his skeptical ability to ask the unlikely questions… or maybe he just wanted to have fun with his GI Bill.

My harsh experience convinced me (and my spouse) that we were the only people who could truly manage our careers.

It also accelerated our journey to financial independence. We invested all of my submarine pay and every one of those $7200 annual retention bonuses. We weren’t interested in owning a big house (let alone big pickup trucks), but when we finished our NPS obligations we wanted to have a big transition fund… just in case.

Today (four decades later) when I talk about financial independence with military families, I start by announcing “I am not a member of the Command Retention Team.” After that reassuring disclaimer, I share how to reach FI while you’re still on active duty— even if you don’t earn a pension. And especially even if you don’t earn any specialty pay or bonuses.

I’m also writing about retention from my military-family perspective: as dual-military parents, we watched our daughter join the Navy (“Free scholarship!!”) and later marry another Navy officer. (“The new family business.”) We raised a money-savvy family and it all worked out well, but she certainly surprised us with her career choice.

As grandparents, my spouse and I are carefully watching for that fateful day (in 2037 or so) when our six-year-old granddaughter announces: “Mom, Dad, I’m joining the Space Force.”

 

Call To Action:

40 years later, the systems are just as dangerous.  Make sure your money motives are aligned with your values, not just with your wallet.

Please give yourself permission to stay on active duty as long as you’re feeling challenged & fulfilled. You’re part of something bigger than yourself. You’re supporting the mission and taking care of your people. If you’re internally motivated by your service then feel free to accept all of the additional specialty pay and bonuses— but take it one obligation at a time and be ready to leave active duty at every exit ramp.

If you’re in the Blended Retirement System, are you taking the Continuation Pay contract for an additional four years of service? Is the extra cash worth your life energy?  Or would you prefer to have more flexibility over your career choices between 12-16 years? And yes, that service obligation is also supposed to be concurrent.

While you’re on active duty, have you considered transferring your GI Bill eligibility to your spouse or kids for an additional service obligation? It’s supposed to be concurrent with other obligations— but make sure that your community is not an exception to that benefit.

Frankly, if you’re pursuing a bridge career after the military, then maybe it makes sense to keep the GI Bill for yourself and skip the service obligation. Your advanced degree or certifications could help you earn more than enough extra compensation in your bridge career to pay for your entire family’s educations.

When the fun stops during active duty, do not be tempted by the finances of a retention contract—let alone gutting it out to 20.

If your internal motivation is vaporizing, then the external motivation is unsustainable. Even worse, you’re risking your health and your family’s quality of life. While the specialty pay & bonus money is awfully attractive at the moment, in the longer term your human capital will get you to your financial independence on your terms.

And if your service or your community is being extra-special-nice to you in exchange for your contractual obligation, then ask yourself: “Why?”

When you’re financially responsible (and already on the path to financial independence) then you don’t have to be seduced by financial retention blandishments.

Teach your money-savvy family about the rewards (and risks) of financial incentives.  Help them make sure they’re not motivated solely by the money.

And be mindful of a teen’s selective hearing when you share your space sea stories with your impressionable youngsters.

 

 

 

 

There are no affiliate links or paid ads in this post.  Try your military base library or local public library before you pay money for these books– in any format.

 

 

Related articles:
Don’t Gut It Out To 20
“Why Do I Have To Pay Back VSI or SSB?”
Finding Your Military Work-Life Balance