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The following post is from Jamie, my co-host on the the Military Money Manual Podcast. Jamie is an active duty Air Force pilot.
I did it. I took the bonus. I’ve signed my life away to the man again. I recently signed up for the 5-year bonus as a mobility pilot in 2021. I will make an extra $100,000 this year.
Why on earth would I lock myself in again when I was literally days away from tasting freedom for the first time since I was 17?!
First, let me explain more about the Air Force pilot bonus or Aviation Bonus (AvB) program then we’ll discuss why I did this.
The pilot bonus (or really any re-enlistment bonus or BRS continuation pay) can be an easy way to boost your Financial Independence (FI) goals, especially if you’re planning to stay in for a few more years anyway.
The program's specifics vary from year to year, but let’s take a look at the FY21 USAF Pilot Bonus. We'll break down the requirements, details, and pros/cons. (Sometime in spring 2022, we should see the FY22 USAF pilot bonus numbers released and will update.)
Note: We based our numbers off Military.com’s description of the current bonus, but reference the official guidance in MyPers for full details as full details are For Official Use Only.
FY22 Aviation Bonus Update
The Air Force values its Airmen through the entirety of their service and designs opportunities such as the
Aviation Bonus (AvB) Program to retain the proper inventory of aviators to preserve mission readiness and meet
Air Force rated requirements.
The FY22 program is expected to be rolled out early 2022, with timing largely contingent on availability of
funding for the program. AvB authority in NDAA was granted 5 January 2022, but funding for the program is not
yet appropriated. Some areas being examined for possible improvements are contract lengths and monetary in-
centives. Per NDAA Title 37 Section 334, the program is capped at $35,000 annually, and is restricted to Airmen
within 365 days of UFT ADSC expiration.
The AvB is a talent management tool that is tailored annually to meet the needs of the Air Force. Retention
targets are not based on manning percentages alone, but rather multiple career health stressors such as: crew
qualification imbalances; absorption challenges brought on by increased production; aircraft modifications,
divestiture, and onboarding; increasing institutional requirements for more experienced pilots to serve outside
of the cockpit; and economic trends.
Additionally, the Air Force is working diligently to further improve the AvB program to meet the needs of both
the Air Force and those of its Airmen as the defense and civilian aviation environments continue to evolve.
Some significant and positive changes are on the table starting in FY23.
The Air Force will provide eligible Airmen accurate and timely information on the FY22 and the future of the
program as it becomes available.
Please direct questions to Lt Col Andrew J. Stewart, Chief, Rated Force Policy at [email protected] or
Col Alexander B. Fafinski, Chief, Total Force Aircrew Management at [email protected]
Thank you for all you do for our Air Force.
What is the Pilot Bonus?
The USAF offers a pilot bonus at a varying amount each fiscal year to boost retention of highly-trained, experienced pilots and other rated officers.
Each year, the Air Force will evaluate which rated officer fields are more critically manned than others and target those for higher retention offers. For example, they may offer more money to an 11F (fighter pilot) than an 11M (mobility pilot) but no incentive to an 11R (reconnaissance pilot such as U-2).
The amounts are all authorized by Congress and within the congressionally mandated maximum bonuses.
The Air Force spends a lot of money to train its highly qualified pilots. After 11 or 12 years of active duty service, they’re looking at losing a highly qualified four-ship flight lead evaluator pilot or 3,000-hour C-17 evaluator pilot with over a thousand hours of combat time.
While the Air Force knows retaining experienced pilots is important, they also know they can’t pay enough to retain everyone they need. See 2019 RAND study: we’d need $100,000 per fighter pilot to retain talent. That will never happen.
It is definitely worth it to the Air Force, and the taxpayer, to increase their pay a little bit more and help keep them in the Air Force a few more years. You cannot replace a pilot with 12 years of experience and 3,500 hours with a new Lieutenant with 120 hours and some VR goggle time.
How much is the FY21 pilot bonus?
Typically, the program details are released around January, but in 2021 it wasn’t released until March 1st. For Fiscal Year 2021, the Air Force offered a bonus to pilots willing to sign up for at least another 5-year commitment. In the past, they offered shorter duration bonuses, and I suspect those will come back as airline hiring is booming again.
The per-year amount and the amount you can choose to take upfront increases for an 8-year or more commitment too. Here’s the FY21 Pilot Bonus breakdown:
|5-7 Year Contract||8-12 Year Contract|
|Fighter, Bomber, Mobility, and Special Operations pilots||$25,000 per year Up to $100,000 up front||$35,000 per year Up to $200,000 up front|
|Helicopter pilots||$15,000 per year (no up-front option)||$25,000 (no up-front option)|
|Total:||$75,000 to $175,000||$200,000 to $420,000|
Who is eligible for the Air Force pilot bonus?
The PSDM released in MyPers will have specifics of who is eligible. Generally, your Active Duty Service Commitment (ADSC) from pilot training needs to expire in or before FY21 to be eligible.
For example, if you graduated from pilot training (the date you got your wings) was May 20, 2011, your 10-year initial ADSC for UPT expires May 20, 2021. You’d be eligible for the bonus.
If you graduated on October 15, 2011, you would not be eligible for the FY21 bonus. You’d have to wait for the FY22 bonus to come out and immediately apply. Unfortunately, this does add months to your next contract.
Important Dates to Consider
Aviation Bonus (AvB) or pilot bonus contracts are effective on the latter of these three dates:
- Date AvB program opens (was March 4, 2021 for FY21)
- Your eligibility date, or
- Date you open your online application
Here are some contract date scenarios. If your UPT commitment ended May 20, 2021, you could submit your online application early, like on April 1st, but your contract wouldn’t start until May 20, 2021. This means if you took the 5-year option, you’d be signing another contract through May 19, 2026.
If your pilot training commitment ended on January 5, 2021, you’d have to wait for the AvB program to open. So on March 4, if you log in and open your application that day. Your contract would start on March 4, 2021. If you did the 5-year bonus, you’d be free again on March 4, 2026.
If your classmate’s commitment also ended on January 5, 2021, but she didn’t decide what to do for a few months, the date she opened her application would be the contract start date. This could go all the way through August 31, 2021, when the program closed for FY21.
If your pilot training commitment expired before FY21 and you didn’t ever sign a contract or if your AvB contract is now expired, you may be eligible for a $15,000 or $25,000 bonus for 5-12 years. However, there is no up-front option for this tier of contracts.
Is it worth it?
If you’re doing it for the money, NO! There are so many other opportunities in life, especially with record airline hiring recently, and the airlines recovering quicker than expected. Being locked in with the Air Force (again) is not a decision you should rush into.
The $125,000 or even $420,000 is nothing in the long run compared to what you’d make if you go to an airline at your 11 or 12-year mark. You can start building seniority while continuing to serve in the reserves or guard.
If you’re doing it only for the money, do some more reading or listen to our podcast on FIRE (Financial Independence, Retire Early)- you shouldn’t NEED the bonus!
In my situation, I had already accepted a PCS that would keep me committed for 4 more years after the summer of 2021. By signing a 5-year bonus, I did promise an extra 10 months to the Air Force, which is a risk.
If they had offered a 3-year bonus this year, I would have done that. Now I’m basically risking that I don’t get tagged with a crappy deployment or assignment that would cover the last 10-12 months of my commitment before I have the option to 7-day opt and refuse the assignment.
In 2026 when my new contract expires, I’ll have 17 years in. At this point, you may wonder why I didn’t sign an 8-year bonus and take $200,000 upfront. Basically, my wife and I decided that the extra money and risk weren’t worth it. I want the freedom to choose.
I like the idea of being a free agent at 17 years when I’m vulnerable for an awful deal or 365-day deployment. My journey towards financial independence will position us to say “no” if we don’t think it’s best for our family.
Should you trade your freedom for money?
The ability to turn something down is literally priceless to us. If I have to, I’ll separate at 17 years to protect my family. This isn't selfish. It's just choosing to serve my family first. The 20-year military pension is cool, but it definitely isn’t going to be a make-or-break financial decision for me.
If I have to, I could also go to the reserves or guard and get some more “good years” there. We only accepted the 5-year deal because it only further delayed free-agent status by a few months. It also gave us a chunk of money towards FI when we had already chosen to stay in anyway.
The Future of the Bonuses
Now, if any big wigs ever read this, I’m NOT saying the bonus is a waste. I hate to hear people say, “It's not about the money.” True, but it’s definitely part of the calculus. Almost no one is fully swayed into staying over an extra $25,000 a year. It’s not that good of a deal. Most military pilots, especially right now, are going to easily get hired at a major airline, and after 3-ish years, they’ll make more than a 15-year Major does.
However, even if insultingly small this year, the incentive must increase to get closer to civilian pay. It won't ever be equal, but don't let that stop you from trying to get closer. The American taxpayers have invested too much in a 12-year pilot to waste it over a silly $10,000 or even $60,000 a year cut in the bonus program. (But the 1992-level numbers are still insulting.)
If they really want to boost retention, the bonus needs to offer $50,000 or $70,000 a year. We already paid RAND to study this. They also need to open the bonus window earlier to lock in some experienced pilots at the 8 or 9-year point.
Should I take some upfront or spread it out?
Almost anytime you can get a lump sum payment instead of spread-out distributions, I recommend you take the lump sum. You definitely have to have a good plan and be disciplined so you don’t blow it all. Also, pay attention to your taxes.
DO NOT do this without a trusted advisor or friend helping you plan how you’ll use the big windfall, and always have a plan before the money actually hits your bank account to help avoid emotional decisions or wasteful spending. The Bogleheads forum has an excellent guide for managing a windfall.
When you choose to take control of the money upfront, you get the put the money to work for you and your goals like paying off debt (hopefully you’re not in debt at this point), saving for kid’s college or your next big investment property, etc. If you take it and simply invest it in a low-cost, easy index fund like Vanguard’s VTSAX, the money will grow for you immediately.
After 5 years in VTSAX, a $100,000 investment can grow to $140,255, assuming a 7% growth rate. If you take the lump sum amount and put it to work for you, it can be a great benefit.
I chose to take $100,000 upfront.
A few weeks after your contract effective date, you should get the direct deposit to your bank. Then starting on your contract anniversary date on year 2, you’ll get the remainder divided by the remaining years. Here’s how the payments worked in my situation (minus tax withholding):
|Within a few weeks of 5/20/21||$100,000|
What are the tax implications of taking the pilot bonus?
Especially if you take the up-front amount, you should think about how an extra $100,000 or $200,000 this year will affect your taxable income and your tax bracket. I’m am currently in the 22% bracket, but with my 3 kids, I usually have a very low effective tax rate (~9%).
As soon as I decided to take the 5-year bonus, I immediately logged into MyPay and changed all my TSP contributions to traditional (vs Roth). Normally, I like Roth- paying taxes now and letting the money grow tax-free. But with a large income increase this year, I switched to traditional so the traditional contributions lower my taxable income this year. In the future, I will have to pay taxes on this money plus its growth when I take it out at retirement age.
I also immediately set my MyPay to send 30% of my bonus to my TSP. DFAS automatically won’t let you over-contribute to your TSP and will only send enough of the bonus to max out your TSP for the calendar year.
Can I get the bonus tax free if I am deployed?
If you sign your contract in a tax-free zone, a small portion of your first installment may be tax-free. You need to sign your bonus contract in a month when you receive CZTE (tax-free pay). As always, your tax-free benefits each month are limited to the amount of the Chief Master Sergeant of the Air Force’s base pay ($8,753 in 2021).
Let’s say you’re an O-4, and your base pay is $7,700 a month. If you fly into a combat zone the month you sign your contract, your base pay that month is fully tax-exempt. The bonus money you receive that month would only be tax-free for the [$8,753 – $7,700] difference of $1,053.
So it’s not going to move the needle for you to get the remaining $1,053 tax-free. Basically, cool if you happen to, but don’t go out of your way to be deployed when you sign.
If you’re in a tax-free zone on your contract anniversary date, none of your payout is tax-free. You only get a tax benefit when the contract is signed in a tax-free zone.
What should I do with the money?
Have a plan and use the extra money towards whatever your goals currently are. Avoid temptations to spend it all on an extravagant purchase or big vacation, but don’t be afraid to set aside a percentage of it for some fun.
I recommend having a standard percentage-based plan you will use for all windfalls. You decide this once, eliminate decision fatigue or emotional choices, and always do a similar thing with your tax refund or any other big payment you receive.
Maybe something like this:
- 10% donations- whether to your favorite charity or to a church, being generous is always a good start
- 5% vacation
- 5% thank your spouse or family for their help and support
- 20% max out your TSP for the year if you haven’t yet
- 12% max out your IRA (and your spouse’s, if applicable) if you haven’t yet
- 7% taxes. They will automatically withhold estimated taxes (currently 22%), but hopefully you’ll get a large portion of this back from the IRS
- 10% kid’s college fund
- 26% invest
Hopefully, this has been the most thorough and helpful explanation of the USAF pilot bonus you have ever seen. The pilot bonus can be an excellent springboard to financial independence, but the temptation of a lump sum payment is not enough to decide whether to stay on active duty or not.
The Air Force hasn’t yet released the 2022 bonus information. Normally it comes out in January, but in 2021, it wasn’t released until March 1st. We will update this article as soon as possible after it is released.
The official PSDM will be released via MyPers or via e-mail to commanders.
No, you are under contract with your year’s amount and the current guidance states those currently under contract can’t apply.
No, historically the Air Force has not allowed renegotiations if the amount goes up and you’re still under your contract. The bonus offered could be lower next year, but you’re locked in with what you signed.
The bonus amount can vary from $75,000 to $420,000 depending on your airframe and the length of the contract you sign.
When you are coming up on the end of your initial pilot training commitment, you may be eligible to sign up for another 5 to 12 years and earn up to $420,000. You can get $15,000-$25,000 per year, but specific details vary from year to year.
Your bonus is paid via direct deposit just like your regular paycheck. It comes a few weeks after your contract date begins. It may come in one or two different deposits. If you take the lump sum option, they will withhold 22% for estimated taxes.