Military Investing 101: The Reenlistment Bonus

The reenlistment bonus can be a powerful tool for financial strength, or it can vanish in Vegas.

It’s “Finance Friday,” and that means another column by Michael Schneider tackling the financial wellness of service members, veterans, and their families. Today’s column covers what to do with the reenlistement bonus. It’s solid advice, and much (not all) of it is broadly applicable to any scenario where a person abruptly comes into a chunk of money. Enjoy the article, share it with a friend who’s serving if you think it might benefit them, and have a good weekend.

THE BIG STORY

Military Investing 101: The Reenlistment Bonus

The reenlistment bonus can be a powerful tool for financial strength, or it can vanish in Vegas.

So — you've decided to continue your service to our great nation. Thank you! Even better, you are eligible for a reenlistment bonus! Let’s talk about the best ways to use that bonus, and perhaps more importantly, how not to use that hard earned bonus.

A few logistical considerations before we jump into the fun part of how to use that bonus (that Mustang GT you’ve been eyeing off post on Victory Drive is not on the list). First, understand your reenlistment window. There are important tax savings if you sign while IN a combat zone. Bonuses are taxed at the rate based on your income, and the military typically withholds 22% of your bonus. You could owe more in taxes if you are in a different tax bracket. However, all pay earned while serving in a combat zone is tax-free and thus, so is your bonus - do everything in your power to make this happen! Next, before you sign on the dotted line, make sure your bonus is WRITTEN in your contract. Words are powerful but they mean nothing to your bonus, and your retention office is sure to be at lunch, probably with their friends from S1, if you don’t ensure you have it in writing. Lastly, understand if your bonus will be paid in a lump sum or installments.

Reenlistment is a crucial part of keeping the U.S. military strong and capable. Service members who receive bonuses can use several tricks to stretch that money. Photo via DIVDS (U.S. Marine Corps Photo by Cpl. Jonah White).

You will be flush with cash once that bonus hits your bank account. Here are a few ways to (wisely) use it. And notice I said “use it” not “spend it”, all service members should take steps to secure their financial future and your bonus can play a large part in that equation. Please, please DO NOT blow your bonus on one-time “fun” purchases as I saw a teammate do during my last deployment. I still shake my head when I hear someone mention a sauna.

Pay down debt

Many of us have some form of debt. If you do, here is how to prioritize potential payments. Identify the debt with the highest interest rate - this should be at the top of the list to pay down fully, or at least partially. Also, take time to understand the terms of the debt if you have multiple loans, to ensure you do not incur penalties or fees from missed or partial payments. College and car loans are prime candidates to pay off, and naturally mortgages are difficult to pay in full due to the high dollar amount relative to other loans. Lastly, since interest rates are currently high, I have to specify one example where paying down debt might be disadvantageous. If - and only if - you can access a high-yield savings account with a higher interest rate than your current debt, you might decide to place a portion of the money you would otherwise use to pay down your debt into that savings account, in essence growing your savings faster than your debt is growing. This is a niche, although timely, example.

Save for an emergency fund

We often don’t think about the possibility of our car breaking down or other unforeseen circumstances but service members (and veterans) should be prepared for these situations. General guidelines suggest having 3 to 6 months worth of living expenses in your emergency fund.

Invest

Unfortunately, there are not many movies made about the soldier who quietly invested his money into low-fee index funds and let it grow until he retired, and I see some of you nodding off already. But if you use your bonus to contribute to your TSP fund, as described in our last finance article, you can reap immense benefits. For example, if you could go back 20 years ago and invest $10k in the TSP C Fund, the one that tracks the S&P 500, and added $100 per month - you would have $136,000 today! I’m not sure how many Mustang GTs that is, but it certainly sounds better to me than using your bonus money on one to drive around after long PT events or sessions in the field.

Save for a big purchase

Finally the part we all have been waiting for, spending! Service members work hard, and deserve to enjoy the best parts of life. Whether that be a trip, gifts for your family, or home renovations, your bonus can be thoughtfully and carefully applied to such big ticket purchases!

I’m sure you put much thought into your decision to continue your service, and hopefully with what I have shared you can evaluate how to utilize your bonus with additional knowledge and tools.

TOP READS IN MONEY & FINANCE

The SEC is cracking down on fund names that may mislead investors. And funds that mislead investors are upset!

How can you mitigate the effect of high interest rates? Read this piece to find out!

Buying a house hasn’t been this bad in a long time. The median selling price of old homes is over $400k.

TOP READS IN THE MILITARY

The quality of some barracks on military installations is absolutely intolerable. Read this if you need to be mad about something today!

The Department of Defense has picked four different companies to design and build robotic combat vehicles. The future isn’t now — that’s marketing b.s. — but it ain’t too far off.

The new Space Force leader seems to have the right idea about creating plans to work with and depend on industry. For too long, the U.S. has gotten by with very fuzzy thinking about the present and future.

Senator Tuberville’s foolish extremist stance on abortion was not able to break the Senate — but it did cause the Senate to bend a bit.

TOP READS FOR VETERANS

PACT Act claims are being denied at unusually high rates. The VA’s looking into why that is.

Crashes of vintage aircraft aren’t common — but they do happen.

VA’s overdue on 300,000 disability claims.

TOP READS AROUND THE WORLD

When you think of people who put their own profits ahead of national security, think of this guy, who’s actively helping China and Russia for a few extra bucks in his pocket.

Fox News Corp has a new leader — Lachlan Fox, Rupert’s elder son.

One of the extraordinary breakthroughs of modern medicine — the mRNA vaccine, which can “reprogram” human genes the way a programmer can manipulate software — is just beginning to take off. This is one place where AI can absolutely play a role.

HUMOR

If ancestor worship was active in the 21st century and ancestors could manifest to use Google Docs effectively.