The Personal Statement of Military Compensation

Do you know how much money you make? I know it seems like a silly question, but…do you?

A lot of people look at their Leave and Earnings Statement at least occasionally, but when was the last time you studied your Personal Statement of Military Compensation? I mean really studied it. Could you name your basic pay, housing allowance, and subsistence allowance amounts without looking them up? How about special pay and bonuses? Do you know how much you save on taxes due to tax-free allowances, or what your benefits are worth?

(don’t get mad at me for implying you don’t, it’s just…I know a lot of people who had no idea this document existed)

It’s hard to know how much you are spending and how much you are saving if you aren’t familiar with how much you earn. It’s even more difficult to compare your compensation to civilians. Unlike a civilian job where you might agree to a set salary or hourly wage, military members have a lot of variables in their pay. And, they change often. I’ve been in the military just over 13 years, and from what I can tell my military compensation has changed TWENTY-NINE times. Between PCSes, promotions, and longevity raises, our pay changes frequently.

So, I’ve decided to break down the Personal Statement of Military Compensation (PSMC) for you, right here on Military Dollar. You can just follow along with my screen shots, but I think it’d be better if you log into MyPay real quick and pull yours up. Also, I’m going to block out my numbers because it can tell you information about me that I’m not comfortably sharing quite yet. So it’s really best if you look up your own. I’ll wait.

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Here’s a picture of a puppy while we wait:

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Ready? Okay, good.

Part One: The Introduction

Right at the top of the PSMC, they’ve put in a handy-dandy explanation of why the PSMC exists. Nice! Let’s see…making your compensation more visible when applying for credit or loans including home loans. I like it. That is helpful because it can help you prove your expected income to mortgage lenders who may not fully understand military compensation.

Then comes what I consider the big one: comparing your military compensation package to a civilian employment offer. I should probably write a whole post on comparing military and civilian salaries and benefits. There is a lot to consider. If you (like some I’ve known) are just looking at basic pay vs the offered salary, you are missing out on a lot of context. For now, just follow the instructions at the top describing how to compare them.

If your decision to leave the military and take on a civilian job includes a possible move, you can look up the BAH for the applicable area here. Subtract out the BAH you are currently receiving, add in the monthly/annual BAH for the new area, and then make the comparison.

The Summary included in this part includes a number for “Added value of Service-estimated indirect compensation.” I don’t know about you, but my PSMC only includes my Federal Tax Advantage. You actually receive a lot more indirect compensation than that. We’ll get to the details in Part Three.

Part Two: Direct Compensation

This is the most straightforward part of the PSMC. It should match your LES monthly amounts, unless you’ve PCSed or promoted since March. This tells you the flat out monetary compensation you should be receiving, monthly and annually. In addition to matching your LES, it should also match the military pay charts and BAH calculator results for your rank/location/dependent status. If it doesn’t, you probably need to contact your local finance squadron to figure out what is going on.

Side story that isn’t related to the PSMC: If you are receiving more money than you should, that is bad. Don’t think the military won’t figure out they’ve been paying you too much. I received about $3,600 extra when I first commissioned. I reported it on three separate occasions to Finance and was assured each time that I was the one who was wrong, even though my paychecks were significantly higher than my friends. Guess what? Almost two years later, Finance came for their money. They wanted to withhold my entire paycheck until the “debt” was paid, but I convinced them to take it out over the course of a year. Luckily, I’d had friends warn me about these types of situations and I’d had the money sitting in a savings account. I know others that weren’t so lucky.

Okay, so now you have the numbers for your basic compensation (basic pay, BAH, and BAS), special pay and bonuses (as applicable), and expense allowances (as applicable). These are known as your Direct Compensation. If somebody asked “how much money do you make” this is *probably* the answer you will give.

Are you surprised? I can’t tell you how many conversations I’ve had with active duty personnel who were amazed at the number. The most common reason I’ve seen is because they were only considering their basic pay when counting up their salary. But civilians don’t usually get separate allowances for housing and subsistence, they have to pay for that out of their salaries. So to leave it out of the equation is just weird to me. Why wouldn’t you count it? It’s part of your paycheck! (I actually once had somebody tell me the reason they don’t count it is because they have to have a place to live and they have to eat. Ummmmm….pretty sure that applies to civilians, too)

If you aren’t getting BAH and BAS but you are getting housing and food for “free,” you need to consider how much that is worth. If you think you are living on $40,000/year, but you are also getting free housing and food, guess what? You aren’t living on $40,000/year. You’re probably living on something closer to $55,000/year. It looks like Note 2 accounts for this, but since I have BAH I can’t be sure what it would say. If somebody is in this situation, it’d be great to hear from you about what it says.

Why is the value of BAH and BAS important? Because you need to know how much it actually costs you to maintain your standard of living. Whether you are considering getting out or planning your retirement, you are eventually going to have a situation where housing and food aren’t just given to you, either in the form of an allowance or a dorm. If you don’t know how much you spend, you won’t be able to realistically plan your life. And we are all about planning here at Military Dollar.

Part Three: Service Estimated Indirect Compensation

Now for the fun part. How much are all of the intangibles you enjoy really worth?

Remember, eventually you will have to pay for these things on your own. Healthcare, taxes, education, lawyers, travel…there are a lot of benefits that boost the overall value you receive in exchange for military service. But they are admittedly more difficult to define, so it’s going to take a bit of work to figure out how much each one is worth. I’ll walk through the topics to discuss some possible amounts, but you should also run the numbers for yourself.

Medical Care

The amount you would pay for medical care in the civilian sector is obviously going to vary quite a bit based on your medical history, family composition, how much the employer pays, etc etc. Based on a quick internet search, it looks like somebody my age and health history, who has no dependents, would pay about $400/month or $4,800 year. And then I guess I would have a deductible and would have to pay for prescriptions. I’m going to call this $6,000 per year in indirect compensation.

Federal Tax Advantage

Again, this is going to vary wildly based on your personal situation. This number is going to be based on your BAH + BAS as well as your overall tax bracket and allowable deductions. Regardless, the amount will be considerable for pretty much everybody. Last year my tax advantage was nearly equal to my overall tax liability, which means I would have had to pay twice the federal tax if BAH and BAS weren’t tax-free allowances. That’s a lot of money.

I have no idea what the average tax advantage is across the military, but looking at BAH + BAS across a variety of ranks and locations it looks like a $1,300/month total might be fair as an average. That’s $15,600/year. At an average federal income tax rate of 13.5% (per this article from The Motley Fool), Social Security tax of 6.2%, and Medicare tax of 1.45%, that’s an average tax percentage savings of 21.15% on that $15,600. That equals a cash savings of $3,299.40/year. Let’s call it $3,300. Higher ranks and those in high BAH areas will have significantly higher savings.

Military Pension

Because there are so many reasons a person might not retire from the military, I don’t feel comfortable assigning a number to this. Maybe if a person has achieved retirement sanctuary, but that isn’t the case for me and likely isn’t the case for most of you. So I’m not going to assign an annual value. However, based on my understanding of how the DOD funds the pension, this is probably worth several thousand dollars. But like I said, I’m leaving it at $0.

The part I circled in red is applicable if you are already eligible for retirement. This is a great way to discover your potential retirement income.

Uniformed Services Thrift Savings Plan

For now, the DOD isn’t kicking in automatic or matching contributions to members’ TSP accounts, so I’ll leave this one at $0 too. But, that’s going to change once the Blended Retirement System begins on January 1st, 2018. The government contributions to the TSP will start adding hundreds to thousands of dollars in indirect compensation for everybody who falls under the BRS. Or maybe they will consider it direct compensation? Definitely something to pay attention to on the 2018 PSMC!

Death and Survivor Programs

I don’t consider Servicemembers Group Life Insurance to be indirect compensation as I have to pay for it unless I’m deployed. Plus, the rates aren’t much different from what I can get in the civilian sector. However, the Death Gratuity is kind of like a free life insurance policy. Based on the cost for SGLI, I’d estimate the Death Gratuity (seriously the worst name ever) is worth about $7/month, or $84/year. I’m going to round that up to $100 just to keep the numbers round. This certainly isn’t a life-changing amount of money, but it’s a nice benefit. The value of the Survivor’s Benefit Plan has a lot of variables and is worth nothing to me (no spouse) so I’ll mark that as $0.

Pay Growth

Ummm…not indirect compensation. Why is this here? It’s nice to know your paycheck will grow over time, but this is about what you are earning now.

State/local Tax Advantage

I’m going to mark this as a $0 value because I don’t pay state taxes, but if you do this might save you several hundred dollars each year.

Commissary and the Exchange

Depending on how often you shop there and how much you buy, this can be worth hundreds or thousands of dollars each year. If you believe those signs at the commissary, you save about 30% shopping there. The US Bureau of Labor Statistics says the average American family spends about $4,000/year on groceries, so 30% savings would mean $1,200 stays in your pocket. I’m not sure how much, if any, the Exchange saves you…those Coach purses, TVs, and DeWalt tools are nice, sure, but those aren’t needs the way food is. So we’ll just say $1,200 for this category.

Federal Long-Term Care Insurance Program

I looked into this years ago, but haven’t recently. I do remember thinking this could save me money, if I decided to use it. But I didn’t, and I’m not sure how many people do. It doesn’t seem to be a very well known benefit. Anybody out there have any experience with it?

The nice thing abut the FLTCIP is that you can buy it for parents, which is why I looked into it. If you might need to take care of your parents as they age, you should look into it too.

Education Programs

Guys. Guys. If you haven’t yet realized how much money the military spends on college degrees, you aren’t paying attention. In addition to letting you CLEP classes and use Tuition Assistance, nearly all Active Duty and many Guard and Reserves also qualify for either the Montgomery or Post-9/11 GI Bills, sometimes both. I ran the math a couple months ago for the GI Bills, and it is worth tens if not hundreds of thousands of dollars. I priced out the amount I would use if I went to my hometown university, and it was worth $88,000. And that’s for a relatively cheap school! If I stay in 20 years, that’s like a $4,400/year value.

Even crazier, I found one school where the Post-9/11 GI Bill could potentially be worth $240,000. Considering you can fully qualify for the GI Bill after only 3 years of service, you could conceivably consider this benefit worth $80,000/year in indirect compensation. I’m going to go with the $4,400 for my running total, but this shows you the range of possible values.

Services, Counseling, and Legal

The value for you will depend on what you choose to take advantage of, but there are a lot of good options here. Personally, I’ve had a strange year where I’ve needed to visited the Legal office several times. I’ve already received about $400 worth of value from that. And notice those Personal Financial Counseling sessions? I’ll be talking more about them soon, but pay attention. Civilians pay hundreds and even thousands of dollars for what we get for free.

Space-A Travel

I haven’t done this yet myself, but anybody who has knows it can save you hundreds of dollars. It may be a bit of a pain in the behind, but I can see where I’d get a lot of value out of it if I were retired.

Tricare Dental Program

Again, I’m single-no-dependents so this is a $0 value for me right now. But based on what I’ve heard from civilian friends, this is potentially worth quite a bit. I’ve heard of people spending thousands of dollars on getting a tooth pulled. Yikes!

A Very Rough Total Indirect Compensation

This obviously is going to vary by huge amounts based on your personal situation, but here’s a rough guesstimate of what the indirect compensation could be worth.

• Medical Care: $6000
• Federal Tax Advantage: $3300
• Death Gratuity: $100
• Commissary: $1200
• GI Bill: $4400
• Legal: $400

Total: $15,400. That’s $15,400 for a single-no-dependents person who doesn’t take advantage of a lot of the benefits offered. Not too shabby.

So when you are looking at your paycheck and thinking “ugh, I don’t get paid nearly enough” do yourself a favor and whip out your Personal Statement of Military Compensation. It may not make you feel rich, but hopefully it makes you realize your total compensation isn’t terrible. It’s often much higher than people think.

 

Were you already familiar with the Personal Statement of Military Compensation? If not, were you surprised by what you saw?