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Military vs. Civilian Pay: The Grass Isn’t Always Greener

Ever wonder how military pay compares to civilian pay? This article explores how they compare and how the DoD makes that comparison.

Another Halloween has come and gone, and those living in suburban areas among houses with big lawns had another sad day of forlorn candy bowls… kids are smart. It’s not that they don’t want to put the work in, it’s that they know the most efficient way to trick-or-treat is to hit the high density residential areas. You don’t have a lot of time, 530-830 is realistically the window where you can work. It’s a numbers game.

On the subject of numbers: today’s piece, written by Phillip Hulme, covers how DoD compares civilian pay to military pay. I learned a lot reading it, and I hope you do, too.


Military vs. Civilian Pay: The Grass Isn’t Always Greener

Ever wonder how military pay compares to civilian pay? This article explores how they compare and how the DoD makes that comparison.

Once every four years the Department of Defense (DoD) conducts what it calls the Quadrennial Review of Military Compensation. I’ll call it The Review from here on out for simplicity’s sake. This review is part of the DoD’s process for determining how much service members get paid and is required by law.

Among other things, The Review seeks to assess the adequacy of military compensation, determine whether the structure of the system is sufficient to attract future troops and retain current troops, or if a new structure should be implemented, and to determine the level of usage of supplemental income programs such as SNAP (Supplemental Nutrition Assistance Program).

The Review is critically important because it is the process whereby the DoD sets its targets for how much service members get paid. To help the bureaucrats make an apples-to-apples comparison they employ a tool called Regular Military Compensation (RMC). Essentially RMC adjusts the compensation of a service member back into the amount of pay required to compensate a civilian at an equivalent level.

You can check out your RMC here.

Getting civilians to put on military uniforms takes a big leap of faith. Part of that involves making their pay competitive. Photo via DVIDS.

The 9th Review concluded that RMC that reached the 70th percentile of similarly educated civilians was needed to attract and retain the personnel required for the U.S. military to function. That review, however, was conducted in the early 2000s, while the Global War on Terror was in its infancy and Iraq and Afghanistan were kicking off. The 13th Review established that in 2017 the RMC for enlisted soldiers was at the 85th percentile, and the RMC for officers was at the 77th percentile.

In other words, service members are compensated quite well considering their level of education and shouldn’t expect to make more money after taxes when they transition out. In fact, they should expect less.

A service member’s pay typically includes things such as Basic Allowance for Housing (BAH) and Basic Allowance for Sustenance (BAS) which are both untaxed forms of compensation. For those service members stationed Outside the Continental United States (OCONUS) and receiving a Cost-of-Living Adjustment (COLA) they enjoy that benefit tax-free too.

For example, a single E-8 with 18-years Time in Service (TIS) who is stationed in O’ahu, Hawaii receiving BAH and BAS would have total RMC of just over $130,000. For context, this level of pay would be equivalent to being in the top 20% of income earners in the U.S. and more than double the average pay of an average high school graduate, according to the most recent data from the Federal Reserve.

Not a terrible deal from a financial perspective.

While there are plenty of sensible reasons to transition out of the military and into civilian life, I think we would all do well to recognize that pay is probably not one of them.

Phillip Hulme is the owner of Stars & Stripes Financial Advisors a fee-only fiduciary financial advisory firm that focuses on helping service members, veterans and their families set and achieve their financial goals.


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