The Surprising Cost of Leaving the Military

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When I enlisted in the Army, I had a plan to finish my two years of service and then leave to get my bachelor’s degree. I followed through on my plan, but I’m not sure if I would have if I hadn’t been so steadfast in my resolve. Senior leaders in my unit, such as my first sergeant, were eager to point out all the benefits of staying in the military. It had worked out well for them, and they were well on their way to earning a healthy pension by 40 with a college degree paid for by Uncle Sam. If you’re only talking to your senior leaders and eyeing your ETS date, then you’re only hearing the story from someone who reenlisted and who may have an incentive to convince you to reenlist. Instead of presenting another biased viewpoint, I’d like to present a financial analysis that shows the opportunity cost of leaving the military.

Understanding opportunity cost in decision making

When making a decision, it’s valuable to consider the status quo as a reference point. In this case, the status quo would be staying enlisted in the military when contemplating whether to leave and utilize the GI Bill. By examining promotion schedules and referring to military pay tables, we can estimate the financial implications of remaining enlisted. Another scenario worth considering is staying in the military to benefit from programs that assist enlisted soldiers in obtaining a college degree and commission. I personally learned about such a program from my first sergeant in the Army when I mentioned my interest in using the GI Bill. It’s likely that similar programs exist in other military branches.

Whether you choose to remain enlisted or pursue a program that results in commissioning, both options represent your alternative to utilizing the GI Bill for education. These alternatives are known as opportunity costs and comprehending them is important. They allow us to evaluate decisions relative to our best alternative, rather than making isolated evaluations.

Scenario A: NCO Route

Let’s begin by exploring a scenario where you choose not to pursue further education and instead opt for the path of least resistance, continuing your regular duties. In this scenario, as a soldier, you would continue to receive your housing benefits and salary for the next four years, which would have otherwise been dedicated to full-time schooling. Furthermore, you would be eligible for raises based on your time in service (TIS) and potentially even promotions. For instance, an E4 with three years of experience can anticipate earning over $150,000 in salary alone over the next four years.

Year	1	2	3	4	Total
Salary	36,700	36,700	39,300	39,300	152,000

A predictable career trajectory

It’s not only valuable to understand the benefits you would receive over four years of schooling, but we can gain even deeper insights by looking at the five years following graduation. While the promotion schedules may vary for each soldier, I believe my predictions are a reasonable estimation based on the nature of the military bureaucracy.

Year	1	2	3	4	5	6	7	8	9
Event	Promoted to E5				Promoted to E6				Promoted to E7
Salary	36,700	36,700	39,300	39,300	46,400	46,400	47,900	47,900	52,200
Food Allowance	–	–	–	–	4,500	4,500	4,500	4,500	4,500
Housing Allowance	–	–	–	–	17,800	17,800	17,800	17,800	18,600
Healthcare	–	–	–	–	–	–	–	–	–
Tax Savings	–	–	–	–	6,700	6,700	6,700	6,700	6,900
Annual Total	36,700	36,700	39,300	39,300	75,300	75,300	76,800	76,800	86,300

Take, for example, a hypothetical soldier who chooses to re-enlist after completing their initial three-year contract. If they were to follow this path, they could expect to reach the rank of E6 in the same year they would have graduated from college had they pursued higher education instead. With eight years of service and an E6 rank, their base salary would be a modest $46,400. However, they would also receive over $22,000 in additional food and housing allowances (which are untaxed), resulting in a compensation package slightly exceeding $75,000. While this surpasses the average earnings of a college graduate, there isn’t much room for substantial growth, as their compensation is expected to increase by only an additional $11,000 over the following four years.

Scenario B: Butter bar (O1) in training

Comparing the starting salary of a freshly commissioned second lieutenant (O1) in the Army, which is approximately $42,000, to our predictions for an enlisted soldier reaching E6 rank in eight years, there seems to be a disparity. However, it’s important to note that an enlisted soldier who becomes an officer follows a different pay scale than newly commissioned lieutenants without prior time in service (TIS). The Army offers a financial incentive for enlisted soldiers transitioning to officers by providing higher pay than for other officers in the same pay grade without TIS. This results in both an increased base pay and housing allowance, boosting annual compensation by $20,000 or more compared to peers who commission without TIS.

During my time in the Army, I was offered a program that would have allowed me to remain on active duty as a cadet. This program came with a couple of financial benefits. Firstly, I would receive cadet pay amounting to $14,600 per year. Secondly, as an active-duty military member, I would continue accruing credit towards my TIS, which would be applied to my future income as a commissioned officer. Although I didn’t receive confirmation on whether this time would count towards the twenty years required for a military pension, it would be a pretty sweet deal if it did!

Year	1	2	3	4	5	6	7	8	9
Event	Go to College				Start as O1		Promoted to O2		Promoted to O3
Salary	14,600	14,600	14,600	14,600	58,100	58,100	72,200	72,200	88,400
Food Allowance	–	–	–	–	3,000	3,000	3,000	3,000	3,000
Housing Allowance	–	–	–	–	19,500	19,500	19,700	19,700	19,900
Healthcare	–	–	–	–	–	–	–	–	–
Tax Savings	–	–	–	–	6,800	6,800	6,800	6,800	6,900
Annual Total	14,600	14,600	14,600	14,600	87,600	87,600	101,900	101,900	118,200

By commissioning after eight years of service, a soldier who chooses to remain in the military and pursue a degree can graduate with a base salary of $58,100. While the base salary may appear underwhelming, it’s important to consider that a second lieutenant receives similar generous allowances for food and housing as an E6, resulting in a total compensation of an impressive $87,600 in the first year after college. Moreover, career progression for officers is more promising, particularly if one can achieve the rank of captain (O3) within five years of commissioning. Overall, a soldier opting for this scenario will outearn a soldier who stays enlisted as depicted in scenario A over the predicted 9-year period and will enjoy significantly higher earning potential throughout their career. Whether you decide to stay in or leave the military, getting an education is totally worth it. Don’t be a dummy, seize those opportunities!

The financial advantages of staying in the military

While I personally chose to leave the military after my first contract, I can’t overlook the financial case for staying in the military. Staying in provides a clear path to an income that exceeds the US median income. Even though you should definitely get an education, the compensation exceeds the US median income in both of the scenarios I analyzed. While the salaries themselves appear underwhelming the benefits provide a surprisingly competitive compensation package. Benefits such as government provided healthcare at zero out of pocket cost, a housing allowance that adjusts to your household size and to wherever you are stationed, and a food allowance that can cover your groceries aren’t found in the private sector and come with significant tax advantages.

Choosing to go back to school to become an officer requires trading a full-time income for a cadet’s pay, but it pays off in a big way at graduation. The combination of rank and a longer time in service means that a soldier will graduate and will earn what amounts to a six-figure income in just a couple years. Historically the path from an Army second lieutenant (O1) to a first lieutenant (O2) is almost as sure a bet as you can find in life and achieving this rank will propel a former enlisted soldier to a six-figure compensation within about two short years of getting a college degree. Not bad.

The case for leaving the military

The case for staying considers the average graduate and the average outcome of those graduates, but you needn’t be average. The average graduate might make closer to $60,000 but even an average engineering graduate can expect to make $75,000. However, even $75,000 underestimates how much a new college graduate can make by pursuing an in-demand field in an area with high incomes. Starting compensation packages at Google, for example, can approach $190,000. Working in big expensive cities like New York or San Francisco can provide plenty of opportunities to out earn the wages of average graduates.

Leaving the military also means that you gain much more control over your life and career. You can choose:

Why settle for average when you don’t have to? While the case for staying in the military often considers the average graduate and their expected outcomes, it’s important to recognize that you have the potential to exceed those averages. Sure, the average graduate might earn around $60,000, but even an average engineering graduate can expect to make $75,000. But here’s the thing: $75,000 doesn’t even scratch the surface of what a new college graduate can earn by pursuing a high-demand field in a location with a high income potential. Just take a look at starting compensation packages at companies like Google, which can exceed $190,000. If you’re in big, bustling cities like New York or San Francisco, there are plenty of opportunities to surpass the earnings of average graduates.

On top of financial considerations, leaving the military also grants you greater control over your life and career. You get to decide where you live, what kind of work you do, and who you work for. It’s all about taking charge and making choices that align with your aspirations and preferences.

Bottom Line

When a US soldier decides to leave the military, they face a significant opportunity cost in pursuing a career outside the armed forces. Whether you choose to leave for college or stay connected through a military cadet program, obtaining a college education can greatly enhance your career progression and income. Just by glancing at the pay tables I’ve obtained from the US Army, it’s evident that a commissioned officer can easily out-earn what they would have received on the enlisted side, and this earnings gap will only widen over the course of a career.

Now, let’s talk about the average college graduate. They won’t be making a salary of $87,000 or more to match what a freshly commissioned officer with enlisted experience could potentially earn. But why settle for average? With the GI Bill, you have the opportunity to pave your own path with a full ride to the best school you can get into. Moreover, the GI Bill offers additional support for attending schools in cities with high living costs and even higher incomes. The math is crystal clear: leaving the military to become an average graduate is a suboptimal choice. If you’re going to make the decision to get out, then do it right. Work closely with your commanding officers to secure recommendations, dedicate time to studying for the SATs, and make your college application as competitive as possible.

Now, if you’re unsure about which cities offer the most promising opportunities, let me introduce you to Financial Samurai’s “Best City in the World to Make Money”: San Francisco. Yes, rents may be steep, but the salaries more than compensate for it, especially if you manage to land a job in the thriving tech sector. With a four-year runway to find a high-paying job, you’ll have ample opportunities to get your foot in the door and set yourself up for success.

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