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Not a commissioned officer? I’ve got a chart for the Above Average Enlisted Personnel as well. Check it out.
It takes an above average person to become a military officer. Above average just means better than 50% of the population. I would say usually military officers represent the top 25% of society in terms of work ethic and general intelligence, but that's just a subjective opinion.
Check out the Military Money Manual podcast episode Spencer and Jamie recorded about military officer net worth:
There are four main routes to becoming an officer, all of which attract above average people:
- The Service Academies: West Point, Annapolis, and Colorado Springs
- Reserve Officer Training Corps or ROTC: Army, Navy, and Air Force
- Officer Candidate School or Officer Training School: all branches
- Direct commission, usually only for the medical and chaplain corps
The process of applying to the service Academies takes years, top grades, a difficult nomination from a Congressman or Senator, a decent SAT score, and the ability to pass a physical fitness test. It’s estimated only 1 in 2000 who begin the application process attend.
Once you're accepted at an Academy, you will have to get through your initial training in your “plebe” year and many more strenuous assessments throughout your four years. The constant pressure of military training and academic study through your four years of college makes the Academy route one for above average people.
The US Military Academy, Air Force Academy, and Naval Academy all attract Type A personalities that want to succeed at everything they do.
If you go the ROTC route, you'll have difficult summer training programs to attend and additional class work and leadership training beyond what your civilian peers are taking.
If you take the Officer Training School route, you’ll need at least a bachelors’ degree in addition to surviving a several month indoctrination and leadership course. While both of these courses may seem easier than the Academy route, above average officers can come from any recruiting source.
Are Military Officers Rich?
An officer is definitely more than what is in his/her bank account. You could be the best leader in the world and drowning in credit card debt, driving two cars you can’t afford, and not investing anything into the TSP.
Usually the above average officers want to excel in all aspects of their life. In this article I’m only going to examine how much an above average officer will have saved throughout their career.
The above average officer:
- Knows to not completely rely on the military retirement system
- Maximizes credit card rewards and travels for free on points
- Tracks all their investments in one place with Personal Capital
- Banks with a military friendly bank or credit union like USAA, Navy Federal, or similar
- Understands what a good deal the TSP is and invests every month
- Knows that spending more than you earn makes no sense
- Never carries a balance on their credit card, but they do use annual fee waived cards like the Amex Platinum and Chase Sapphire Reserve
- Doesn’t take out the USAA Career Starter Loan unless they are investing the loan or paying off a higher interest rate loan
A few assumptions:
- These numbers are for a single officer. Spousal income should only increase your total net worth or standard of living.
- No student debt, because most military officers’ come from ROTC (scholarships) or the Academies (free)
- Pay off the USAA cadet loan early, because you are smarter than the average cadet
- Because you move quite often, we’ll assume that you buy your first house late in your career (when you make O-4)
- 4% investment returns, which are a bit below average for the stock market
- The numbers are listed for years after entering service. So as a first year O-1, you won’t have received your first paycheck yet. As a 27 year old O-3, you’ll have just promoted from O-2 at your 4 year time in service mark.
|Age||Rank||Roth IRA||Roth TSP||Taxable Investments||Home Equity||Total Net Worth|
- A smart second lieutenant (O-1) with a year under his/her belt should have saved $10,000
- A financially savvy first lieutenant (O-2) should have $57,000 tucked away, by maxing out his/her Roth IRA and Roth TSP.
- Once you’ve been a captain (O-3) for two years, you can start making substantial taxable investments, while still maxing out your Roth IRA/TSP. You should be able to invest an additional $1000-1200 per month. As a 4 year captain you should cross the quarter million mark in net worth.
- Congratulations on making major (O-4)! After four years as a field grade officer, you should have over half a million invested.
- As you near retirement as a lieutenant colonel (O-5), you should be hitting that million dollar mark. Congratulations on a long, successful career and saving over a $1,000,000. You’ll be able to safely withdraw $30,000-$40,000 per year from your investment accounts in addition to your military pension. Financial independence is yours!
So how are you doing? Do you consider yourself above average when it comes to money in the military? Where do you fall on this chart? Doing better than these numbers or are you behind?
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25 thoughts on “The Average Net Worth of the Above Average Military Officer”
Great article, I enjoyed it for sure.
I’d love to see a top 10% analysis. The real type A’s out there aren’t just looking to beat the average.
I personally wouldn’t be pushing USAA. Their insurance products are overpriced, their loan closing skills are terrible and they are nice on the phone. Nice on the phone only goes so far.
I used my career starter loan to buy a 12 unit building as a junior and then as soon as I graduated I bought a triplex with my VA loan. I was living for free at the triplex and getting cash flow from the 12 unit building. I agree the career starter loan isn’t great if you plan to buy a car you can’t yet afford but it can also be a wonderful tool.
And the other thing I didn’t do and I wouldn’t recommend it to experienced investors is use the TSP or Roth IRA. I think that’s a good option for the average or below average but having your money available when a fantastic investment opportunity comes along could be the much better option. Plus, if you are actually studying business and making decisions about finance as you go, by the time you are 30-35 your extra knowledge will be more beneficial than the tax savings. In 2010-2014, I had money available and was buying houses for pennies on the dollar for instance. If my money was tied up I would have lost a ton of deals. For the average the TSP is fine but for the above average there could be better options.
As far as credit card points…come on man. That’s essentially negligible. I use points for sure and I love them, but it didn’t get me where I am today by any means.
I’m an active duty O-6, and have been aware of these numbers for years. I tracked to them every step of the way… and, while there were deltas in the details, the total net worth column was pretty-much spot-on. Good analysis. Thanks for documenting this. You helped more officers than you know.
I am a National Guard retired 06, retired 15 years.
One thing not often mentioned in the net worth calculations of career military are that they are earning the right to TriCare for Life
As a Reservist my retirement pay is only about 25% of what a regular Army officer would make for similar rank and years service. I consider the value of my TriCare for Life equal to my retirement pay.
Reservists are very aware of the value of TriCare because we don’t get it or retirement pay until we are 60. Most people don’t get anything until Medicare at 65
Even though you pay some for it, it is a great value to get TriCare from 45 – 65
Spencer……It would be a great blog to estimate the value of having TriCare from 45 – 65…….Gordon
Your numbers are a great gauge for folks to set their sights on. Thank you. Just as a background, I retired as a Lt Col from the Air Force in 2016 after 24 years of service. Got to fly the entire time and did exactly what I loved. Was able to retire with our house paid off and a net worth of about $1.5M which has (almost) doubled in the 2 years since retiring due to market appreciation and working as a civ contractor. $1M is definitely achievable, but as someone mentioned earlier, you HAVE TO be committed to Financial Independence, for the duration of your career! R, Fred.
Thanks for the great data point. That is an impressive net worth increase since retirement! I’m glad you got to fly the entire time and did what you loved. That’s the only way I could make it to 20 years myself.
I’m 2 years after retirement and those numbers were pretty spot on for age.. .although I had alot more in rental properties and much less in IRA, and a bit more in TSP. Retired as an O-5 after 24 years from the USAF. The numbers don’t lie. Live within your means and put away the money.. it grows and grows and grows. I’m about to turn 48 and pass $2M in net. It works guys/girls!
Thanks for sharing your insight and personal experience. I’m happy to hear the numbers are realistic.
For a reference to your numbers, I am a 28 year old O-3, in for just over 6 years. (Roth 49K, TSP 70K, Taxable investments 150K, no real estate, no debt, single).
You hit a lot of realistic goals and recommendations, but I have a few to add. For credit cards, the Luxury Gold Card waives the annual fee for active military and has 0% interest for as long as you are active duty. You can realistically carry a balance of 10-30k (bearing in mind the utilization rate to not impact your credit score) with 0% interest for years and invest what would normally be used to pay the credit card off in safe investments (Typically 1%, bonds can be up to 5%, etc). That, combined with some other perks, could be a great tool to help other personnel achieve financial goals (they also have 0% cash advance APR) because it is, in essence, a 0% loan secured by your financial future.
Loyal3 and Motif Investing also deserve mentions above Betterment. Loyal3 is completely fee free (though not instantaneous trading and only around 70 common stocks) and occasionally gives an average person access to IPO’s at wall street pricing. I look at it like a customizable mutual fund of companies you know with the occasional quick pop of an upcoming IPO.
Motif Investing is great for a DIY investor, especially to follow trends or buy stocks cheaply. You can get unlimited free pre-hour trading for $20 a month or create a basket of 30 stocks at an equivalent of trade fee of $0.30 for each symbol.
A few other ones to follow up on are Bonolo. It is relatively new, but so far it has been great. 10-15% returns in under a year. There are also a few other new services for accredited investors (not most of us) like yieldstreet and start engine which basically crowd fund certain activities or settlements for >10% reward.
Also, planning for retirement is a huge and important goal, but most people place too much focus on it. Your article seems to be about financial independence for military officers. Most of us want to be financially independent prior to the age of 60. Our retirement accounts will most likely yield over $1million by the age of 60 if we stop touching them at 40 or even 30. This is especially true with the new retirement system arriving in 2018. I know for me, it is my age 30-60 that concerns me most for financial independence. That is the unknown, likely lower paying post-military career with more taxes and likely a family. This is why I recommend discussing ways to more quickly build assets you have access to that distribute passive income of even only 10k a year.
Just my thoughts as a DIY investor and military officer.
Currently, I am a 28 y/o O-3 who hit 312k net last year (including real estate estimate) but took a huge hit down to 291k which is where I am at now. I ate it in the stock market the last 2 years due to poor decisions which I think is an important learning point that everyone will come to at some point when trying to beat the markets. Luckily it didn’t come further down the road where I would have had even more to lose. For open transparencies sake, now sitting on mostly cash for 2016 with 36k in my ROTH IRA, 48k in the ROTH TSP, 1k in traditional TSP, and 50k in taxable accounts. Holding onto an overall negative return of ~5k over the last 3 years…
Note: I came in as an O-3 and have been working for 3-4 years now but have always saved heavily through school. Plus I was fortunate enough to go to a cheap state school (~15k/yr) and have had help from my parents.
Where I think your chart is inaccurate is where your above average officer has nothing in taxable investments and home equity until 27. Most officers I know own property and I myself have 120k in real estate which is now probably worth somewhere around 150k now and returning about 5-6k/yr in rent after expenses.
Of course many officers with family and children may be considerably lower but those joys may be worth more than any number you can associate with your name. When you are single it is a lot easier to focus and get obsessed over that number, especially if you live in the middle of nowhere. My tip to others, try to just enjoy life and not worry so much about the numbers!
This chart is good, but not realistic. I’m almost 35 and an O4. Increases of 60-70k net worth per year is very ambitious. Also keep in mind that the Roth TSP has only been around a few years and as someone else mentioned Roth IRA limits when I was commissioned were significantly less than today. Also lets factor in a few other things – housing market that crashed along with the 08 crash are anomalies, but real world things that could happen again throughout the course of a career. I had just invested my career starter loan and 6 months later airplanes hit the WTC and the Pentagon and the markets went south from there as well.
Bottom line – save what you can and live frugally. Dont get wrapped around a number.
AW, why do you think the chart is not realistic? The initial net worth increases come from the savings rate, but the end game returns come from investing. A 4% investing return over 20 years is very conservative. I think many above average officers will be way above this chart.
I agree that you should invest what you can and live below your income, but I think having a number to compare to makes it more of a challenge.
I like the chart and agree with many of the comments above. I see merit in the point that this is a great example for those entering the military or starting their career (as ROTH TSP is very new and contribution limits have changed). However, I also think a 4% return is conservative. At that return, the above chart is much more realistic with after inflation returns and does a good job of representing networth in today’s dollars (7% return with 3% inflation). That being said if the goal is financial independence, retire early then we need to consider that the TSP and IRA money will not be accessible (without penalty) until 59.5. So a 40k military pension and 12.5k from taxable accounts (4% “safe” withdrawal rate of 316k) is not as rosy as the 1 million plus networth implies.
On a side note, I just discovered your site after looking at financial samurai and the military guide. I look forward to reading what you have as it appears we are in similar situations. I’m currently an O3 in the Coast Guard with 7 years of service. Thanks for taking the time to write, and best of luck on your financial goals!
Actually, you can withdraw from your TSP and IRA without the 10% early withdrawal penalty if your distributions before age 59.5 meet the IRS’s Substantially Equal Periodic Payments (SEPP) rules. The withdrawals must be based on life expectancy (this is what I used), amortization or annuitization.
Search for Revision Rule 2002-62 to read about the details, but here is a short summary.
You can pull from Traditional assets (be they the TSP or IRA) via SEPP (and be less than 59.5 years old) and only pay tax on what you pull out as if it were ordinary income, which is no different then what you’ll have to do over 59.5 years of age (YOA). But the amount you pull must be equal to the principle in the account divided by your life expectancy in years (as listed in the IRSs Uniform Life Time table, assuming that table applies to your situation) per year. There are other miscellaneous rules too, and I encourage you to read the rules.
You can pull from Roth assets (be they TSP or IRA) via SEPP (and be less then 59.5 YOA) and pay no tax on the principle. Once you deplete the principle and are pulling on gains you’ll pay capital gains tax, but you’ll likely be over 59.6 YOA by the time you deplete the principle and then you’ll pay no tax.
I’m just getting “smarter” on this topic as of late, had been firing from the hip for the past five years, but I just wanted to point out that at 27, as an O-3 I’m right on spot with your table and should be tracking it moving forward. 2015 goals are to max out Roth TSP and Roth IRA, and then to also have some vegas money to play with how I choose towards the end of the year.
Sidenote: Great site, and I wanted to suggest maybe offering an easier avenue of taking a look at your past posts outside of the home page’s “Previous posts” link. Stumbled on your site through one of your articles and had a hard time trying to access more of your posts outside of the one’s linked on your homepage and imbedded into your pieces.
Jason – awesome to hear, I’m in the same boat w/ age and rank. Same goals for me this year: Roth TSP/IRA max plus student loan debt repayment. Thanks for the feedback! I added an “All Posts” link at the top menu. Should make it easier to navigate the archive.
Perfect, yeah a lot easier to get around to your other articles now.
Great topics on this site and i share the passion, but the title of this page and the numbers are very misleading and don’t represent current reality. The numbers really indicate the potential net worth of FUTURE above average savers, not a reflection of what current officers should have. If you take a current 43 year old officer, these numbers are not relavent. When the 43 yr old started saving, the IRA limit was $2,000 per year and the TSP didn’t exist. The dollar figures presented also take current year’s military pay and assume it was the same 20 years ago. If you look at officer paychecks in 1995 and compare that with the proposed savings rate, it is unachievable. This page presents a great savings gameplan, but it needs to look forward for the dollar figures to be relevant. The title and wording should be corrected. However, great site with some great advice.
Mike, thanks for the comment. I think the assumptions are pretty conservative and many officers can and will do better than this chart. Officers who served through the 1990s had the 90s bubble to ride and the run up to 2008 as well as the 2009-2015 bull market to build their wealth. Do you think $1 million at retirement is unreasonable for an officer who came into the military in 1995?
I was commissioned in 1992. I think the numbers in the chart are reasonable and achievable for recently commissioned officers as well as old folks like me. However, to accumulate wealth like this one must be committed to financial independence.
I am an O-5 and these numbers are pretty close to what I was able to do in my first 20 years in even with the mistakes I’ve made along the way. Also, we’ve been a single income family (wife and two kids) for over 20 years. I’m well over those numbers now, but I’ve been in for 24 years and did collect flight pay and flight bonus money most of my career, so I’ve had some advantages that most officers didn’t. Still, I’m about $800K over these numbers, but have only collected about $400K in flight pay and bonuses. That’s because money makes money. Portfolio size is nice but the older I get, the more I value the streams of income my investments bring in. By that I mean dividends and distributed capital gains. These have a tendency to isolate you from wild market slides as the stock price may decrease but the accumulated income (if reinvested) means you have more shares. I saw this in March of 2009 (S&P about 700) when I calculated my losses and found I was barely in the red. A month or two later I was back in the black.
It seemed to take forever to accumulate my first $100K, but the next $1M seemed to come quick. I’ve seen my kids born and that was disgusting, but watching money reproduce is beautiful.
Live below your means, invest, stay in the market when its down (buy more if you can) and hold the course. You be rich.
Collin, I totally agree with your comments on money versus human reproduction along with the fact that these numbers are attainable without any super human effort. When it comes to your own life think like an owner with an eye on efficiency and never stop learning. If you do that then improvement is inevitable. My wife stayed home with our four kids throughout my career and we’re tracking ahead of the numbers in the chart.
Wow. I’m going to have to think about this for a while. You are certainly setting some pretty aggressive goals for yourself and others.
My husband is off your chart, both for rank and age, and I think we are doing pretty well despite not reaching the numbers you’ve calculated. Of course, maximum contributions to TSP and IRAs were a lot lower when we began saving, and the housing market behaved differently in the past than we can reasonable expect it to behave in the future.
Very interesting read.
Thanks for the comment, Kate! Do you think a young officer could achieve these goals? I’m already ahead of this chart and I know several of my colleagues are as well. I left the housing returns off until the very end and it’s only 6% of the total net worth.
I think they are attainable. I’m a LCDR (O-4) in the Navy and today we just hit 350,000 in our stock market accounts. My wife and I have 2 condos (1 which is rented, and the other I bought before we got married). Unfortunately, we are upside down in both houses, but luckily we got orders back to VA Beach where my condo is so at least we moved back in to my old house. These goals are attainable but they require financial discipline. I max out both our IRAs through my salary and contribute $5500/yr to TSP plus about $10k/yr in ordinary investment accounts. It’s tough and we sacrifice a lot, but it’s well worth what our future financial lives will be. I tell everyone to maximize their savings (if you’re doing 15%, try 20%….if you’re doing 20%, try 25%!) and forego your impulse purchases. Easier said that done with a family but it still can be done with discipline and patience!
Hi, I’m a Captain in the Army with similar goals. My largest definable goal is also financial independence, which you and I seem to define identically in conceptual terms. That is, I would like the option of not being dependent on a job to support a happy lifestyle.
The round number I’ve given myself is approximately $60k/year before taxes without any debt aside from a mortgage payment or rent. I feel this is the right amount because it would support an active, though not elegant lifestyle. I don’t think that I’d be able to afford to travel the world on that budget, but if for some reason I were unable or unwilling to work, a comfortable place for a family to live, the other necessities, and a little spending cash left over would all fit within this budget.
While I believe that I am currently on the path to eventually reach financial independence, regardless of retirement from the military, I do not believe there is a more certain or timely way to attain that goal than by retiring from the military. If we can expect retired military pay to keep up with inflation, then the net present value of a retired O-5 will be in the vicinity of $4k/month, or a little less than $48k/year before taxes. Wow… That’s already four-fifths of the way there and it includes all of our generous country’s military benefits (medical, dental, exchange privileges, VA related financial benefits, etc…) That just so happens to almost correspond with the age 40 goal you’ve set for yourself. Additionally, dependence on investments and setting a very challenging goal like yours is very risky because it really requires strong investment performance, particularly in the last few years leading up to retirement. That’s why, when it’s investment based, you’re better off picking a retirement decade, as opposed to a retirement year.
Pensions in the civilian market are increasingly hard to find, now. Without a pension, or some other form of passive income, being completely dependent on investments would require approximately $2M to reach an income of $60k/year at a somewhat safe 3% withdrawal rate. (4%, as I saw you mentioned elsewhere is not a safe estimate IMO, because that number is not typically aimed at early retirement aged individuals/couples)
So, Plan-A for me is definitely to get to military retirement. Plan-B is to continue socking away as much as I can afford into investments, and to look for opportunities like rental property, etc… so that if Plan-A goes by the wayside, I’ll still be able to reach my goal later in life.
I’ve spoken only conceptually in this comment, and prefer not to post detailed personal finance information about myself publicly, but would be happy to discuss my specific situation and go into more detail via email if you’d like. Hopefully, whether you agree with my opinions or not, they’ve provided some food for thought from a similarly-minded guy.
Thanks so much for the detailed comment. It’s good to hear from like minded people, especially those in the military.
$60k/year is definitely achievable with the military pension. You could travel the world on that budget, it just depends on how extravagantly you travel. My wife traveled for 18 months after working for a few years after university graduation on around $30k. She still had cash when we got back too! Now, granted she did work some part time jobs while she traveled and she didn’t stay at expensive hotels or resorts most of the time, but with AirBnB or Craigslist you could just rent apartments or rooms in most countries cheaper than you can in the states.
I agree that O-5 retirement after 20 years of service is a guaranteed early retirement package. Just look at what Doug Nordman has to say over at The Military Guide. I have no illusions about civilian pensions. I don’t think they are a viable option any more.
I am all about choices and freedom. I haven’t expanded too much on this yet on this site, but I think my overall goal for this site is to show that you can achieve financial independence before 20 years of active duty service. That’s why I picked age 40, because that puts me at the 16 year time in service mark.
It’s easy to achieve financial independence from a military pension. I want to see if it can be done well before the 20 year mark.