Looking back through my military career (remember, weekend warrior, not active duty), I can see phases. I was a young and newly enlisted private, working and going to school – broke all the time. As I got older, promoted, and experienced a little success in life – I wasn’t as broke, but my poor life decisions left me relying on that drill check every month, just like in that first phase. When I finally became an NCO, fixed most of what was broken in my life, I viewed my drill check much differently.
It would surprise me if this was unique. To me, I can see where my situations and perceptions were and are like most other M-day soldiers. I’d like to share the potential power of that drill check by running through the numbers. If you fall into one of the phases I described above – you might find these number fascinating.
The earlier you start, the better.
New to the National Guard or Reserves? Feeling broke? Check this out. Whether you’re a student full-time, or working part-time and going to school – or even working full-time and going to school, I recommend you do the best you can to pretend that you don’t get paid for drill. Here’s why.
If you can find a way to survive without drill income, you can make magic with those drill checks. It shouldn’t be that hard…after all, if you’re getting your school paid for, received a big bonus, use Tricare, etc, you might see how these benefits feel like “a paycheck” for drill. That actual income has power you might not understand though.
Pretend you plan on staying in for 20 years. Also pretend your drill check is $200 a month. Let’s not count more money for promotions, additional bonuses, annual training…just play along with this number. In 20 years, you would have earned $48,000. Nice right? $48k just sitting in a bank account if you saved every penny of it? That’s ridiculous though. If you invested every drill check, and experienced the average 7% interest the stock market typically returns annually, your nest egg would be worth $105,276.42 at the end of your military career.
The Thrift Savings Plan can help!
Here’s what’s crazy. If you joined at 18, you’d have this nest egg sitting there at the age of 38. Think about that. Here’s what’s crazier…we didn’t count raises, annual training checks that are much larger, or any active duty money received for schools, orders, deployments, etc.
It gets better though. New soldiers are automatically enrolled in the new blended retirement program. That means if you just put all of your drill check that you could into the plan, you’d be getting free money on top of it because of the match. So I’ll do the math for you. Let’s use that same $200 per month drill check example. Assuming you’re investing all that, 92% would be the max toward your retirement plan, so your 4% of free money would allow you to be investing $191.36 into the retirement account with the match money, and you’d still have an extra $16 left over out of your check to invest. Bottom line is using the free money, you’d be investing more.
In this scenario, your nest egg would be worth $109,150.60, and like I said before, it would actually be more than this once you factor in the raises and all that other extra money.
If you’ve been in a bit, it’s not too late to make some magic.
Right now, today, a soldier can reenlist for $20,000. So let’s say you fulfilled your initial contract. You missed the boat on my “start early” thing, but you have power too. As hard as it might be, let’s say you invested every penny of that bonus after taxes. If somehow you payed the max tax rate on that bad boy, you should still net about 13,200.
Invest that, and in 14 years when you would be eligible to retire, that investment alone (without adding anything to it) would have ballooned to $34,036.65.
Now, let’s say at the same time you got that bonus, and invested it, you started investing into the TSP and investing any remaining drill check money (again – use $200 a month for easy math). Now we’re talking about a much bigger number. $91,946.30 to be exact!
If you’re in this club of folks who qualified to switch to the blended retirement program, you’ be getting that free money from the match. Okay…I’ll do that math too. Now you have $94,077.38.
It takes incredible discipline to do this, but looking at those numbers, especially if you joined when you were very young, this really helps you retire early if you want.
Moral of the story is…
I’m 37. People my age were raised in a period that could easily be described as “as long as I can afford my monthly payments, I’m good right?” In 2008, that school of thought was proven to be quite dumb. That’s not to say that the generation before us that was raised by depression era folks was any better. Their lack of trust in banks and fear of debt of any kind led to many coffee cans of cash buried in the backyard and non-interest bearing cash just being poorly used. The plan should be this simple: invest as early and often as you can. For soldiers in the Guard and Reserves – a drill check can be the key to huge retirement savings, early retirement, and even complete financial freedom.
If you think this stuff is interesting, check out these books.
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