Are Military Officers Rich? Average Net Worth by Rank | Military Money Manual Podcast Episode 11

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In this episode, Jamie and Spencer tackle questions like:

  • What's the average net worth of the above average military officer?
  • Can you build wealth as a military officer?
  • What steps can you take to become wealthy as a military officer?

Dive deeper into the numbers by checking out the article on the website: https://militarymoneymanual.com/the-average-net-worth-of-the-above-average-military-officer/

We break down the net worths of military officers from lieutenants to colonels, ensigns to captains.

In a 20 year career, you could start with a zero or negative net worth and build a million dollar portfolio before you earn a military pension. Learn how to start building your wealth today in this episode.

Outline of Episode:

  • Where the idea came from to compile this data
  • How a military pension affects your numbers
  • How the data was compiled
  • Impact of debt on your net worth growth
  • Assumptions used in the data
  • Habits of an above-average military officer that contribute to net worth growing
  • Military credit cards
  • Net worth for an above-average O-1
  • Net worth for an above-average O-2
  • Net worth for an above-average O-3
  • How quickly Spencer got to $100,000 and $200,000 thresholds
  • Savings rates
  • Net worth for an above-average O-4
  • Net worth for an above-average O-5
  • Net worth tracking tools and tips

Military Money Manual Podcast Episode 11 Transcript

[00:00:00] Spencer: Welcome to the Military Money Manual Podcast.

Today on the podcast, we're going to be talking about the average net worth of the above-average military officer.

Jamie: Before we get into the specific numbers of each pay grade, Spencer, what drove you to compile this data?

Spencer: I wanted to give military officers, and I've also made one of these articles for enlisted as well, I wanted to give people basically a benchmark, a yardstick by which they could compare their net worth to what their peers were doing. Because a lot of times people don't talk about money in public.

Jamie: Yeah, it's kind of taboo.

Spencer: Yeah, exactly. So by publishing anonymously, well now I use my first and last name on the website. But what I wanted to do is just put some numbers out there, and I generated this list, I think it was back in 2014, so I was barely a captain if memory serves correctly when I published it. 

[00:01:00] So I had no idea what my net worth was gonna be when I was a major, or if I stay in long enough, lieutenant colonel.

But what's really interesting is I've had a lot of guys reach out to me and gals and you can look in the comments section, but I've also received some emails as well and they've said, these numbers are spot on. This is exactly what my net worth is as a military officer. And then some people have said I think these numbers are actually a little bit low just because they've had spouses that work.

So you can throw that into the mix as well. I just really wanted to give people a yardstick or a benchmark by which they could compare themselves and not make themselves feel bad. I think the numbers are pretty achievable and I really wanted to just show that you can save up a good chunk of change while you're in the military. 

[00:02:00] One other story I'll tell before we jump into talking about the numbers here is I had an ROTC detachment commander who was a lieutenant colonel at Boston University and he was my Air Force ROTC detachment commander.

And he always liked to say that you'll never get rich in the military, but you'll be comfortable. And I just think that's bullsh*t. I think you actually can. I think you can get rich in the military, and I think I've got the numbers to prove it in this little spreadsheet that I made.

I've got the anecdotal evidence as well. Lots of people have reached out to me, especially dual military couples. I just talked to one at work actually. He and his wife just put on captain and live in Hawaii. She's about to deploy for six months, and he ran the numbers and was like,[00:03:00] “We're gonna start maxing out both of our TSPs starting next year. And we're making so much money, even though she's deployed, we need to do traditional because we need to get our taxable income down.” 

I can't remember what he paid in taxes, but, he was going to save about $8,000 in taxes by switching from Roth to traditional.

So long story long, that's where I came up with the ideas. I've got the article on my website, or if you just Google military officer net worth it should pop right up. That's where the idea came from for the article.

Jamie: Awesome. So I'm gonna give a little bit of a preview just to tease them as we have a couple more points to talk about before we get into the table of data.

At the end of your table, you basically have a 43-year-old O-5 with about [00:04:00]$165,000 in their Roth IRA, almost $500,000 in their Roth TSP, and about $315,000 in their taxable investment account. That's a total net worth of over a million dollars.

So if we want to get there, that's kind of the decision gates, the building blocks, the yardstick by which measure to get to a million-dollar net worth.

Spencer: Yeah. And the other thing to take note of, there is, okay, you got the 43-year-old O-5/lieutenant colonel, or, commander. And they've got a million dollars between their Roth IRA, their Roth TSP, their taxable brokerage account, and their home equity. They've got a million dollars, so they can pull, let's say 4% rule, $40,000 a year out of that. Right? But they've also got the military pension kicking in as well.

[00:05:00] I don't know what a base pay for an O-5 is, but it's probably close to $10,000 maybe? So if they're in the BRS, they're pulling in $48,000 a year. If they're in the high-three legacy, then they're going to be pulling in maybe $5,000 a month. $60,000 a year plus the 4% rule, $40,000. You can live a pretty good life on $100,000 a year. So, that's a great point that as we step through this, the eventual goal that we're working towards is leaving the military with over a million dollars of assets, which is awesome.

Jamie: Yeah, and being well underway, if not already, to financial independence. So, you're basically a genius because an O-5 with over 20 years of service is $9,816 in base pay this year. So yeah, very, very good educated guess there.

[00:06:00] How did you compile this status, Spencer? Is it like a big survey you took? Is it part of a research project you did? How did you say, OK, as a second lieutenant, they should have this much in their Roth IRA. As a captain, they should have this much. Can you just give us a brief overview of how you compiled this average data?

Spencer: First of all, I looked at the Roth IRA and you can tell that I made this a couple of years ago because I was assuming that the contribution limit was $5,500.

I was assuming that you could start doing that basically from the moment that you got into the military, whether you were commissioned out of ROTC, OTS, OCS, or one of the service academies. [00:07:00] It starts with maxing out your Roth IRA from the first year that you're in the military, and that could be a monthly deposit.

Right now the Roth IRA maximum is $6,000 a year, so that would be $500 a month. I only assumed 4% investment returns, which is actually very low. It also enabled me to ignore inflation. So it all starts with maxing out your Roth IRA every year that you're in the service, and then slowly, as your income grows, maxing out your TSP account or your thrift savings plan.

And we've got a whole episode, that's actually our most popular podcast episode right now, on the Thrift Savings Plan. And you can go back and listen to that. I think it was episode number 2. If you haven't listened to that episode, go back and listen to that episode, and then you'll learn everything you need to know about the TSP.

[00:08:00] But, I think I assumed that they were maxing out their TSP by the time they made captain. That was one of my assumptions. And until then, essentially they were growing their TSP account, but they weren't quite maxing it out. You know, that can be a challenge for a lot of people.

If you are married to someone who's also making an income, it might be easier, but depending on your financial situation, maxing out your TSP might be the first goal that you work towards after you max out your Roth IRA.

Jamie: Yeah, absolutely. And one other thing I just noticed is age 23, where the table starts is it doesn't start with a negative net worth.

[00:09:00] So some of the listeners will be coming into the military with a negative net worth due to consumer debt they have or student loans. So obviously if you are in that situation, your numbers are gonna be a little bit off until you get outta debt. Anything to add to that?

[00:09:10] Spencer: Yeah, I assume that you basically, you came out of the service academy, you came out of ROTC or you joined through OCS having had that full-ride academy scholarship or having a full-ride ROTC scholarship or maybe working in the summers to pay for your schooling.

But that wasn't my situation at all. I came out of a private school where I picked up an ROTC scholarship the second year, but I was already on the hook for over $60,000 in student loans. So I didn't start from zero. I know a lot of people don't. A lot of military officers don't start from zero.

[00:10:00] But I will say that based on the net worth that I outline on this graph on my website, it's still doable. Even if you're not starting from zero, you can still exceed these net worths and save up and invest a lot of money a lot faster than you think is possible.

Jamie: Yeah, really good point. And I think my case is a good example of that. We started out as well with a lot of debt. We talked on the previous episode about the USAA career starter loan and how much debt my wife and I came into our marriage with when we were newlyweds– about $118,000. So we started out with a big hole, and now we are caught up to where we're more where we're your numbers add up to if not ahead. So we may have been behind as a lieutenant, digging out of debt, but eventually, if you keep building good habits and doing the right things, then you'll get caught up and get above average, which is great.

[00:11:00] Spencer: I think the other thing to note there too is I only assumed 4% investment returns.

If you've been in the stock market at all in the last 10 years, you've probably been doing a lot better than that. I know just in my Vanguard Index funds, I think I opened those in 2014 or 2015, somewhere around there. My average annual returns have been 18%. So right there, by assuming 4% and essentially just assuming that your net worth is increasing because of the money that you're throwing in there, and it's not really allowing for compound interest or investment returns to really pump that number up. It should be pretty easy for you to get ahead of the net worth that I talk about at different ages.

Jamie: So we hit on this a little bit, but if someone is well above or well behind what you list as the average for their age or for their pay grade, what do you want them to take away from today's podcast? We obviously don't want them to be discouraged, but what should they take away if they're not quite on glide slope if you will?

[00:12:00] Spencer: Yeah, I think the most important message here is don't get discouraged if you're behind these numbers and use it as a reality check. If you are behind these numbers, just know that some of your peers are at these numbers or way ahead of these numbers and if you're not at these numbers, if you're behind them, then it's a great opportunity for you to start digging in to “why am I behind on these numbers?” If you're still paying off student loan debt that you've had for over 10 years, then maybe you need to prioritize your student loan payments so that you can move on to other things.

If you haven't been using your TSP or you haven't been getting your 5% match and you're in the BRS, this is your wake-up call. 

[00:13:00] If you're behind on these net worth numbers, then it's time to take action. That's what I really want people to do, if when they hear these numbers they think those are completely unrealistic and they could never obtain them, I want you to know that you could and you can. 

The reason that I know that you can is that we get the same paycheck. That's the great thing about the military, right? We know BAH will fluctuate from place to place and some people will get special pay depending on their specialty. Maybe I've had more deployments than you or I go TDY more often, but I didn't assume any of those TDYs or tax refunds in any of these numbers. All of this is just looking at base pay. It's only looking at base pay. So it should completely wash out any effects of BAH. 

[00:14:00] If you are married then you could actually be well ahead of these numbers. Especially if your spouse brings an income or if they don't bring an income, then they hopefully are allowing you to focus on your military career and to continue to bring home the bacon as it were.

Jamie: Yeah, absolutely. So when we're looking at these numbers, these are for an above-average officer.

Some of the things that we are assuming an above-average officer does are they don't rely completely on the military retirement system. They're maximizing credit card rewards and taking advantage of military credit card opportunities. They're tracking all their investments in one place with a product like Personal Capital.

They're banking with a military-friendly bank like USAA or Navy Federal, and taking advantage of some of those great member benefits and low-cost banking products. You mentioned the TSP already. They understand that the TSP is a great deal and use it every month, and they know spending more than you earn makes no sense.

[00:15:00] We've talked about that one a lot. They don't carry a balance on any of their credit cards and they don't take out the Career Starter loan or a kickoff loan like that unless they are investing the loan or paying off a higher interest rate loan or have a really good plan for that.

So anything else for the “above average military officer”?

Spencer: That's right. No, I think you hit the nail on the head on all those assumptions there.

The biggest thing with not relying on the military retirement system is you can still earn a military retirement. In fact, if you stay for 20 years or if you go guard or reserve and you earn a reserve retirement pension, that should just be gravy.

[00:16:00] But for a lot of people that is their retirement plan, and that's fine. Maybe they don't have a lot of savings for whatever reason while they're in the military, but they serve 20 years and they earn their military pension. Then either they live on that or they go get another job and supplement their income.

What I'd like to have people do, and what I wanna encourage people to do is start saving for financial independence today. If you get to 20 years of service and you had a great time, you've earned your pension, and you are ready to move on to the next thing, well now you've got the pension, plus you've got this substantial amount of savings which is going provide for you financial independence in addition to your pension.

So for myself personally, my goal was always to reach financial independence before I was eligible for the military pension. If you go on my website, one of my taglines is “I'm investing for financial independence before age 40”. 

[00:17:00] And I would be eligible for the military pension at age 43 or 44. I was held back in kindergarten. It's a sore subject. But, yeah, I got into the military, and I was a little bit older after college. 

So I think that the biggest point there about the military retirement system is, you can rely on it. You can serve your 20 years and then get it. But along the way, you should be making investments. Especially with BRS, now you have to be doing 5% into your TSP because that's free money. If you're not collecting then that's just a waste of everyone's time there.

Then one other thing that I'll highlight that you mentioned was for credit cards and USAA Career Starter loan or any kind of debt you want to be super smart with. I started this table with the young officer starting from a net worth of $0. [00:18:00] Like we just talked about, that's not the case for a lot of people because there's student loan debt, there's credit card debt, there are auto loans. But if you smartly use debt like the USAA Career Starter loan when you come out of the academy and you pull out the full $36,000 and you invest some of it, you travel to Europe on a little bit of it, and you buy a good starter car, and then you pay it all off a couple of years early. That can be a great use of debt right there.

Then for the credit cards, just no credit card debt. Not even once. It doesn't make sense. Just don't do it ever. 

With the military fee waivers that American Express and Chase are giving other cards, we've got plenty of military travel credit card episodes in the podcast roster on that stuff. [00:19:00] Then, of course, militarymoneymanual.com/umc3 for the Ultimate Military Credit Cards course on my website. We’ve talked about military credit cards a lot. We're both really big fans of it. The benefits that the cards are giving you are astronomical, and you're not paying an annual fee.

What I want a lot of people to realize is if you're getting free travel, like what a lot of these cards are giving you right now, for example, my wife and I have six Hilton free nights that we have to use by the end of 2022. That's going to be pretty hard to do. I'm going to be honest, we don't have that much travel planned in the next year.

So, we're thinking, what if we take our family with us and we just go for one or two nights, but we can cover everybody's room with a free annual night? 

[00:20:00] My point with all that is if you are not paying for travel, then you can be shoveling all that money into your investment accounts and achieving financial independence that much earlier, while still having a great life full of travel, full of airport lounges where you're getting free food, and you can be saving tons of money with these credit cards.

Instead of spending that money, you're investing the money that you're saving with credit cards, and you're achieving financial independence that much faster.

Jamie: Yeah, really good points. I have one last question before we start jumping into the data that's keeping everyone on the edge of their seats if you will.

We talked a little bit about some of the assumptions in the table, but can you just review those one more time? Some of them we covered already of how you formed the data so they can wrap their head around the assumptions that led to this data.

Spencer: Sure. For the chart, it's difficult to talk about a table or a chart on a podcast.

[00:21:00] So, the best place to go view it and see all the down-to-the-dollar details is on militarymoneymanual.com. The assumptions that I made when I was building the chart were that these numbers were for a single officer, so unmarried. If you have spousal income, it's only going to increase your net worth or your standard of living.

I think one of the traps that a lot of people fall into is when they do have two incomes, they're living off of both of them, and they're not saving. There's a whole book out there, I think it's called The Two-Income Trap. Basically, we Americans went to work after World War II, and so both people in the family are making income now. But instead of saving and investing that additional income, we're just spending it.

[00:22:00] And that's fine if you want to live that more extravagant lifestyle, but especially in a military paycheck if you can't make ends meet on a senior O-3 or O-4 salary, you probably need to adjust your lifestyle a little bit. I think for most of the families I see that are doing well if they do have two incomes, the military income and then the spouse works either outside the home or works from home, they can usually save almost 90-100% of the spouse's income, which is pretty awesome.

Sorry for the little sidebar there, but back to the assumptions. So these numbers are for a single officer. If you have a spousal income, it's just going to boost your numbers or allow you to live a more extravagant lifestyle. I’m assuming no student debt, most military officers are coming from ROTC or the academies, and [00:23:00] I'm assuming if you did take the USAA Cadet loan, you paid it off early so that's not really factored into here. Depending on how you invest, it's a pretty low-interest rate. We actually covered that in episode number 9 on Navy federal and USAA Cadet loans. 

We'll also assume that you don't buy a house until later in your career. So, in this table, I assume that you didn't buy your first house until you made O-4, and then I assume 4% investment returns. I listed the years after entering service. So essentially, when you're the 23-year-old, O-1, 23-year-old lieutenant or ensign it’s your first day in the military. You're starting from a net worth of zero and then 20 years later you'll be able to retire.

[00:24:00] Jamie: Okay, great. So, we're just going give some benchmarks there at each pay grade increase.

So at age 23, we start as obviously O-1. Nothing saved in the Roth IRA yet. Nothing saved in the TSP, nothing is saved in taxable investment accounts, and no home. At age 23, the average military officer has a total net worth of zero. 

If we go to age 25 for O-2 and a couple of years of Roth IRA maxing it out and a little bit of contributions to your Roth TSP, you should have about $11,000 in your Roth IRA, about $22,000 in your Roth TSP for an average net worth of about $33,400 for an O-2 at 25 years old.

[00:25:00] Spencer: Yeah, the biggest thing there is, for the Air Force, it's essentially an automatic promotion at two years from O-1 to O-2. I think that's true for the Navy, Marine Corps, and Army as well. A lot of people when they first get into the military for that first year or two are in a training program, and if you're at like, let's say Air Force pilot training, you probably don't have a lot of time to even spend money because you're so busy training.

Then between the TDYs and travel you might do around the country to get your training done, you might even have the opportunity even as a young officer to make additional income. So, that's your first year or second year in the military, you're at your first duty station and you'll, you'll have some additional expenses.

[00:26:00] You might need to get that car, and you might need to put a down payment on a house or the first month's rent and stuff. So you're going to have some additional expenses. I really think you could get to your first promotion, and you'll already have a positive net worth of over $33,000.

Jamie: Yeah, there are so many opportunities if you're smart about it. One other quick point I want to make while we pause here at the O-2 level is when you do get the promotion and you get a pay increase, be careful about “lifestyle creep”. And we've talked about that before of whatever you can of your extra paycheck, if you've been living comfortably as an O-1, when you go O-2, you take that extra money and accelerate your savings rates. You can get towards financial independence sooner. When you promote from O-3 to O-4. [00:27:00] If you're good at O-3, take the extra money and put it away and increase your savings rate.

Spencer: Yeah, I know a lot of guys what they like to do is for their TSP, every time they get either a time in service pay increase or they get a promotion, they bump up their TSP contribution a little bit. They're still going to see a bigger paycheck, which is great, but you're also going to painlessly increase your TSP contribution. If you keep doing that, by the time you make mid-level captain, you could already be at the point where you're maximizing your TSP contributions annually.

Jamie: That brings up one of the points from the book, the Military Money Manual: A Practical Guide To Financial Freedom which is coming out soon, that automatic contributions are very clutch. That's a great way to do that is just automatically change it in your TSP, and then next thing you know, you're contributing more towards retirement and that's great.

[00:28:00] Spencer: That Military Money Manual: A Practical Guide to Financial Freedom is available at militarymoneymanual.com/book. You can use promo code “podcast” to get a special discount on the book. So it's militarymoneymanual.com/book. Thank you, Jamie, for mentioning that. You can use promo code “podcast”, and I'm not going to spell it because I spell it wrong every time.

Spencer: So let's say you've stayed in, for a lot of people coming out of the academy or ROTC, their commitment might only be four years. So they're at that decision point if are they going to stay in, do they want to make this a career, or do they just want to stick around for a little bit longer? For Air Force Pilots it's a 10-year commitment. 

[00:29:00] Navigators or air battle managers, it's an 8 or 6 year commitment. I think Army and Naval aviation is a similar with a 6 or 8-year commitment once you're done with training.

Now you're 27 years old, you've been in the service for four years, and you've continued to max out your IRA contributions every year. By this point, I kind of assumed, starting as a new O-3 with four years of service, you're right at that point where you're going to start maximizing your TSP contributions. 

[00:30:00] If you look at how much of your pay it takes to maximize your TSP contributions, as soon as you put on O-3, it drops to below 50% of your pay and becomes a reasonable 30% to 40% of your pay.

After four years of service and you get that promotion to O-3, your net worth should be about $83,000. For that, I assumed you had $23,000 in your IRA and almost $60,000 in your TSP.

Jamie: As we're looking at these numbers, just think in your head and evaluate, “Am I here? Am I behind? Am I ahead? What should I do? What should I continue? What should I tweak a little bit to get caught up?” Not to feel despair or feel bad. It can vary greatly for each person's situation, but just to give you a kind of a benchmark to look at.

Alright, so here we are now as a 33-year-old, O-4. Congratulations! [00:31:00] You're an O-4 now, and here we had a huge increase. Let me just back up a little bit. We're going to hit only pay grade bumps, but basically where you hit the $100,000 threshold, and that's your first big number where you're like, oh, a $100,000 net worth! That comes about age 28 as a mid-level or still pretty young O-3. 

Right around age 28, you should see a $100,000 net worth based on these averages. Jumping back now to a 33-year-old O-4, you've made huge increases thanks to the power of compounding interest and huge saving rates that this pay enables you to have. Your net worth is about $350,000 now as an O-4. 

The assumptions there are that you continue to max out your Roth IRA. You should have about $66,000 in your Roth IRA and almost $200,000 in your Roth TSP, which is incredible. You should have about $90,000 in taxable investments as well. [00:32:00] So again, new O-4, age 33, should be about $350,000 on this chart.

Spencer: It still kind of blows my mind how quickly the net worth grows as you promote because that's only 10 years of military service, and you're already not at $100,000 net worth, you're at $350,000 net worth. And like I said, if you've got a spouse that's also pulling an income, you might even be ahead of that.

I know guys that have hit that 34, 35, 36-year-old, major O-4 type, and between their home equity, their investments, and their spouse is making an income, their net worth's already a half million dollars. So especially if you're mil to mil, there's a huge opportunity for you to just live on one of your spouse's paychecks and to 100% save the other one. [00:33:00] You can really get into your thirties, and you're debt free other than a mortgage if you bought a house. You're really starting to stack up the Benjamins as it were and watch that net worth climb into the mid six figures.

The other thing I wanted to mention was, from a personal level, and feel free to share if you're comfortable as well though, Jamie, but I know for me I'll pull out my net worth tracker. But it took me about four years and two months to get to my first hundred thousand. It's pretty remarkable because I wrote this chart just before I hit that first hundred. It was four years and two months from when I commissioned to hit my first $100,000.

[00:34:00] If you look at the chart, I hit it a little bit earlier than I have in the chart, but it's pretty remarkable that it fits the pattern right there. Then, every hundred thousand since, obviously sometimes there are some stock market gyrations that cause the net worth number to dip down month to month, but the next $100,000 only took a year and eight months. 

I went from four years and two months to get to my first $100,000 and then $200,000 was only a year and eight months later. That was with my wife getting paid too, so there was some spouse income there.

[00:35:00] Jamie: Yeah, like you said, it's really crazy how once you start going and you start tracking it, you look at a goal and you look out there and you say I can be at a $100,000 dollars or $250,000 or half a million dollars in 5, 10, 7 years, wherever you're at.

I just think back to newly commissioned Jamie at 21 years old. Yeah, I was young, so I literally was 21 years old when I entered active duty. I just would've never thought that I would have a $100,000 net worth. It was not even something I thought about. When I got a paycheck that was probably, $1,800 or $2,000 I was like, “I'm so rich!”

Some of you may be like, “Wow, Jamie's really an idiot.” Some of you that knew me back then are like, “Yep, that checks.” And some of you may have been where I was, where you're like, “I can't even fathom having a net worth of $250,000 or $500,000.” So if you are thinking that, it's possible.

[00:36:00] And again, this is both of us started with substantial six-figure debt to start it out.

Spencer: Oh yeah, that's a great point right there. It took us four years and two months to hit the first $100,000, but we were starting from negative $60,000. So right there, we didn't do anything special. We put money into our TSP, we put money into our IRA and we paid off our debt. I deployed a few times in there. I went TDY a few times in there, and that additional income we put towards our goals. 

I'm the same way where if you had pulled aside college Spencer and said, “Hey, in less than five years of graduating you'll have over a $100,000 dollars net worth,” I would've said, “You're crazy.” 

[00:37:00] That just seems impossible because in your mind you're thinking, “How am I gonna save $20,000 a year?” But that's not what it is, right?

Because the money that you put in grows. The stock market goes up, the stock market goes down. But in general, over long enough periods of time as your dollar cost averaging into the market, you're going to see a positive return. So the money that you put in the first year, by year five, it might have doubled.

So if you put in $10,000 in the first year, that's a great start. Then, five years later, that might become $20,000. If you look at these figures we've been talking about, it can be disheartening, especially if you're behind. Remember, this is assuming that you're starting right away. You started as soon as you graduated, and a lot of people don't. 

[00:38:00] A lot of people don't start caring about their finances until they're mid-level captain or maybe a new captain, and they finally get a moment to breathe.

They've been doing training, they've been busy at work, and now they can finally sit down and assess themselves and say, “Okay, how much debt do I have? Am I working towards my goals? What even are my goals?” 

That's something that we talk a lot about in this podcast that financial independence is really the ultimate goal. Every other financial goal should be a sub-goal. Paying off your debt, saving, and investing…all those things are working towards the ultimate goal of financial independence where you no longer have to trade your time for money.

Jamie: Yeah. So, we've talked before about how we have basically promised to do a get-out-of-debt episode in the future. So I guess now that we've recorded it again we have to do it. We owe the people a get out of debt lesson. 

[00:39:00] From my experience, what you brought up earlier, you is we had quite a shovel to get out of. We had a kid when we were pretty young, and we were mil-to-mil at the time. Our first two years between training and everything going on and trying to get my wife commissioned when she was pregnant was kind of a mess.

We were just trying to survive. We didn't really think about money for at least two years of active duty time. And then we were like, “Oh man, we have a lot of debt. We gotta do this.” That's where we started attacking the Dave Ramsey baby steps and debt snowball that we've talked about before.

Then, we started building this momentum, and once we started we couldn't stop. Well, I'll say I couldn't stop talking about it. I'm the nerd of the relationship, and my wife lovingly is on board with all my goals, but she could care less about the spreadsheets. 

[00:39:00] What is really fun is when you and your spouse, if you are married, can set a joint goal and work together on that. 

[00:40:00] Then, if you're the nerd, you handle the spreadsheets and the Personal Capital net worth tracking and all that kind of stuff. So, we were behind on a lot of this until captain years really, because it just took us a couple of years of farting around and not really having a goal.

Spencer: One thing that jumps out at me there about your story is that if you guys went and looked at this chart right when you got out of college, you might have said, “Oh, this is impossible.”

You guys were late bloomers, and now it doesn't matter. You're still ahead of the numbers that we talk about in this chart. It's just crazy when you have that intensity, and when you set a goal, and you work towards it, and [00:41:00] when you work together with your spouse to achieve that goal. Or if you're not married, then it's even easier because you just need to work with yourself. 

I think the best lesson learned from your story, Jamie, is that you can get a late start on this, and you can still beat the numbers that I talk about for the net worth of the above-average military officer.

Jamie: I have one other comment, and then I'll get us back on track after that on the chart. When I first met this strange character at work named Spencer, and he was talking about how he has saved 50% of his income and all this stuff, I literally remember having the thought, “You're crazy. You must have no life. You're weird. What on earth do you do with your life? That is not possible. That's not something a normal human in America does. Right? Saving 50% of your income? No, it's not. I like going out to eat. I like spending it. I like traveling or whatever.” 

[00:42:00] Then, no kidding, the first time we took our savings rate really, really seriously without much effort and without my wife working at the time, we saved 40% of our income as a savings rate with not a lot of effort. It's not like we were starving. We still hung out with friends. We still traveled to other islands and did all the fun stuff in Hawaii. It was eye-opening to see that if you have a goal, it's really not that hard.

Spencer: Yeah, I don't know if we're still at a 50% savings right now. We've kind of dialed it back a little bit to spend more money and frankly enjoy the time we have left in Hawaii. But if you do have that intensity, I know you used YNAB, You Need A Budget, and that was [00:43:00] eye-opening for you to see that if you actually give your money a job and put it to work you could achieve a 40% savings rate without even really sacrificing much.

Jamie: Yeah, literally. And when I say not sacrificing much, I didn't sacrifice anything. I'm one of the worst suspenders out there. I promise you. If we want something, we get it. There's some stuff I'm cheap about, but for the most part, I did not spare. I was not starving, I wasn't living in a tent, or in an RV or double wide or something.

Spencer: My wife likes to joke that her phone auto-corrects “Spencer” to “spender” because I'm the one in the relationship that loves spending money. 

[00:44:00] I have no qualms about spending money. I haven't always been that way, but even when we were saving 50% of our paycheck when I was a younger captain, we still traveled, and we still did the things that we loved. We still went out to eat. It's definitely possible. 

You can definitely live, especially when you compare your life to someone who isn't in the military and maybe doesn't make as much money as you. Or if you compare your life to someone in the third-world where they're literally just trying to get clean water.

How many times today have you flushed water that someone in the third world would easily pay $100 to drink? And you just flushed it down the toilet, or you went into your kitchen and you filled a bottle of cold water from the tap and you didn't think about it, you just did it.

[00:45:00] To have that level of wealth in many countries you would have to be the wealthiest 10% of the population to have access to cold clean water like that. So, I think it's really important to always, always put everything you do in perspective. You always have to compare the counterfactual. You always have to think about the opposite. 

I think it's really amazing the opportunity that the military gives you. Depending on your situation, you could be deployed and literally, you don't have to pay for food or housing. Yeah, it sucks, you're sweating it out in some desert somewhere. 

[00:46:00] But during a lot of my deployments, we ramped up my savings rate to 90%, and it's that kind of opportunity that you have right there. If you capitalize on that you can put yourself way, way ahead of your civilian counterparts financially.

Jamie: Yeah, really good points. Okay. I promise to get us back to the data. Thanks, that was really deep, man. I'm touched. That was deep. 

Okay, back to the chart. So a couple of big milestones as an O-4. We have some home equity building as about a 35-year-old, and then at about 36 years old is where we hit half a million dollars, $500,000 net worth. And that's a big goal. That's really impressive. 

Then, what's crazy is how fast things start going from there. It really, really starts rolling. By the time you hit 41 or so, and we're now talking O-5 promotion, your net worth is probably going to be somewhere, for the average military officer, around $877,000.

[00:47:00] So just to recap there, you now have about $141,000 in your Roth IRA, over $420,000 in your Roth TSP, about $265,000 in your taxable investments, and about $50,000 built up in home equity, for a total net worth of $877,000 for a newly promoted O-5 at 41 years old.

Spencer: Then from there, just two years later you're cracking the million-dollar mark which is crazy, right? Because you just started 20 years ago, and you didn't save $50,000 a year. Maybe you are, towards the end of your career. But really the seeds that you planted, that little $5,000 contribution or $500 a month contribution that you made into your Roth IRA back when you were a brand new lieutenant or ensign in the military, those seeds have now grown. 

[00:48:00] Again, I only assumed a 4% investment return here. So I imagine if I reran this table at a 7% or a 10% investment return!

If you were to time the bull run of the 1990s or the bull run of the last decade or so, you might see a total net worth of $1.52 million. That's awesome right there. Maybe you're a real estate investment guru and you've got your little portfolio of paid-off condos now that are just throwing off cash at you.

I think it's pretty awesome that when you actually put the numbers down and do the math, you realize that, “Wow, I could do a 20-year career in the military, earn a military pension, and leave the military with over a million dollars in assets.”

[00:49:00] Jamie: Literally as a millionaire.

Spencer: Yeah, literally a millionaire. I just wanna read one of the comments from 2018 on my website. A guy named Fred left this. 

“Your numbers are a great gauge for folks to set their site sites on. Thank you. As a background, I retired as lieutenant colonel in the Air Force in 2016 after 24 years of service. I got to fly the entire time and did exactly what I loved. I was able to retire with my house paid off and a net worth of $1.5 million, which doubled in the two years since retiring due to the market appreciation.” And he worked as a civilian contractor. So he says, “A million dollars is definitely achievable, but you have to be committed to financial independence for the duration of your career.”

I would even argue with Fred, and first of all, thanks, Fred. That's an awesome comment. It just provides a lot of validations for the numbers that I used where these are average numbers, right? 

[00:50:00] If you're above average or well above average, you might do even better. Where, like Fred here, $3 million net worth with a paid-off house two years after he retires from the military. So that's an awesome, awesome goal right there. But, he says you have to be committed to financial independence for the duration of your career.

I would argue that really the time period to be committed is your first 10 years. If you learn about financial independence in the first 10 years of your military career, it is so much easier to achieve it than if you wait until the last 10 years. 

That's not to say that if you're in the last 10 years of your military career, it's impossible. I'm just saying it's a lot easier because you have time and you have compounding interest going to work for you. 

[00:51:00] It is so powerful when you give it a long timeline to take off.

Jamie: I think it's just so encouraging to me to see these numbers and to think back. The encouragement it would've been had I seen this when I was 21, 23, or a few years ago that it is possible with a little bit of a plan, and you can do it, too.

Spencer, you said earlier, “You can do this, you guys can do this.” And don't be overwhelmed by the numbers if you're a little bit behind. And if you're ahead, great job. Keep it up, and share what you're doing. Share your lessons with those that work with you or for you and encourage people to aim for financial independence and set up their own goals so that they have the choice and their family has the choice.

There's nothing worse than hearing about someone who has to stay in a job they don't love because they have no other financial choice. And that's what we wanna encourage you to do is just set yourself up where you have the ability to choose.

Spencer: Yeah. So, a million dollars as a 43-year-old lieutenant colonel. You retire, you're collecting that paycheck. Man, life's good. 

You're working on paying off your house. You've got lots of cash saved up in your retirement accounts. You still have about 17 years before you can start touching them without paying penalties, but you've got a lot of cash in your taxable investments and you've got the cash flow of a military pension as well.

So lots of options, and you can always go back to work as well, you know? Or you can maybe stay in the military. Maybe you just join the reserves. Maybe join the guard.

So, Jamie, what kind of tools do you personally use to track your net worth?

Jamie: You mentioned YNAB, and I do still use that both for our budgeting and net worth tracking. I'm a budgeting guy. Very detailed budget still, even though we don't need to. I enjoy it and it helps us advance our net worth a lot. 

[00:53:00] So we use YNAB, You Need A Budget. I think the app costs $99 a year, and I guarantee you, if you don't have a system, you will increase your net worth by more than $99 over the next year. If you don't come find me. Look me up on the Global. Send an email to Spencer,and I'll Venmo you. I'll Venmo you. 

If you take it seriously, you'll get more than $99 benefit out of it. So, YNAB is a great one. It does budgeting and net worth tracking all on that one.

Another one I used to use was Mint. I didn't love it for net worth tracking as well, but it's another all-encompassing budgeting system. 

The really good one, other than just maybe a spreadsheet, a Google Docs or Excel spreadsheet, is Personal Capital. I think that's probably the best net worth tracking system if you're looking for just that.

[00:54:00] Spencer: Yeah, I used to use Personal Capital a lot. I've talked about it on my website for probably as long as the website's been on there. Yeah, eight or nine years, but I used it personally. I still use it to this day. I think it's one of the best tracking software websites out there. The app is really good. I use that as well. 

Frankly, I don't check it that often anymore and I'm really just using my Google sheets. You can also use Excel if you're kind of old school or Microsoft 365.

Jamie: Whoa, whoa. I feel attacked.

Spencer: Yeah, you should. But, the Google sheets, I share with my wife too. 

[00:55:00] We actually had this conversation the other day, is it still valuable to track our net worth every month? We have these automatic systems set up, and the dollar amount goes up and down based on what the stock market's doing. Should there be something else that we track every month, like how many hours we spent with each other, or how much we donated to causes that we care about? 

You know, what gets measured matters, right? For us, for a long time, our net worth has mattered to us, so we measured it. But now as I get further along in my career and I've set up these automatic systems, we've paid off our debt. Maybe it's time to measure something else. So, that's kind of why I've stopped, not stopped, but I've slowed down my use of Personal Capital. I don't check it every day certainly. 

[00:56:00] It is nice that it aggregates all of your accounts in one place, but if you're only updating once a month, it's not that long to go log into Vanguard, log into the TSP, copy the numbers over, and add it up. I have a little formula set up. 

The other cool thing that I like doing with my net worth spreadsheet is to keep track of milestones like $100,000, second $100,000. That's really fun to go back and see that it took us like four years to get the $100,000, but then it was only less than two years to the next $100,000. So, that's really fun. 

The other thing I like to do is, I put the safe withdrawal rate on there too. So just looking at my investment account, not looking at my cash, not looking at my total net worth, but just looking at my liquid investments. 

[00:57:00] So for me, that's mostly the TSP in Vanguard and I take 4% of that divided by 12, and I have a little counter that ticks up and shows that you can pull $50 a month out based on the 4% safe withdrawal. Now, it's doubled. You can pull out a hundred dollars a month for the rest of your life, right?

It's kind of cool to watch that build over time and realize that yes, it's a pile of money, but you have to think of it as future income. It's a pile of money that's invested and it's going to provide you a future income stream that you can live on one day.

Jamie: The point you made about checking net worth, some people are just nerds and we like to track it whether you really need to or not. And if you're there, put your hand up in solidarity with me in your car, wherever you're listening. 

[00:58:00] But, one point I do want to just re-attack is that it's not beneficial to check your net worth daily or probably more than monthly. I would say monthly is probably about the most you want to look at it because it will go up and down. I'll say, in my experience, we've been using the YNAB app specifically for over two years. And there's only been 3 months in the last 24 where there was any drop at all in net worth on the first of the month.

A lot of that is the savings rate. A lot of that is just luck of the market and things like that. That is kind of really, really cool to see those trends like that. And see that the plan we have is working, but also don't obsess with it. Have fun in life.

Net worth isn't the only thing that you should care about. And man, Spencer, you're really deep today. I would love to see your spreadsheet of how much time you're spending with your friends and how much time you're spending with Julia. That's some good thought.

[00:59:00] Spencer: Yeah, thanks. How much time I'm spending on the podcast with my good friend, Jamie. 

I'm gonna give my takeaway, and then you can give your takeaway. We started the podcast with, I think it's a yardstick. I think it's a tool to measure yourself against your peers. But at the same time, give yourself a pat on the back if you're ahead, and if you're behind the numbers that we talk about, that's okay. 

You can get a late start. It took me maybe five years to get on track with these numbers and then to start getting ahead of them. So, use it as a benchmark. Use it as a pacer like when you go run a PT test and you have someone who gives you the pace that you need to stay ahead in order to pass. 

[00:60:00] Think of it as a little helpful tool as you continue your journey to financial independence.

Jamie: I think for me, it's just one more encouragement of you can do it, like you, you who are listening to this right now, you can do it. It's not for other people. It's not for people that weren't born into the middle class or people who were barely able to go to college or were the first in their family in generations to make it to college.

You can do this with a little bit of intentionality, a little bit of planning, and making use of some of the tools that you hear about on this podcast or that you read about in The Military Money Manual blog or in the new book. There is a path for you to be a millionaire before you leave the military.

Spencer: Yep, I think that's great. Be a millionaire before you leave the military. 

All right, thanks so much, everyone, and we'll see you in the next episode.

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