Mastering Military Pay, TSP, Retirement & VA Perks!
- Jonathan Barrientos
- May 30
- 7 min read
Updated: May 31
Because understanding your benefits shouldn't require a security clearance
Table of Contents
Introduction: Your Service, Your Benefits!
Look, I get it. Between deployments, training exercises, and the daily grind of military life, the last thing you want to think about is financial planning. But here's the truth that nobody tells you at basic training: the decisions you make about your military benefits in your first few years can literally put tens of thousands—sometimes hundreds of thousands—of extra dollars in your pocket over your lifetime.
I'm not talking about get-rich-quick schemes or investment gimmicks. I'm talking about understanding the incredible benefits system that's already built into your service. The military actually gives you some of the best financial tools available anywhere, but they don't exactly hand you a user manual on day one.
Whether you're a brand-new E-1 trying to figure out why your paycheck looks so confusing, or you're a seasoned NCO wondering if you're maximizing everything available to you, this guide breaks it all down in plain English. No financial jargon, no complicated formulas—just the real deal on how to make your service work harder for your financial future.
Decoding Your Military Paycheck
Your Leave and Earnings Statement (LES) probably looks like it was designed by someone who really enjoys making things complicated. Let's fix that.
Basic Pay: The Foundation
Basic Pay is the main part of your monthly salary. It’s based on your rank and how long you've served. The higher your rank and the longer you're in, the more you earn. This is taxable income.
Pay Grade | 2 Years of Service | 6 Years of Service | 10 Years of Service | 20 Years of Service |
E-3 | $2,904.60 | $3,081.00 | $3,081.00 | $3,081.00 |
E-5 | $3,466.50 | $3,959.40 | $4,234.50 | $4,259.70 |
E-7 | $4,134.30 | $4,666.50 | $5,106.30 | $6,017.10 |
O-2 | $5,246.70 | $6,375.30 | $6,375.30 | $6,375.30 |
O-4 | $7,019.70 | $8,027.10 | $9,075.00 | $10,125.00 |
O-6 | $9,261.90 | $9,907.80 | $10,388.70 | $13,247.70 |
Note: These are monthly amounts and subject to annual adjustments
Allowances and Special Pay
Here's where military compensation gets really smart. Most of your allowances are completely tax-free, which means more money stays in your pocket.
Basic Allowance for Housing (BAH): If you're not living in the barracks or base housing, BAH can be substantial. A sergeant in San Diego might get over $2,400 a month in BAH, while the same rank in a lower-cost area might get $1,200. Either way, it's tax-free money.
Basic Allowance for Subsistence (BAS): Currently around $460 per month for officers and $406 for enlisted. It's meant to cover your food costs, and yes, it's also tax-free.
Family Separation Allowance (FSA): When you're deployed or on an unaccompanied tour away from your family, you'll get an extra $250 per month. Not much compensation for missing your kid's birthday, but it helps.
Special Pays: Getting Paid for the Hard Stuff
Hazardous Duty Pay: Flying, jumping out of planes, or handling explosives? You're looking at an extra $150-$250 per month.
Hostile Fire/Imminent Danger Pay: Serving in a combat zone gets you an additional $225 monthly.
Sea Pay/Sub Pay/Dive Pay: Because some assignments are tougher than others.
Retention Bonuses: The military really wants to keep people with critical skills. These can reach $90,000 for the right specialties and reenlistment commitments.
The key thing to remember: bonuses often come with service commitments. Make sure you understand what you're signing up for.
Power Up Your Savings: The Thrift Savings Plan (TSP)
Think of the TSP as the government's version of a 401(k). It's a fantastic way to save for retirement.
What is the TSP?
The TSP is basically the government's version of a 401(k), but with some serious advantages:
Incredibly low fees: We're talking 0.05% expense ratios. Most civilian 401(k)s charge 1% or more.
Simple investment options: No need to become a financial expert overnight.
Government matching: If you're under the Blended Retirement System (BRS), this is literally free money.
Traditional vs. Roth TSP
You have two main choices for your TSP contributions:
Traditional TSP: You contribute money before taxes are taken out. This lowers your taxable income now. You pay taxes when you withdraw the money in retirement.
Roth TSP: You contribute money after taxes are taken out. This means your withdrawals in retirement (both contributions and earnings) are tax-free, as long as you meet certain conditions.
Here's my take: if you're young and in a relatively low tax bracket (most junior enlisted and company-grade officers), the Roth TSP is probably your best bet. You're likely to be in a higher tax bracket later in life, so paying taxes now at a lower rate makes sense.
Government Matching: Free Money!
If you're under BRS (joined after January 1, 2018), here's how the matching works:
Automatic 1%: The government puts in 1% of your basic pay automatically after 60 days of service. You don't have to do anything.
Matching contributions: Put in 5% of your basic pay, and the government adds another 4% on top of that automatic 1%.
Let's do the math on an E-5 with 4 years of service (making about $4,000/month basic pay):
You contribute: $200/month (5%)
Government contributes: $200/month (5% total)
Total going into your TSP: $400/month
Over 20 years, assuming a 7% annual return, that $400/month becomes over $980,000. And that's just from one rank—you'll likely get promoted and contribute more over time.
Bottom line: If you're not contributing at least 5% to get the full match, you're literally leaving money on the table.
Planning for Tomorrow: Military Retirement & Pension
Military retirement is unique in the civilian world. Where else can you retire after 20 years with a guaranteed pension for life? Let's break down your options.
The Legacy High-3 System
If you joined before January 1, 2018, you're likely under the High-3 system.
Pension Calculation: Your monthly retirement pay is calculated as 2.5% times your years of service, times the average of your highest 36 months of basic pay.
So, at 20 years, you get 50% of your high-3 basic pay (20 years x 2.5% = 50%).
The Blended Retirement System (BRS)
If you joined on or after January 1, 2018, you're automatically in the BRS. (Some who joined before had an option to switch).
Pension Calculation: Your monthly retirement pay is calculated as 2.0% times your years of service, times the average of your highest 36 months of basic pay.
So, at 20 years, you get 40% of your high-3 basic pay (20 years x 2.0% = 40%).
TSP Component: The BRS combines this pension with the enhanced TSP matching described earlier. The idea is that your TSP savings will help make up the difference from the lower pension multiplier.
Continuation Pay: BRS also offers a mid-career cash bonus (continuation pay) around 12 years of service in exchange for an additional service obligation.
Life After 20: The Pension Promise
Reaching 20 years of service is a major milestone. That lifelong pension provides incredible financial security. Many retirees start second careers while receiving their military retirement pay.
Feature | Legacy High-3 System | Blended Retirement System (BRS) |
Eligibility | Joined before 2018 | Joined on/after Jan 1, 2018 (or opted-in) |
Pension Multiplier | 2.5% per year served | 2.0% per year served |
Pension at 20 Yrs | 50% of high-3 pay | 40% of high-3 pay |
TSP Auto Gov. Contribution | None | 1% of basic pay after 60 days |
TSP Gov. Matching | None | Up to 4% (total 5% with auto) after 2 years |
Continuation Pay | None | Mid-career bonus (typically at 12 years) |
Portability | Pension only if 20+ years | TSP is yours (vested); Pension if 20+ years |
The Real Value: Starting a Second Career at 38-42
Here's what makes military retirement incredible: you can retire at 38-42 years old with a guaranteed income for life, then start a completely new career. Most of your civilian friends will be working until they're 65 or older.
Beyond Service: Unlocking Your VA Benefits
The Department of Veterans Affairs (VA) offers a wide range of benefits to eligible veterans. These can make a big difference in your life after the military.
VA Home Loans: Your Key to Homeownership
This is a fantastic benefit!
No Down Payment: Often, no down payment is required.
Better Loan Terms: Lenders may offer better terms and lower interest rates because the VA guarantees a portion of the loan.
No Private Mortgage Insurance (PMI): This can save you a lot of money monthly.
Lifetime Benefit: You can use this benefit multiple times.
Real-world example: On a $300,000 home, avoiding the 20% down payment ($60,000) and PMI ($250/month) can save you hundreds of thousands over the life of the loan.
Education Benefits: The GI Bill
The GI Bill can help you pay for college, graduate school, or vocational training.
Post-9/11 GI Bill: Covers tuition and fees, provides a monthly housing allowance, and money for books and supplies. Eligibility depends on your length of active service after September 10, 2001.
Montgomery GI Bill: Another program that provides education benefits.
Transferability: Some service members may be able to transfer their GI Bill benefits to their spouse or children.
Perks of Service: Don't Miss Out on Military Discounts!
Many businesses offer discounts to active-duty military, veterans, and their families as a "thank you" for your service.
Where to Find Them: Restaurants, retailers, travel companies, theme parks, cell phone providers, and more.
Always Ask: It never hurts to politely ask if a business offers a military discount.
Verification: You'll usually need to show a military ID or use an online verification service like ID.me.
Examples: Lowe's offers 10% off, many cell phone companies have discounted plans, and Disney offers special ticket prices.
Pro tip:** Always ask. The worst they can say is "no," but you'd be surprised how many businesses offer military discounts that aren't widely advertised.
Take Control of Your Financial Journey
Your military service opens doors to incredible financial tools and benefits.
Start Early: The sooner you understand and use these benefits (especially TSP!), the better off you'll be.
Ask Questions: Don't be afraid to seek advice from financial counselors available on base (like at Military and Family Support Centers) or through resources like Military OneSource.
Plan Ahead: Think about your financial goals and how these benefits can help you achieve them.
Combine benefits: Use these benefits combined with the Military Lending Act and the Servicemembers Civil Relief Act to speed up your financial success.
The Bottom Line
Your military service comes with incredible financial benefits, but they require your active participation. The service members who thrive financially are the ones who take the time to understand their benefits and make informed decisions early in their careers.
You're already serving your country with honor—now make sure your finances serve your future with the same dedication.
Remember: This guide covers the basics, but everyone's situation is unique. Take advantage of the free financial counseling available to you, and don't be afraid to ask questions. Your financial future is worth the investment of time to get it right.
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