Active-duty military: investing the promotion pay raises

[Nords]

This spreadsheet was inspired by a comment that SamClem made a couple years ago about saving our promotion pay raises. Aggressive savers should try to bank every promotion pay raise while holding expenses below the previous paygrade. I've built a rudimentary spreadsheet to show the results of saving those raises.

First I assumed that military pay keeps up with inflation over a 20-year career. Next I assumed what seem to be reasonable promotion gates for E-2 through E-7 and O-2 through O-5. Then I assumed that the member would save a percentage of base pay (living one paygrade below their current rank) and a bigger percentage of the pay raise received when they promoted to their current rank. The spreadsheet allows users to choose their percentages. Savings are invested over 20 years and compounded at a user-selected APY over inflation. Investments would include the TSP, IRAs, and taxable accounts.

Here's what I assumed for years served before promotion to that rank:

E-2	E-3	E-4	E-5	E-6	E-7
1	2	4	7	10	16
O-2	O-3	O-4	O-5
2	4	10	16

I'd appreciate feedback on whether or not these promotion assumptions seem reasonable. I think officer promotion gates are still set by DOPMA, although every service has found loopholes. Some Navy enlisted specialties promote slower and a few promote faster, but I believe these gates represent today's average sailor. I'm not sure about the other services, so please let me know if there are better numbers.

Military pay tables don't easily convert to spreadsheet formulae, so I just did those two samples and still had to edit nearly every darn cell. A DFAS pay table (http://www.dfas.mil/militarypay/mili...yPayTables.doc) includes pay rates for longevity in addition to ranks. One example is an E-5 in year 9 of their career. Their promotion to that rank occurred in year 7 and they're attempting to live as though they were still receiving E-4 pay. They're saving a percentage of E-4 base pay and a percentage of the pay raise (between E-5 and E-4 pay) from the "over 8" column of the pay table.

Next year (year 10) that E-5 would be promoted to E-6, but I assumed that the pay raise wouldn't take effect until the following year. The longevity hasn't changed yet either because they're still over eight years of service and not yet over 10. So the same "over 8" cells are used for year 10 as were used for year 9. Perfectly clear, right?

Next year (year 11) the recently-promoted E-6 would use the "over 10" column for E-6 & E-5 paygrades.

Some other conservative assumptions: no money is saved during the first or second years of a 20-year career, which really hurts from a compounding perspective but is a reasonable fact of life. Active-duty military are paid twice a month but I set savings & compounding rates at the end of each year.

I didn't include any tax-free allowances like Basic Allowance for Housing, although that would rise with promotions and members could spend it on higher housing costs. I didn't mess with special pays, either, so those could also be saved or "frittered away on luxuries". Bonus pay, of course, should be banked whenever possible, but was not included either.

So here are the results for saving 10% of base pay (of the lower paygrade), 80% of the promotion raise, and compounding at 3% over inflation. These are today's dollars, adjusted for inflation. Frankly I think these numbers are lower than what the typical service member could achieve.

Start of Year #:	Enlisted	Officer
0	$0	$0
1	$0	$0
2	$3,304	$3,186
3	$7,059	$13,513
4	$11,947	$24,378
5	$17,109	$35,605
6	$22,426	$47,169
7	$28,775	$60,533
8	$34,993	$74,298
9	$43,048	$90,860
10	$51,345	$107,920
11	$58,502	$123,992
12	$65,873	$140,546
13	$75,063	$158,260
14	$84,527	$176,506
15	$94,812	$196,149
16	$105,405	$216,381
17	$117,508	$236,937
18	$129,974	$258,109
19	$143,498	$281,313
20	$157,428	$305,214

It'd be nice to allow the user to set their own promotion gates-- for example promoting to E-7 in 12 years instead of in 16. If that can be done on a military pay table using Excel functions like HLOOKUP or Boolean operators, then I'd love to learn how. I know that I could reformat the DFAS pay table for easier lookups, but I'm hoping to use it "as is" with functions & Booleans instead.

[deserat]

Nords - that's a great idea - in fact, I remember my father telling me a colleague of his actually paid attention when the finance guys came by and saved all of his flight pay as and Air Force pilot and when he retired, he could truly retire. The principle is the same - heck, you even allow for a 20% of their promotion pay to become part of the base pay along the way.

Thanks for doing this - will you be adding to the book?

[ziggy29]

Pretty neat stuff, and it's a good idea to help avoid the "lifestyle creep" that often plagues people who never learn to LBYM even in their peak earning years. And it's really just as applicable to non-military folks (public and private sector) as for military folks, except that the promotions and amounts of pay increase may be less predictable.

[Nords]

Quote:

Originally Posted by deserat Thanks for doing this - will you be adding to the book?

Yep.

Got a lot of writing done on this trip. Chapters 8 & 9 are in the hopper for family shredding review and I'm cleaning up the figures & appendices now. In another week or two I'll be working through all the publisher recommendations.

I'm down to the part of writing that writers live for-- the thrill of moving an Excel graph to a Word document and then deciding that it would really look better in portrait than landscape. Haven't tried to see what the PDF "print" option would look like yet.

[FIREd]

I can't help with your assumptions, but I think this a great idea. DW and I have been saving all bonuses and pay raises for the past 5 years and it has helped tremendously building our nest egg. Since 2004 our income has gone up 76% while our expenses have actually shrunk by 12% which has allowed our savings rate to increase steadily.

[clifp]

A couple of confusing things about the table. You said there is no saving for the first two years, yet the table shows savings at the start of year 2. Is that really the saving at the end of third year of service?

One thing that struck me is that even though an officer is making 1,000/month more (+housing, per diem etc.) than an enlisted guy his saving at the end of year two is less than an enlisted. I realize that Officer is still slaving away as Ensign/2nd Lt and the enlisted guy is enjoying the riches of his massive salary bump to Seamen/Private 1st class and banking the salary increase, but still it seems odd.

[Nords]

Quote:

Originally Posted by clifp A couple of confusing things about the table. You said there is no saving for the first two years, yet the table shows savings at the start of year 2. Is that really the saving at the end of third year of service?

Thanks, I'm going to have to fix the column header.

Quote:

Originally Posted by clifp One thing that struck me is that even though an officer is making 1,000/month more (+housing, per diem etc.) than an enlisted guy his saving at the end of year two is less than an enlisted. I realize that Officer is still slaving away as Ensign/2nd Lt and the enlisted guy is enjoying the riches of his massive salary bump to Seamen/Private 1st class and banking the salary increase, but still it seems odd.

True-- my assumptions wipe out the effects of the higher allowances on officer pay.

One of my old COs used to regularly emphasize to the officers that the promotion statistics show it's easier to promote from O-1 to O-5 than from E-1 to E-8.

[saxquiz]

Quote:

the enlisted guy is enjoying the riches of his massive salary bump to Seamen/Private 1st class

The words "riches" and "enlisted" should never be used together.

I always like to bring up the fact that an O-2 with 3 years in the military makes more than an E-7 with 19 years in just for a little comparison. To hell with staying enlisted in the Navy for 20 years. I'm sure you can tell that I'm not bitter in the least.

Anyway, back to the topic. Nice calculator and I agree that there needs to be a way to adjust the years at which you get promoted. I know plenty of people who made E5 way before 7 years. I don't know about the officer side, maybe that's right on target.

[clifp]

Quote:

Originally Posted by saxquiz The words "riches" and "enlisted" should never be used together. I always like to bring up the fact that an O-2 with 3 years in the military makes more than an E-7 with 19 years in just for a little comparison. To hell with staying enlisted in the Navy for 20 years. I'm sure you can tell that I'm not bitter in the least. .

I was being sarcastic since neither Privates nor PFC make much more than kids working at McDonalds. I also agree that rich and enlisted is an oxymoron.
Still by the time you add on housing allowance, re-enlistment bonus (which are often tax free), other benefits like PX. Senior enlisted make a solidly middle class salary and have a great pension plan.

To be fair many of the "perqs" require spending many months in ugly places, risking life and limb.

[Nords]

Quote:

Originally Posted by saxquiz The words "riches" and "enlisted" should never be used together.

As ClifP pointed out, they're rich compared to most middle-class Americans of their age. And more importantly, they're equipped with the training, experience, & discipline (with a little help from TA/GI Bill) to get even richer. It's a lot harder to get there with McDonald's manager-trainee program right out of high school.

Quote:

Originally Posted by saxquiz I always like to bring up the fact that an O-2 with 3 years in the military makes more than an E-7 with 19 years in just for a little comparison. To hell with staying enlisted in the Navy for 20 years. I'm sure you can tell that I'm not bitter in the least.

Agreed, although that O-2 has deferred about four years of income while attending college. That catch-up salary keeps retention from sucking even worse than it already does.

I think there's an additional difference. In the submarine force, if an enlisted guy injures or kills someone it's usually because of mistakes/casualties during operations & maintenance. The vast majority of the time, it's not his job to give the orders to injure/kill enemies. OTOH if an officer injures or kills someone it's usually because he was ordered to break things & kill people, and hopefully it was directed at the enemy. I owe my life, let alone my career, to senior enlisted who excelled at forceful backup despite my best efforts to the contrary.

Of course that "orders" issue is different in other parts of the Navy and branches of the military, but as far as I can tell that's the only separator these days between officer & enlisted-- the officers are generally expected to be responsible (and more accountable) for breaking & killing. Enlisted have a better opportunity (not that great, but better) to move out of the combat missions and build a career on operations/maintenance/support. Not so for the officers.

Which is one of the reasons why it's probably easier to promote to O-6 than to E-8. Since the Navy has started moving away from the conscript mentality and investing in more training, I think the whole enlisted advancement system is rigged against the majority of the qualified participants. It's almost as if it was designed to compel people to get their college degrees and apply to OCS, or to leave active duty to do it through the Reserves.

Frankly if more enlisted would pursue college degrees and commissions, we could start shutting down NROTC and USNA and just go with OCS. I'd rather have leaders come from the deckplates than from Ivy Leagues or trade schools.

Quote:

Originally Posted by saxquiz Anyway, back to the topic. Nice calculator and I agree that there needs to be a way to adjust the years at which you get promoted. I know plenty of people who made E5 way before 7 years. I don't know about the officer side, maybe that's right on target.

I'm basing the officer side on the submarine force and DOPMA, which is supposed to promote all the services' officers at about the same points (with the aforementioned loopholes). I agree that enlisted advancement is all over the bell curve (another symptom of an unfair system) but I either have to hyperdevelop my Excel skills or reformat the pay tables to make them easier to plug into my rudimentary formulae.

I put this thread here in the hope that one of the board's 7930 members has the spreadsheet knowledge to get Excel to parse a DFAS pay table, even if they're not a veteran...

[Boxkicker]

My promotion stats (Navy):

Took me this long (Years in service--Navy):

E-2 0 years--Joined as E-2 (19 years old)

E-4 0 years, 9 months--Push Button--AAP A'School (20 years old)

E-5 2 years, 0 months (21 years old)

E-6 5 years, 2 months (24 years old)

E-7 13 years, 6 months (33 years old)

Retired as E-7 with 20 years, 8 months of service (40 years old)

As you can see..I made advancement quick and then stagnated for 15 years, but I still made more money that the "common" E-6/E-7.

[Nords]

Quote:

Originally Posted by Boxkicker E-5 2 years, 0 months (21 years old)

The submarine force would do that for nukes who STAR'd for a six-year enlistment coming out of "A" school (a two-year extension for a total of six years). It wasn't uncommon to see the more competent nuke electricians or reactor technicians make E-7 in seven, and spouse saw the same in the aerographer's mate community.

But then I went to a battlegroup training command and learned about "advancement" for a bunch of other Navy ratings, especially the overmanned ratings in the surface forces. Again, it was easier for those E-5s to pursue a college degree and a commission.

My nephew made SP4 in the Ranger battalion pretty quickly, but he was also "helped along" by two Afghanistan deployments and an Iraq behind-the-lines pregame mission. So I'm real weak on how fast one can expect advancement in the Army, Air Force, and Marines.

Probably be easier to figure out the Excel functions or reformat the DFAS pay table...

[Boxkicker]

Doug,

You might add something that I am doing to your book. I am finishing up my Bachelors Degree using MGIB. I have taken 1 course (3 SH) already and they paid the cost of the tuition for that course ($210/hr). Since this was my first time using MGIB, they used 21 days of my 36 month entitlement (35 mo-9 days remain). I am currently in my last class for my Bachelors Degree and using another $630. It will take me down to 34 mo, 18 days.

I am going to continue on to my Master's Degree thru AMU using Chapter 30 vice the Chapter 33 (Post 9/11 GI Bill) because I am going to do it online. Here is where it gets more adventagious to do this:

(1) AMU charges $275/hr for graduate tuition.
(2) Each 8 week course is considered 3/4 time by VA standards.
(3) Chapter 30 3/4 time = $990.75/mo
(4) Here is where I will make money while retired and going to school:

$275 X 3 = $825
$990.75 X 2 = $1981.50
$1981.50 - $825 = $1,156.50

By continuing my education, I will "make" $1,156 every 2 months of schooling (goes right in my bank account).

I figure as such:

For my Masters Degree:

For 36 SH (2 years of taking a 3 SH course every 8 weeks), the tuition will be $9,900 and the VA will pay me $23,778 and my books will cost me $835.45. I will "pocket" $13,042.55.

I would encourage you to put in the book, to get your education done while on Active Duty via TA. That is what I did, and it will pay me handsomely. Even after finishing up my Master's, I will have $25,000 in benefits remaining via the MGIB and even more if I decide later to use the Chapter 33 benefit.

Going to school part-time is great for a retired Navy Chief who is also working part-time at a golf course making minimum wage

[samclem]

Nords,
The promotion windows look about right from my experience, at least from the officer side. As you point out, the promotion rates for enlisted members are more variable than that of Os, but I think your estimate is pretty close to what I would have guessed.
The "Saved amount at 20 years" numbers should be an attention-getter.
Saving a large chunk of these pay increases worked out well for us. As a practical matter, we didn't differentiate between pay raises due to promotion and ones due to longevity. We socked away about 50-75% of all of them. I didn't save any portion of the inflation increases. This automatic savings was painless and had the additional benefit of keeping a constant cap on our standard of living. As I promoted through the company and field grade ranks, our neighbors were mostly families of enlisted members and dual-income blue-collar civilian families. This worked out fine.

Quote:

Originally Posted by Nords I put this thread here in the hope that one of the board's 7930 members has the spreadsheet knowledge to get Excel to parse a DFAS pay table, even if they're not a veteran...

Sorry I don't have the expertise. I'll be happy to type the DFAS table into an Excel (Office 2003 version) if that would help, but I think that's just the start of the ball-of-twine. I can see that this will get complicated fast if you try to do it in an automated fashion (i.e. the user puts in the promotion years for each rank and your program/macro tries to find the right cell, teasing out the difference between promotion and longevity increases, etc.).
Is it maybe more straightforward to do it this way:

1) User input: "How much (dollar amount) do you want to save from your base pay starting at your second year? (this will not increase over time)"
2) User input: "How much (%) do you want to save from each longevity and promotion increase in pay?" (User puts in a percent)
3) The user then selects from an embedded (static) pay chart the cells in the pay table that they want to model for their career progression (one cell for each year--for simplicity, include columns for each year, not the 2-year increments on the DoD chart).
4) Formulas in your spreadsheet take the selected info from the highlighted DoD pay chart cells. At year two, put into savings only the dollar amount specified by the user. From then on, compare the user-selected values in the adjacent yearly columns of the static pay chart. Multiply the difference by the user-selected "% I want to save of all pay increases" and add this to the amount going into savings.

I think this approach has some advantages in simplicity. It does conflate the factors of longevity increases vs. rank increases, but this probably won't matter much to most users. The important thing is that when they get more money in their paycheck (after inflation) that they can see the effect of saving/investing different percentages of it. I'm not smart enough re: Excell to know how to implement this suggestion (e.g. how to paste the user-selected cells into your formula cells) but I'll be happy to do the scut-work of typing in the DFAS data if that is useful.

This is a great idea, thanks for taking it on.

[Nords]

Quote:

Originally Posted by Boxkicker You might add something that I am doing to your book. I am finishing up my Bachelors Degree using MGIB. I would encourage you to put in the book, to get your education done while on Active Duty via TA. That is what I did, and it will pay me handsomely. Even after finishing up my Master's, I will have $25,000 in benefits remaining via the MGIB and even more if I decide later to use the Chapter 33 benefit.

Holy crap, I'd be happy to add that as a "back to school" sidebar in chapter 8. Thank you. In fact you might want to e-mail Chris Michel of Military.com, author of the "Your Military Advantage" book, and have him use it too. I'll just be summarizing your words but he'll turn it into a detailed example.

My training commands were TA spending factories but few people planned to go further than their bachelor's. I had one officer who got his MSEE on TA, mostly online, but that just set him up to have his civilian employer pay for his PhD EE. We never even considered the GI Bill.

Amazing. This is almost enough to make me start thirsting for higher education again.

Quote:

Originally Posted by samclem The promotion windows look about right from my experience, at least from the officer side. As you point out, the promotion rates for enlisted members are more variable than that of Os, but I think your estimate is pretty close to what I would have guessed.

Good, then I'm calling that "close enough for demonstration purposes".

Quote:

Originally Posted by samclem Sorry I don't have the expertise. I'll be happy to type the DFAS table into an Excel (Office 2003 version) if that would help, but I think that's just the start of the ball-of-twine. I can see that this will get complicated fast if you try to do it in an automated fashion (i.e. the user puts in the promotion years for each rank and your program/macro tries to find the right cell, teasing out the difference between promotion and longevity increases, etc.).

Exactly-- even if I could build the Boolean statements, I'd still have to type them into a cell accurately. Tracking the logic flow and the process would be a nightmare, let alone the debugging. And I've learned from my programming days that typing in a DFAS pay table, or reformatting it, is just asking for trouble.

Quote:

Originally Posted by samclem Is it maybe more straightforward to do it this way: I'm not smart enough re: Excell to know how to implement this suggestion (e.g. how to paste the user-selected cells into your formula cells) but I'll be happy to do the scut-work of typing in the DFAS data if that is useful.

I like your approach a lot better. The spreadsheet as it is now is more than enough to print a chart in a book, and user-selected data is the next step for a DVD or a website calculator.

I was hoping that my Excel ignorance would be brightened by learning about a "DFAS pay table reader macro" or some other Easter egg. BUPERS has a website calculator that effortlessly handles High-Three retirement calculations as well as SBP (https://staynavytools.bol.navy.mil/RetCalc/Default.aspx), and it probably already solves the problem of parsing a DFAS pay table. I'll have to take a look at that.

The Excel problem isn't holding up the book so it can wait a while for a solution.

BTW ClifP, thanks for catching my savings mistake. I realized that I set those columns up for the longevity raises ("over 2", "over 6", etc) so it was easier to change the assumption to "no savings for first year" to make the numbers match the verbiage.

I've attached the updated spreadsheet, including a third section: a new comparison of the High-Three retirement plan to REDUX. The DoD website (Comparing Options) assumes that a REDUX retiree will pay tax on their $30K bonus and put the rest in a mutual fund earning 8%, and I can't tell that they're paying taxes every year afterward. DoD's numbers "prove" that disciplined savers come out better under REDUX. Since DoD's paying the pension $$, I think this is analogous to handing your credit card to the car salesman and asking him how much you can afford. MOAA has a similar opinion (MOAA: Military Officers Association of AmericaAs I See It — REDUX “Career Status Bonus� — A $30,000 Scandal).

So I did another spreadsheet for an E-6>20 retiring under both systems, and I adjusted the dollars for inflation to make the comparison easier to see. I also assumed the REDUX bonus was invested at 3% APY over inflation, which hopefully is a little more reasonable than 8%.

[samclem]

The new spreadsheets look great. I'm seeing a web site in your future . . .

Not to derail the thread--but remember when a lot of printed pubs had nomograms in them to be used for performing multi-variable computations? All the flight publications had them--for computing required runway lengths for TO/landing, refusal speeds, etc. I'm sure the subs had gobs of these charts, too. After bouncing against several lines, the resulting answer could vary by 5% or so depending on the thickness of the pencil lead, but it was still "good enough" I suppose a (printed, paper) book on retirement financial planning could incorporate nomograms to allow a user to do lots of quick calcs with multiple variables. Designing these things is probably a lost art. Anyway, a nomogram wouldn't be any good for the problem you are tackling now, since the pay chart steps are discrete and not a smooth function.

[CCdaCE]

I think VLOOKUP may be the function you're looking for?

Put all the independent variables in one column, decreasing as you go down... and the dependent variables in the next column. I think that's what you're after. Maybe you already knew this and I don't understand your question. Might have to do a IF loop or something too.

Check the help section or hit F1 in excel for syntax or to help with using different columns based on the same variable.

-CC

[Nords]

Quote:

Originally Posted by samclem I'm sure the subs had gobs of these charts, too. After bouncing against several lines, the resulting answer could vary by 5% or so depending on the thickness of the pencil lead, but it was still "good enough"

We used to use a couple of them for calculating the reactor's critical rod height-- how far to pull the rods during a startup before reaching criticality. Needlepoint dividers, rulers, magnifying glasses, and at least six number-crunchers & officer checkers would spend hours shredding manipulating the nomograms for the third significant digit. After further second-guessing review, with jaws & white knuckles clenched all around the control panel, the reactor operator would latch and pull the rods a bit short of the specified height, and then hope to make what the post-incident critiques referred to as "a cautious approach to criticality" without any alarms or scrams or other incidents. Going critical higher than expected was cause for embarrassment, but going critical sooner was cause for persecution corrective training. Maybe even a little quality time with the CO or Naval Reactors.

Rickover would never let it be plugged into an IBM360, let alone a TI-59, but hopefully the nuclear fleet has finally hit the late 20th century and can just plug it into a laptop or a PDA. Don't miss that a bit.

You're right about the website. Not this year. Maybe next. It's easy to let it balloon out of control.

Quote:

Originally Posted by CCdaCE I think VLOOKUP may be the function you're looking for? Put all the independent variables in one column, decreasing as you go down... and the dependent variables in the next column. I think that's what you're after. Maybe you already knew this and I don't understand your question. Might have to do a IF loop or something too.

Yep. To minimize transcription errors, I'd like to just copy & paste the DFAS pay table directly into the spreadsheet.

Then the user would have to edit cells with the year in which they made a particular rank. After that I'd have to read the contents of those cells into VLOOKUP to pull the salary out of the correct column cell in a row. Except that the table increments the columns a year at a time for a few years and then increments in even two-year steps. So for some odd years I'd have to have an IF/THEN convert that number to the appropriate arguments for VLOOKUP.

It gets complicated & tedious. I was hoping that someone would know where to find a "DFASPAYTABLELOOKUP" Excel add-in function... I guess it could be written as an Excel macro, and at that point we're several time zones outside my circle of confidence competence.

The spreadsheet works well enough now for a first approximation.

[stoutboy]

Quote:

Originally Posted by clifp Senior enlisted make a solidly middle class salary and have a great pension plan.

An E7 with 20 years makes less than 4K per month. His pension will be less than 27K per year. I don't think that's a 'great pension plan' at all. An E9 is the only enlisted rank that comes out pretty well, and even their salary and pensions pale to those of officers.

I've never understood why anyone desirous of a military career would be anything other than an officer. It just doesn't make financial sense to remain an NCO. And nowadays, a good number are also college educated.

These disparities were a major reason why I got out after my first enlistment and never looked back.

[ziggy29]

Quote:

Originally Posted by stoutboy An E7 with 20 years makes less than 4K per month. His pension will be less than 27K per year. I don't think that's a 'great pension plan' at all.

Starting at age 38, COLA'd for life with lifetime health insurance? That doesn't sound too bad to me.