Air Force Pilot Bonus 2022 – What Would You Do With $420,000? | Military Money Manual Podcast Episode 34

Listen to The Military Money Manual Podcast on Spotify, Apple Podcasts, Amazon Music, Audible, YouTube, or Stitcher.

• Spotify
• Amazon
• YouTube
• Instagram

The Air Force announced the Fiscal Year 2022 Air Force Pilot Bonus on 11 April, 2022. You can see the bonus chart and all the details in my article on my website, Military Money Manual.

If you're eligible for a bonus, this can be an amazing opporuntiy to accelerate your journey to financial independence.

Military Money Manual Podcast Episode 34 Links

• Free 5-day course to maximize your travel benefits and learn all about military credit cards
• Achieving Financial Independence while in the military
• The Military Money Manual book
• Air Force Pilot Bonus 2022 – Aviation Bonus Program
• Episode #32 Military Bonuses and Windfalls- How to Invest, Splurge, and Reach Your FI Goals Faster 
• Episode #31 Doug Nordman–How to Live on the 4% Rule, Recover from Investing Mistakes, and Start a Kid's 401k

Outline of Episode:

• What is the Aviation Bonus (AvB)?
• Do other branches have a similar bonus? 
• Can the Air Force compete with airline pay?
• Brief overview of other career fields that are eligible for bonuses
• Jamie’s personal experience with the Aviation Bonus
• Tax implications of a bonus 
• What can you do with a large lump sum of money
• How to find the PSDM, the source document for eligibility details
• Tiers of eligibility and who can receive upfront payment 
• Important dates to consider
• Is it worth it to take the bonus? 
• Is the bonus tax-free if you’re in a Combat Zone Tax Exclusion (CTZE) area?
• Investing a portion of the bonus
• Spencer’s rationale for not taking the Aviation Bonus 

Military Money Manual Podcast Episode 34 Transcript

[00:00:00] Jamie: For fiscal year 2022, Air Force Aviators can earn $35,000 a year for 3 to 12 years of contract, or up to $420,000 total over a 12-year period. This year, there are bonuses available for all Air Force pilots, RPA pilots, navigators, and air battle managers. This kind of bonus can really accelerate you toward your financial independence goals.

[00:00:23] Spencer: Welcome to the Military Money Manual Podcast.

Hello and welcome to the Military Money Podcast. I'm your host, Spencer Reese, and I'm here with my co-host, Jamie. Hey, Jamie.

[00:00:36] Jamie: Hey Spencer.

[00:00:36] Spencer: On every episode, we present a new topic to help you achieve financial independence in the military faster than before. Today in the podcast we're talking about the Air Force Pilot bonus.

As a disclaimer, this is going to be more focused on Air Force pilots. We will talk briefly about other branches if you hear us say Pilot bonus, we're referring to more than just pilots. So there's also CISOs, Combat systems operators, RPA pilots. Air Battle Managers or ABMs and also Rotary Wing, but we'll get into all the details about that.

You can find the chart that they published in the PDSM on militarymoneymanual.com/air-force-pilot-bonus with dashes in between all the words. Or just Google military money manual Air Force pilot bonus, and you'll see the article pop right up. 

So Jamie, what is the two-minute summary of the Air Force pilot bonus,

[1:28] Jamie: So it's officially called Aviation Bonus, or you'll see it abbreviated in writing as AvB.

It's a retention program that's authorized by Congress basically to help man career fields that are specialized, hard to train a replacement, to keep the experienced rated officers in the service so they don't have to train a new pilot or RPA pilot, navigator, things like that because it takes 12 years of experience to get someone where they're at to where they can choose to separate from the service.

So Congress allows the military branches, which all of them do, Congress allows the military branches to pay extra for aviators to keep them in the service. So we don't lose all those training dollars that we've invested into them. 

[00:02:17] Spencer: Yeah, and it's not just pilots though, right? So like we said, other rated career fields are offered, also offered the bonus, but the Air Force decides between the different career fields, how much money they're going to offer, what the terms of the contract are going to be, and it's a little bit different for each AFSC.

Exactly. Yeah. Like you said, it takes millions of dollars and thousands of hours of training to get somebody to the level of experience that they're at after they've been in the Air Force for 10 years after their pilot training. That's the length of the commitment once you graduate.

Pilot training is a 10-year ADSC or active duty service commitment. But if you're listening to this podcast, you probably know all that. So let's get into some of the other stuff here. 

Jamie, do other branches offer similar bonuses, you said? What's the Navy doing? How about the Marines in the Army?

[00:03:07] Jamie: Yeah, just doing a little bit of research today in preparation for this, all the services. The only one I couldn't find a real definitive open-source answer on was the Coast Guard, but they're separate anyway. No shade intended to the Coastie fans out there, but the Navy has a 5-year bonus, $35,000 a year, that came out in March of 2022.

In October 2021, the Marines were actually the first to get out their fiscal year 2022 bonus and they've offered $25,000 for 4 years. Or if you do 6 years or more, you can get up to $35,000 per year. So that's $210,000 total. But it varies greatly depending on the type of aircraft, like F-35s versus Ospreys versus E-2s versus P-8s, for example.

The Navy, similar to the Air Force, varies their program. But you see a theme here, all of them are around $35,000 or so for the majority of pilots. The Army has one as well, but from what I could tell online, they've actually either run out of money or stopped accepting applicants for fiscal year 2022.

But all branches are feeling the crunch of the retention crisis that we've experienced among pilots and other aviators over the last few years.

[00:04:23] Spencer: Yeah. Coming out of two years of Covid, now the airlines are just hiring like crazy. So I know in our AFSC in the mobility career field, we're seeing guys getting hired left and right by Delta and FedEx and everybody else who operates heavy air transport.

And so it's definitely a, would you say a seller's market? If we're selling our services, So yes. The military has to recognize that especially in the Air Force this year, I would say that the offer that's on the table is better and offers more flexibility to aviators than it did in previous years.

[00:05:06] Jamie: Right? It's better, but still not good enough. If I can say that there's actually a RAND study. The Rand Corporation did a study that the Air Force and the government asked them to look at and I want to say the amount that Rand looked at in maybe 2019 was $60,000 or $85,000 a year on top of a normal officer's pay.

The full details and the link to the RAND study are in the article that Spencer mentioned in the military money manual. Also, if you just Google search Air Force Pilot bonus, it's the number one result that'll pop up. But that Rand study's really interesting, basically. The Air Force sometimes seems to have given up on being able to compete with the pilot pay of a civilian sector job.

You're not going to be able to compete with FedEx after a few years making $250,000 or $300,000 a year for 3 to 5 years, probably more like 5 years out of your Air Force time. Which is probably true for a government job, but that shouldn't stop the Air Force from getting somewhere as close as they can.

So if any congressman or generals ever listened to this podcast, please know that there's always more you can do. Because you've invested millions of dollars in a pilot or other aviator by the time they reach the end of their commitment. So it's not worth losing someone over a measly $10,000 or $20,000 difference. It's a drop in the bucket. You can retire an extra F-22 and fund the whole year's program probably.

[00:06:31] Spencer: Yeah, that's so true and it's not just pilots too that they offer bonuses too, right? There's other career fields. But have the opportunity to earn extra money.

[00:06:40] Jamie: Yeah, a hundred percent. So the pilot bonus and rated officer bonuses are, like we've mentioned, because it's very expensive and long training and just all about getting the return on the investment per dollar that they've spent getting someone to the point where their commitments up.

But it's not unusual for them to offer career field bonuses or other incentives to either sign up for a job or to retain or stay in that job. So there's programs like the initial enlistment bonus, as well as selective retention bonuses. So I looked up a few today. Linguists can make up to an extra $40,000.

Doctors can make anywhere from an extra $43,000 to $59,000. EOD, Air Force Security Forces, and even dental hygienists get bonuses in the Air Force right now. Army Rangers can get a $20,000 bonus after graduation. The Army right now is offering new recruits up to $50,000. A soldier can even earn $19,000 if they're willing to ship out for basic training within 30 days.

Enlistment and navy divers can make an extra $340 a month. So you see, it's nothing new to use bonuses and extra pay as an incentive to target career fields that we need help with or that we need help retaining people in or cross-training people in. It just happens to be that the pilot one for officers is one of the few that's available for officers because it is such a long and expensive training.

I heard a number the other day, don't quote me a hundred percent on this, but I think a C-17 pilot to get them combat ready costs a little over a million dollars. F-22 pilots more like $10 million to get them combat ready. So that's a pilot that's been in the Air Force for probably anywhere from 3 to 4 years by the time they become mission ready in the F-22 off the top of my head now imagine how much more we've invested in them in another 8 years of deployments and training and experience.

So that's why it's such a seemingly high dollar amount.

[00:08:37] Spencer: And Jamie, you took the pilot bonus last year in 2021, right?

[00:08:42] Jamie: I did it. It's a very personal decision for each family and obviously, if you are married or you have a partner or trusted advisor, you can lean on, definitely recommend doing that.

And just talking through your options for the period of Covid, it changed the calculus for a lot of people. Obviously, Covid changed the whole world, but this specific question of whether to take the bonus or not. We wrote out in detail on that article on militarymoneymanual.com that we answered and I gave specific examples of dates.

If you graduated from undergraduate navigator training on this day, and the aviation bonus window opened on April 11th, 2022, here's when your contract could start, and all those things. For us, I'd already accepted an assignment that incurred a 3-year Active Duty Service Commitment, ADSC, as we call it in the Air force.

Other branches might call it a service obligation or an ADSO. I'd already incurred a 3-year commitment from the end of that PCS. So really I was looking at 4 years and some change from when I signed the contract. So last year for fiscal year 2021, the shortest duration they offered was 5 years.

So by signing a 5-year contract, I added an extra 10-year commitment to the Air Force. I was able to get $25,000 a year, last year's bonus with $100,000 upfront. So again, my wife and I weighed it heavily. We talked to several trusted advisors and several friends and decided that was best for our situation.

And it added, like I said, 10 months of a contract to our overall commitment to the Air Force at that time.

[00:10:29] Spencer: Yeah, that was really nice that you were able to get 80% of it upfront because you can just put that money to work for you immediately and you don't have to wait every year for it to be delivered.

And, for most lottery winners or lotto winners the optimal solution is taking the money upfront. It's not accepting the annuity and having it paid out over the years. We talked a little bit about thinking through windfalls in our episode on that.

What did you think about $100,000? That could be a life-changing amount of money for people. How did you think about setting yourself up for success with that amount of money coming in and did you see all of that or were there taxes taken out of it?

[00:11:18] Jamie: Yeah, great question. Taxes are withheld initially at 22%. So of the upfront amount and any annual payments on your anniversary date they'll withhold 22% as a tax estimate then when you file, you hopefully will get a portion of that back in the following April when you file your taxes, depending on your actual tax bracket.

So they might withhold 22%, but if you can still fall somehow in the 10% tax bracket, for example, then you should get a large chunk of that back. If they withhold 22%, but you're actually in the 24% tax bracket, then you may still owe a little additional. But what I do, we talked about in the windfall episode and is also in the article, is I try to have a set amount that doesn't change no matter what extra money or extra windfalls coming in. So whether it's a $2,000 tax return or it's $100,000 bonus, or it's a $50,000 inheritance or whatever may come to you. My wife and I have agreed on a set percentage. 10% goes to giving, 25% goes to retirement savings, long-term savings, 5% goes to vacation, etc.

And we worked down that percentage. The big takeaways to answer your question, Spencer, are to have a plan before, don't wait till the money comes into your bank account. You see that deposit and you're like, “Oh, I have, $75,000 all of a sudden”. Even on our path to financial independence, I've had a net worth well above that for several years.

But I'd never at one time had a deposit that large show up overnight. So even having a plan ahead of time and talking through it with my wife and other trusted advisors and having these set percentages, it still was a little bit of sticker shock to see that amount come into the bank account overnight.

[00:13:03] Spencer: Absolutely. It makes me think a little bit about receiving the cadet loan. When I was in college, it was $25,000 and I don't think I've ever seen a dollar amount in my bank account over $2,500 up to that point. Now all of a sudden I'm being handed 10 times that amount. You can see how people get into trouble and they just end up spending the entire thing.

Or they go out and buy a car that they really don't need or really can't afford. A couple years later they regret that purchase and it was in episode number 32 of our podcast that we talked about military bonuses and windfalls.

[00:13:40] Jamie: Yeah, that was a really good one. If you haven't listened to that, I'd definitely recommend going back and getting just the overarching principles that we worked through together on that one.

You mentioned lottery winners. The percentage of lottery winners that blow other money is very high, I don't know, 86% of stats are made up on the spot, but something like that. So all of the guidance or the things that we talk about only matter if you're going to be smart with your money.

So taking the lump sum up front and then. Blowing it is not a smart plan. If you're tempted to do that or you don't trust yourself, then maybe taking the annual payments might be better for you. So there's a caveat there, but you definitely want to be smart with it like I said, having a plan ahead of time will help prevent those emotional decisions.

[00:14:33] Spencer: Jamie, we've talked about how people can find the chart for the Fiscal Year 2022 Aviation Bonus and any future aviation bonuses, pilot bonuses, on the militarymoneymanual.com. But what's the actual source document? Where can people go to actually read the sacred text as it were?

[00:14:52] Jamie: Yeah, so for Air Force CAC holders, I almost said CAC card holders.

You're actually going to go to myPers and look for the PSDM. The PSDMs, they'll be a “view all PSDM” link or whatever from there you can find the official pdf. But if you're an aviator and you're eligible for this, your commander should have it. But anyone should be able to find it on myPers to find the official source document, but the numbers are out everywhere on the internet, but that's the official for all the details, all the eligibility criteria, and any other caveats, like whether they'll allow someone in a previous bonus to renegotiate and all that stuff is in the PSDM.

[00:15:35] Spencer: So this year for fiscal year 2022, the Air Force just announced on April 11th, which is the day that we're recording this podcast, that they're going to be offering $35,000 a year to fighter, bomber, spec ups, mobility, C2 ISR and Rescue fixed-wing pilots. So basically all the fixed-wing pilots as you traditionally think about. I'm going to be offered $35,000 a year, and that's going to be for the 3 to 4-year option. That's going to be nothing upfront. But once you get to the 5 to 7-year option, you can get $100,000 of that upfront.

And if you go up to the 8 to 12-year option, you can take $200,000 of that upfront. That's pretty nice there. So that tops out on the low end. If you took the minimum amount that you'd receive for 3 years at 35 is $105,000 and at the upper end for 12 years, you're looking at $420,000, of which you can take almost 50% of it upfront, $200,000.

That's a pretty good deal there, especially if you consider investing that money for 12 years and in the stock market, that $200,000 is probably going to double and, maybe even half double again if you invest that wisely into just, basic S&P 500 Index fund.

Yep. Rescue rotary wing, same numbers, except they're not offering anything upfront. So not sure why they chose to go that route, but that's the way it breaks down. They're classifying those two groups as tier 1 and tier 2. How about tiers 3 through 5 there, Jamie?

[00:17:12] Jamie: So tier 3 of the initial eligibles is the RPA pilots, and this includes the AFSC 11 uniform, which is a traditional pilot that flies RPAs as well as the 18X, which is RPA undergraduate RPA training, graduate pilot. So RPA pilots start at $15,000 for a 3 to 4-year bonus, 5 to 7-year bonus is $25,000, 8 to 12 is a $30,000 bonus.

Nothing is upfront. These numbers are also the same for Air Battle Managers, ABMS, $15,000, $25,000, and $30,000 as well as CSOs or Navigators $15,000, $25,000, and $30,000, with nothing upfront. So that kind of caps out the initial eligible tiers, 1 through 5.

[00:17:58] Spencer: Yeah, and those RPA, ABMs, and CSO, so the minimum that you can accept is a 3-year contract, $45,000, and the maximum would be a 12-year contract at $30,000 a year coming in at $360,000.

Again, with nothing upfront though, so just remember with inflation running, at 7% here in 2022, you kind of have to discount those future dollars that you're not going to be receiving for 12 years then if you haven't taken a bonus before or your contract expired, you have a 3 to 12-year option.

And this is for your classic pilots. That's AFSC, 11F Bravo, Sierra, Mike, Romeo, and Hotel. So basically fighter mobility. All the guys I listed there are in tier 1. $35,000 a year, 3 to 12-year contracts. So that's a range of $105,000 to$420,000. So pretty good offer there if you're expiring.

A lot of guys might try, not to game the system, but, use the system to their advantage. So if you're at 12 years of active duty service, maybe you want to sign up for a 5 to 6-year contract and that puts you right at 17 to 19 years completed in a standard 20-year career and you could still opt for another 3-year bonus and take you right to retirement at 20  or 21 years.

If you think that the bonus is going to be a little bit better in the future, honestly, I wouldn't be surprised if they really haven't adjusted these numbers. Yep. I think 15 years, maybe even longer than that.

[00:19:42] Jamie: Yeah, I think that $25,000 is the same amount as 1992.

So we've seen maybe a slight increase but definitely not enough to keep up with inflation. The rising cost of living and the changing value of pilots in the commercial world nowadays. Again, those numbers Spencer listed for tier 6, if you're not under contract or your contract is expired, for example, someone in my situation last year that chose not to take the bonus because you didn't want to sign a 5-year bonus, for example, this year you could sign a 3-year bonus and get $35,000 a year. Or if, say 5 years ago you signed a 5-year bonus and it expired this fiscal year. 

So one important note we haven't mentioned yet is all this is fiscal year based, not calendar year. So there are some complexities with the dates that we'll talk about a little bit more in a few minutes.

The last tier is the aviation bonus, experience bonus, if you will, and that's for RPA pilots whose contract has expired or they never took a contract, and their 3 to 4-year offer is $15,000 and 5 to 12 years will be $25,000. So that's anywhere from $45,000 to $300,000 total for a non-contract or contract-expired RPA pilot under tier 7.

So again, just summarize again, look at the chart on the PSDM or militarymoneymanual.com Anywhere from $45,000 extra to $420,000 available through this Aviation Bonus program for fiscal year 2022.

[00:21:19] Spencer: So Jamie, you just mentioned some important dates to consider.

So let's talk through them a little bit. What do people who might be eligible for these programs, what kind of dates do they have to be thinking about?

[00:21:31] Jamie: So the big caveat of when your contract begins, which then affects your payment as well as your anniversary payments is the later of the date the program opens, which in fiscal year 2022 is today, April 11th, 2021.

Or your eligibility date, which I'll come back to in a second, or the date you open your online application. So the latest of those 3 dates is the date that your contract is effective, which then determines when you get paid this year, as well as next year and the year after that, and the year after that.

So your eligibility date is determined basically when your undergraduate flying training, whether it's pilot training, navigator training, RPA training, whenever your initial commitment ends. That might be it. So for me, last year I graduated towards the end of May. So even though the program opened in March, my eligibility date was not til the anniversary of my pilot training graduation 10 years after the anniversary of that pilot training graduation.

So my contract was effective at the end of May, not in March when I went online and clicked generate contract. So, like I mentioned earlier, I have some example scenarios in the article online, but if your undergraduate navigator training or pilot training commitment ended on June 30th, 2022, for example, your contract will start on that day if you've already taken all the appropriate steps. If it ended in January, then you want to go and log on today and click that generate contract button in myPers, because then today would be your effective contract start date, which means 3, 5, or 12 years from today is when your ADSC, your new ADSC would end.

[00:23:15] Spencer: So for me, for example, in 2021, I graduated from undergraduate pilot training in early November of 2011.

So November of 21 was when I became eligible for the bonus, I was no longer contracted. I have completed my ADSC. It took, let's see, December, January, February, March, April, almost 5 months for them to release the AvB program so it's been 5 months of me just sitting around eligible for the program.

But I haven't been able to get my money. So in the immortal words of JG Wentworth, it's my money and I want it now. I wasn't eligible, but if you are eligible, if you're in my scenario where you became eligible earlier in this year late at the end of last year, after 1 October, this is something that you've considered and something that you want to do, the pilot bonus for 2022, get on myPers because every day that ticks by is a day that, that you're not getting paid it's definitely something that you want to move on quickly.

[00:24:26] Jamie: A hundred percent. So it kind of stinks that if you did graduate early in the fiscal year, like you're mentioning October 2nd graduation would be one of the worst scenarios because the Air Force has been trending to send out the bonus information so late into the fiscal year.

Part of that is because Congress didn't sign a budget until a few weeks ago, so maybe not entirely the Pentagon's fault, but, it stinks. I don't know how the Marines did it and we didn't, but if you're early in the fiscal year you're waiting for this program to get released, and then boom, you want to do it.

Now, if you're already in a program, say you're at PME or you just PCSd CONUS or something like that, where you're already under contract for another 3 years and you're eligible for this bonus, taking the 3-year contract is almost a no brainer. You can still even Palace Chase. It's in the guidance, you can still palace chase with this. You just won't be eligible for future payments so there's all kinds of caveats like that where if you're already under contract, like I said, if you just took a 3-year OCONUS PCS ADSC, then you might as well sign this today or any other situation where you're already locked in for a couple years.

[00:25:35] Spencer: That could become doubly relevant because we're approaching the summer PCs season. 

So Jamie one year later, not quite, but was taking the bonus worth it and just walk me through your mindset taking the bonus like in the moment, and then now that you're able to reflect on it, and I think you're coming up on your second payment almost right?

[00:26:02] Jamie: Yeah, Just a few weeks. I should get my first-anniversary payment, if you will, which, because I took the lump sum amount upfront. It's only a few thousand dollars minus taxes, which I've already allocated a hundred percent of my bonus money and myPay to go to the TSP, as well as my Flight pay.

The monthly Aviation Incentive pay, I think is the official term, is going up next month as well. So I went in, it's going up $300 a month, so I went into myPay and increased that by 30%. So all that extra money that's coming in the raise, if you will, is going straight to the TSP and then I'll be able to max out my TSP maybe by June or July this year.

Definitely by August, so that'll be cool anyway. Is it worth it or not? If you're doing it for the money? No. There's no amount of money that makes giving up your freedom worth it, in my opinion. It frustrates me when I hear people say it's not about the money, and that almost incentivizes Congress and the generals to stop giving bonuses like this cuz it's not just about the money, but it is part of the calculus that goes into someone making a decision.

So, like I mentioned, they're never going to be able to keep up with FedEx or Delta or United. But if we can get $35,000. Ideally more, but if we can get closer to it, the closer we can get to it, the more it's going to affect people's decisions. So is it worth it? It's such a personal thing that each family has to decide, and I hope that none of you ever have a commander or supervisor that makes you feel guilty for not taking it, for choosing to get out at, 8, 10, 12 years, or whatever.

If you did 4 years or 3 years in the military, you've done more than 99% of the population. Take that and be proud. If you want to serve longer and they're willing to pay you extra to do it, then that's great. If it's working for your family and you have this opportunity to take a little bit extra money, then that's cool.

A 12-year major base pay, their AGI, according to the IRS, is probably around $95,000 or so. Minus BAH and any spouse income or any rental income or dividends or anything like that. So if you can get a 30% pay raise for the year, that's probably worth doing if it aligns with your family's goals and what your family's definition of success looks like.

If you're in it purely for the money. Then you might as well get out and go fly for FedEx or some other company where you're just going to make a lot more money. But if you're still enjoying service, it's still working for your family, there's still things that fulfill you in staying on active duty.

By the way, the Reserve also has contracts and bonuses sometimes, so don't forget about that option. But if you're still being fulfilled here and you still feel like it's working for your family and you're enjoying it and those kinds of things, then it's worth it in that case. But I cannot say it's worth it for everyone.

Nor would I ever say everyone needs to take it because it's the best deal ever. It's not that good.

[00:29:04] Spencer: Yeah, I think it's definitely a factor in, and it should be a factor in your thinking and your planning, but it shouldn't be the only factor what I hear you say saying, Jamie and it's the conversation that I had with my wife too, is, it's nice.

It definitely is a planning factor, but, it came down to quality of life, and that is probably the biggest driver of my decision to separate from the Air Force. The pilot bonus would, if I had stayed in, of course I would've taken it, but the reasons for staying in would not have been the pilot bonus.

[00:29:46] Jamie: So I mentioned that I signed a 5-year bonus last year. That was the shortest that was available for fiscal year 2021 and a lot of times people ask if you're already going to be in at 17 years, why not just sign longer? My answer to that is that my wife and I decided that taking a little bit less money, really a lot less money if you think about $200,000 upfront and investing that for 12 years or 8 years we decided to take less money so that at 17 years we would have the freedom.

To make a decision for our family if we needed to, to transition to Guard or reserves or make a clean break there. There's a dollar amount probably that everyone has in their head, if I really pressed you of what it would take to keep you in. So if I were to come to you Spencer, and say, 

“Hey, I understand your thing about getting out. I'm willing to pay you $500,000 a year if you sign a 8-year contract,” that would probably get a lot of people interested in staying in. If that doesn't do it, if I said a million dollars, I guarantee you almost everyone would stay in to do the work that we're doing at a million dollars a year for at least maybe a couple more years or something like that.

So obviously the Air Force is never going to pay us a million dollars a year, but money is a factor in the decision. Each family's different if, depending on how far you are in your journey towards financial independence, if you did 12 years of active duty and you're set to be financially independent, then like you don't really need to work anymore.

So that's a whole different calculus than someone who is still living paycheck to paycheck and they see the opportunity to make an extra $35,000 or $200,000 upfront. It's going to be a much different calculus depending on your family's financial standing as well.

[00:31:32] Spencer: Absolutely. So we talked a little bit about who's eligible for the bonus, but are there any other details that you want to cover specifically about who can sign up for the initial eligible and the experience bonus?

[00:31:48] Jamie: For full details, you definitely want to look over the PSDM thoroughly if you're looking at signing this contract. But in general, you're eligible for the FY2022 bonus if you are in undergraduate flying training, whether pilot training, like I said, undergraduate RPA training or navigator training expired or is going to expire during fiscal year 2022.

So if it expired before you're also eligible for the bonus. The other thing I didn't mention yet is the program closes not at the end of the fiscal year, not at the end of September, but actually 31 August. So they have time to process the paperwork. If you graduated from pilot training, let's say on September 15th, you need to still sign the generate contract button and do all that before August 31st, even though your contract start date may not go until September. 

So this year. Another interesting note there none of the services are allowing for any renegotiating for people like me who took it last year unless your previous bonus has expired, but I could be eligible for another bonus in 2026 if I wanted to in whatever the FY2026 program would look like.

There are also caveats like you have to be able to still be eligible to receive flight pay, no medical issues. If you're going through a medical evaluation board, or MEB, or facing any kind of disciplinary actions, or you filed for data separation, things like that will make you ineligible for the bonus.

[00:33:22] Spencer: We talked a little bit about taxes earlier. You were saying that it's withheld at 22% and then you basically just sort it out when you get to file your taxes the following year, usually by April 15th, but in 2022, you have an extra couple days because I think it's the Easter holiday.

Any other tax implications or investment implications that you want to think about when you're getting a large, if you're getting like a $200,000 upfront payment,

[00:33:51] Jamie: Yeah, absolutely. So it's definitely going to affect your tax bracket. So one thing to do is to run some tax calculators. IRS.gov has some official ones.

There's other ones if you Google tax bracket calculators, tax calculators, and things like that. But you want to look at your tax bracket and if you're close to a bracket, What can you do to bump down to the lower bracket? Remember, it's a progressive bracket, so it's not, your entire pay isn't taxed at 22% or 24% or higher.

Just the portion that goes above that threshold from the previous level. But one thing you can do, whether it's charitable contributions or any other deductions, the best thing to probably do is immediately switch to a traditional retirement plan, whether it's your IRA and/or your TSP.

So that's one of the things I did last year is I immediately switched myPay to go traditional instead of Roth. I was still doing Roth and that way those contributions that I make, that $20,000 or so it lowers my income for the year. So to the IRS, I made $20,000 less, but I'll pay taxes on that in the future just to help lower my tax bracket this year.

It's really too complicated of a situation to give a one size fits all recommendation of how to handle taxes and neither of us is a tax professional or financial advisor or anything like that. So consult a professional, talk to a CPA, talk to a tax advisor or a financial advisor that charges a fee for advice for the hour or by topic. But in my opinion, the lump sum is almost always going to be better, even if it does affect your taxes, because if you're smart with it, you can make that money grow. So say you do owe 22% of taxes on it, you can make money increase more than 22% over a 5 or 8-year term on average. In fact, it should be about 3 years or so based on average stock market returns then anything past 3 years is just gravy.

[00:35:55] Spencer: Yeah. Taking the bonus while you're deployed in a CZTE combat zone tax exclusion area, can you get the entire bonus tax-free, or is it just a portion?

[00:36:06] Jamie: It's a portion for most people, and it's honestly a really small portion. I think one of the biggest myths out there about the pilot bonus is that “Oh, I'm going to try to do it when I'm deployed and on my contract anniversaries, I want to try to do a tax-free trip that month, or something like that.”

In reality, because your base pay is so high, by the time you're eligible for this, now I'm thinking a 10 to 12-year major. If you're on a shorter contract, like maybe for an RPA pilot, if there's some navigators or 6 or 8-year initial contract, then you might be getting a little bit more.

But for a 12-year major, the average pilot when they're eligible to sign a bonus, the amount that you're able to get tax-free is so low because your tax-free benefits, as always, are capped at the Chief Master Sergeant of the Air Force’s base pay, which I have 2021 numbers in front of me, that was about $8,700 a month.

So anything above that is not eligible for tax-free exclusion. I think I have the math in the article, I want to say it's maybe about $1,500 or so that's eligible for it. A very small amount. Then the annual payments, the anniversary payments, are never tax-free. Even if you're deployed the month of your anniversary payment, there's no tax-free benefit for your annual payments.

[00:37:28] Spencer: Yeah. So don't try to snipe that trip going down range just because you're signing the bonus contract that month. You'll get that month's pay tax-free, but you're not really going to benefit that much else. 

[00:37:43] Jamie: If you happen to be tax-free and you take the lump sum amount, like cool, you'll get a little bit of a benefit, but definitely wouldn't go out of your way to volunteer for anything, just to get the minuscule tax benefit of getting the lump sum while you're deployed.

[00:37:58] Spencer: Roger that. So Jamie, what did you do with your bonus money? I know we talked a little bit about it earlier and we talked about it in the windfall episode as well, but just at a high level. So TSP investing, IRA, paying off debt.

What, what else did you think about? I'm sure you actually didn't have any debt to pay off.

[00:38:21] Jamie: Correct. Yeah. We've been debt free for a while, but definitely pay yourself first. Like you mentioned, TSPs and IRAs, we fully fund those for the year if you haven't yet. Like you mentioned in episode 32, the windfall episode, we talked through a bunch of things to consider in some specific percentages that we use.

As an example that may give you some ideas, take a vacation. I did some things like spoil my family, like just gifts to my wife, gifts to my kids, an extra family memory, kind of building experiences to help them recognize that all the time that mom or dad spends away from them in the name of work, whether it's TDYs or early morning PT if you're in the Army, we don't do that in the Air Force, obviously, things like that. This is because mom or dad work so hard at work, that's why I am getting this extra vacation for us, or that's why we are getting this new toy, riding a lawn mower, or whatever it is. The big thing is you really are going to want to put a big chunk of it towards your long-term savings, retirement savings, college savings, those kinds of long-term goals so that it has the most time to grow because the compound effect and compound interest is so powerful and the time in the market is where you really start to build wealth.

So the earlier we get that into the market, the better. Some people, we talked to a couple episodes about dollar cost averaging versus lump sum. Do you want to hit on that again?

[00:39:55] Spencer: Yeah, so the research shows that the market goes up in the long run, basically, even if you're the world's worst investor and you threw a hundred thousand dollars into the stock market in March 2007, and you watched that dollar value drop 50% in the next couple months during the 2008 global financial crisis and real estate crash.

You still come out in the long run, right? That money's worth probably $300,000 today less than 13 years later at 3x. Again, from a personal example, in 2020 I invested a 5-figure dollar amount on February 20th, 2020, which was about a week before the entire world shut down due to Covid.

And the stock market dropped 30% in the next 30 days still, just because I didn't sell or panic, I just held on to that money has now gone up, several percentage points. So the research shows, my personal experience shows, Vanguard is one of the most trusted names in investing. They have this great study, which I host on my website and it talks about lump sum investing is going to win out over dollar cost averaging because you're basically just delaying risk by dollar cost averaging and you're having that money sit on the sideline.

So I would suggest, and if it seems like. You're looking at the state of the world and you're like, gosh, like all these terrible things are happening. I look at the last hundred years of our history, like lots of terrible things have happened and the stock market has continued to go up

I'm sorry to say, but this, you're not special. This time is not different. So get your money into work. Put it into the stock market, put it into the TSP, get it into the C and the S fund, have your asset allocation with your appropriate stock-bond ratio, whatever you're comfortable with, but put it to work.

And if that's not comfortable enough for you, then maybe take a 50/50 approach. So take 50% of the money, lump sum, invest it, and then take the other 50% and dollar cost average it over the next 6 months. You could do that and you could still end at the end of that 6 months, you could be in a February 2020 scenario or an October 2007 scenario and you could watch the stock market fall off a cliff in the next year.

Dollar cost averaging is basically another way of timing the market. As I talk about my book, it's way more important to have time in the market than to be timing the market. So I'm a firm believer in the lump sum strategy. I don't give dollar cost averaging much weight at all.

[00:42:36] Jamie: But if you're afraid to do it, DCA is better than nothing. So Absolutely. If you're Yeah, do something, if you will. 

[00:42:46] Spencer: Yeah. Good episode, Jamie. Thanks for taking us through the pilot bonus and your personal experience with it. I think we already talked about it, but it sounds to me like you would take the bonus again.

[00:43:02] Jamie: That's a tough one. With Covid and everything else, the way that it was, I would take it again. If I knew that Covid would basically be done at this point in the world, that would be recovered, maybe it'd be different. But it was definitely the right decision for our family at the time.

[00:43:26] Spencer: Gotcha. Yeah. For me, I didn't take the bonus, and when I became eligible, which was actually just today, I'm feeling okay with that decision. I think if they had come out of left field and they had said it was going to be $100,000 a year for the next 3-year contract, that would've made me think about it again, but it wouldn't have changed my decision.

So it’s like you said, everybody has a number, but sometimes that number's just not reasonable for the Air Force or for government employees. Yeah, that was something that I saw when I was stationed out in the United Arab Emirates, there were contractors out there who were making $350,000 a year or $500,000 a year.

But they hadn't seen their families for, other than for two weeks a year at Christmas, they never saw their families for the last 10 years. I just thought life is short. That's a lot of money, but that's also that's a lot of time not seeing your family and it's all about freedom and choices like you were saying, Jamie.

And I think while everybody does have their number, I think everybody should also have a time factor too, right? Like how much time do I want to continue to commit to this endeavor and when I've reached my limit, make sure that you recognize that and you talk to your family when you're done with the Air Force or the Air Force is done with you, make sure that you have a family there still, or you have loved ones that can turn around and accept you, and you haven't burned bridges for the Big Blue or the Big Green as it were if you're in other branches. 

[00:45:20] Jamie: Yeah, especially, not in the name of $25,000 or $30,000. I think this is just an example of how financial independence can be so powerful in working towards that goal is all about freedom and all about choices.

We talked about this a lot with Doug Nordman a couple episodes ago. We've talked about it several times over the man, it's been over a year that we've been doing the podcast now, hasn't it? I didn't even realize that until just now. Over the last several months, we've talked about the freedom to choose and to have “F U” money, if you will, to just be like, “I'm done. I don't need to work. I don't, I'm not enjoying it anymore. I don't like working for you. I don't like the way that you're treating my family or the way you're taking away my choices and I'm going to go find my joy and my fulfillment in something else, even if it's a volunteer thing.”

[00:46:13] Spencer: For me, It was definitely, I loved flying the C-17. I loved the people I worked with. I loved the missions that we did, but the fact that, unless you go Guard or Reserve, you don't get to choose where you live if you end up on a leadership track, then you're going to be moving every year or two years.

After going through the last PCS that I just went through, my wife at one point just turned around and looked at me and she was like, “Never again. We cannot, I don't want to move again,” but the Guard or Reserve is always there for you as an option, like Jamie was saying, there's often contract bonuses as well for those organizations.

I think for a lot of those guys who do like the mission, who do flying the jets, that's a great way to go. You can have the best of both worlds at that point where you can complete your military service, you can earn a reserve or a guard retirement.

You can also have your airline job as well and make sure that you can afford, that second house or that boat or whatever's motivating you to keep working. But yeah, having “F U” money is definitely powerful.

And once you find out about financial independence, when you're a lieutenant or a captain, by the time you get to be, a salty major or not-so-salty major, but by the time you've been in for a while, you realize that I've got all these savings, so let's see what they offer me.

And if it's, if it's not what the dollar amount you were looking for, then, thanks for your service. But see you later.

[00:48:03] Jamie: Yeah, that's a really good point you mentioned. Thanks for bringing that up, The Guard or Reserve again, because if you are enjoying service, you're still enjoying flying, you're still enjoying the camaraderie but you're ready to try something new or you're ready to never move again, then definitely consider keeping the experience available.

This probably sounds like a general, but keeping your experience available to the nation and to your friends. Here's how I think of it, I love every single person in my unit, even if I don't really love them, like I care deeply about their success and I care deeply about them doing well and being equipped properly.

If you imagine all the experience the Air Force has lost, especially in the pilot community over the last couple years, and then those co-pilots, those wingmen that you trained are going to go to combat in the future without any, anyone of experience to lead them. But if you do choose to stay in the Guard or Reserve, then you can be available to help, prepare them, train them, deploy with them, or something like that where we have a little bit better chance of succeeding and doing well.

But with that, I think that's a little bit of a Jamie rant. Cue the music from a couple months ago when we made up our jingle. But thanks again to all the listeners for joining us today for this topic about the aviation bonus for fiscal year 2022 from the Air Force. If you are enjoying our podcast like so many of you are based on the previous reviews, please consider leaving us a 5-star review in either Apple Podcast or on Spotify.

Or audible, wherever you listen to the podcast. We really appreciate all the reviews we've received. Every week we see more 5 star reviews, which is very encouraging to us and a big help to us. Remember to subscribe as well, whether it's a plus sign or a bell on your app so you don't miss any future episodes.

And if you do have any questions or feedback or topic ideas or anything like that, you can message us on Instagram at military money manual or email info@militarymoneymanual.com.

[00:50:05] Spencer: If you want to support what we're doing here in the podcast, my book is available right now on Amazon, Kindle, and Audible on the audiobook if you've already purchased a copy.

Thanks very much if you have a minute to leave a review on the Amazon page, I'd really appreciate it. We're up to almost twenty 5-star reviews on the Amazon page and that's awesome to have so much support from the readers. You can find it easily on Amazon by searching “The Military Money Manual, A Practical Guide to Financial Freedom,” or probably just The Military Money Manual will bring it up.

My name's Spencer Reese on Amazon, or you can go to shop.militarymoneymanual.com and you should be able to find it if you want to buy it directly from me and you want to skip the evil Amazon overlords. Thanks again for listening and we'll see you on the next episode of the Military Money Manual Podcast.