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Planning for Military Separation
Old 04-08-2011, 07:02 AM   #1
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Planning for Military Separation

I have about 3 years left on my military commitment before I plan on trying to transition out for a career with the FAA as an air traffic controller. I want to make these next 3 years count as far as setting a good financial foundation. Right now on just my salary, DW and I are about to save about $200/month which I know isn't much.

In about 12 months I will get a pretty significant raise of about $1,000/month which will not be spent and will hopefully be the basis for starting our financial future. For her as a military spouse it is difficult to find a job but she is looking. As soon as she finds one, her whole salary will also be saved. In addition, in about 5 months our living expenses will decrease by about $500/month.

Here are my current stats:
$21.5K military loan @ 2.99%
$20K student loans at various rates no higher than 6%
$1,250 emergency fund
Currently rent a home
No Children


I know we are not in the ideal situation but we are young (23) and are trying to head on the right track. My question is more toward the steps I should go about in setting a good financial foundation. The military loan is a pain in the butt. It is about $463/month. I would really like to focus on paying this off ASAP just so I don't have that monthly payment but the interest rate is so low it's hard to justify. Student loan payments are much less per month.

My thinking is to grow our emergency fund, and then as quickly as possible pay off that military loan which will increase our savings rate because that extra $463 will go into savings. I have no real abmition to pay off the student loans at the moment. Then with the extra money from my pay raise($1,000/m), living expense reduction ($500/m), loan paid off ($463/m), and possibly my wife finding employment ($1-2K/month) save as much as possible for a down payment on a house and to get us through our transition out of the military (getting in with the FAA has proven to be a lengthy process). Once with the FAA as a controller I will be working toward a pension which I will be eligible for at age 50 and saving heavily for retirement (starting about age 28).

Any advice for me? I know this post is long so I appreciate those who read it and can offer advice.
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Old 04-08-2011, 07:48 AM   #2
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I would want to pay off the higher interest (student) loans before the lower interest (military) loan.

Sounds like you're thinking ahead, which is great, but the first step should be to start a detailed tracking of your expenses. Knowing exactly what you spend, on what, is really the first key to financial planning.
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Old 04-08-2011, 08:56 AM   #3
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The problem to me with trying to pay off the student loans is that once it is paid off, my savings rate for the remaining time I am in the service will be less than half if I paid off the other loan. I currently pay $150/month on the student loan and $463/month on the military loan. I realize that it makes sense to pay off the student loan first interest wise but my goal is to save as much cash as possible in the next 3 years.
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Old 04-08-2011, 02:19 PM   #4
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I would want to have as little debt as possible. If you save $5000 but still owe $15000, then you still have a large debt.

Since you are military (relatively steady paycheck), I think your emergency fund is probably adequate, especially since you are renting and have 0 kids.

Are the student loans yours or the wife's?
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Old 04-08-2011, 05:58 PM   #5
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Okay, it looks like my advice is going to be different from what you've already gotten.
- I wouldn't worry trying to pay off any of the loans early. I would possibly accelerate payments on them slightly if it would enhance your credit score, but that's it. You have three years to save up some money, and you're going to possibly need a big wad of cash (to move, to buy a home, to get the things you need when you relocate). Plus, you need money for emergency expenses. You may have a gap in employment (hey, the entire federal government could shut down just as you're about to come on board--stranger things have happened!). When you just start a new job (even a government job) it can be hard to get a loan.

I assume the military loan is a short-term one? It should be entirely paid off in about 4 years. If you just keep paying at the present rate (no increase due to new higher takehome pay) you'll still owe approx $13K on it when you separate from the service. The student loan is probably longer term, so let's say you'd still owe $15K on it in 3 years when your separate. So, if you do nothing different, you'd have $28K in debt. Let's say you have $800/mo to use after the next raise. That's about $30K over three years. So: Would you be in a better position if you paid off your debt and have just $2K in your savings accounts (plus whatever you normally save every month) when the moving van pulls up, or would you rather have $30K sitting in your savings accounts and be current on your debt payments? Cash gives you flexibility, and you can always use it to pay off debt later if you want. You can't go the other way easily: once you've used it to pay off your debt, it will be a lot harder to get cash again. Your interest rates are low and the cash will be very useful to you as you transition, otherwise my logic would be different.

BUT: You have to actually save the money. If you and/or your wife will be temped to spend it and adopt a new, "better" lifestyle over the next 3 years, then it would have been far better to have used it to pay down your loans. ( If you end up without sufficient funds when it is time to transition, squawk 7700 and IDENT. )
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Old 04-10-2011, 10:31 PM   #6
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Something else to think about is the time in which it might take you to get hired on with the FAA. Right now, things seem pretty slow with some people waiting upwards of three years to get hired (so I've heard). As for me, I've had my application in for about a year with no bites yet (VRA and CTO). I have a decent job so I'm not overly in a rush to get hired, but it is sort of frustrating. However, hiring with the FAA seems to come in waves, so maybe in three years when you get out the floodgates will be open again. There are other jobs out there in the meantime (AFSS, FCT, overseas, DoD, etc.), but if things are like they are now it could be a little rocky for you for a couple of years. Another thing to consider is the Guard or Reserve route when you get out. I'm in the ANG currently and overall love it; much less BS than active duty.
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Old 04-11-2011, 07:26 AM   #7
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samclem

Haha, you won't need to ident when squawking 7700, alarm bells will be ringing and your tag will be flashing regardless! I have been thinking the same thing as far as stocking up on cash and keeping payments on debt current. However, I know it is kind of counter intuitive to what most would say.

ATC KH
Wow, great to hear from someone going through the process. I'm sure I could get some good feedback from you during this process. I too have heard that hiring is rough right now. Hopefully there is a hiring wave because I don't think I could last a couple years. I plan on saving as much leave as possible to have a few months of terminal leave. I also plan on applying a couple months before my terminal leave begins.

How did you go about doing this? What are the requirements for the VRA route? Do you need specified certifications for specified periods of time?

Thanks in advance!
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Old 04-11-2011, 01:48 PM   #8
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One myth that never changes with military ATC'ers, is that an FAA job offer sits there waiting for your release from active duty. I worked as, and led many controllers over a 20+ year military career, and the one's that ended up with FAA jobs are in the minority.

There are more challenges in getting hired today than in the past. During my career, the FAA hired almost exclusively ex-military controllers. Now the competition is stiffer. You have college programs offering ATC majors, and also pilots disgruntled with the low pay of regional airlines, looking at the government pay and benefits of ATC as a viable alternative.

The military has always produced more controllers, than there are civilian jobs.

ATC is a very narrow skillset, with few comparable occupations. The fired PATCO strikers found that out in 1981. My peer group, and I know a bunch of 'em. Most are still toiling as car salesmen, etc. Meanwhile, I'm retired from the Navy and haven't worked in years. A military career is a more stable alternative.

Trying to time military discharge, with FAA hiring trends, is at best a lottery ticket.

If you get out of the military, and wait on the FAA to no avail, getting back in the military could be difficult.
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Old 04-11-2011, 03:18 PM   #9
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Thanks for the head's up. I'm aware of the risks associated with leaving this stable career but the reality is my wife and I have already decided for the most part against a 20 year career. I have other career backups in mind (business mostly, have bachelor's working on MBA). Deployments are difficult and home stability for our family is important. Also, I thought USN controller's don't get their FAA certs unless they get them at a naval station (carrier certs don't count). Am I wrong?

Back on the financial topic,

Any more insight into the best way to go about putting my money to work over the next 3 years to maximize what I will need it for? Again after about 3 years I need enough money for a down payment on a home, and to make the transitiion from military to FAA which could take a bit longer than my military benefits will last.
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Old 04-11-2011, 03:53 PM   #10
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Recommend you take a look at the sea/shore rotation for AC's in the Navy. It is probably the most favorable of just about any rate. Keep in mind that there are more NAS's around the world than CVN's, and any given NAS probably needs several more ACs than a CATCC does. The tower at an airbase is open at least 18 hours a day, usually 24. CATCC is fully manned only for only about 12 hours. Result is that AC's don't go to sea that much.

If your heart is set on working at the FAA, then that's fine, but I recommend carefully evaluating ALL options.

At the very least, play the game in your current command, and don't let your chain of command know that are leaning towards getting out. Your evals will suffer. You're better off telling them that you want to do Seaman-to-Admiral, and keeping your actual cards hidden.
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Old 04-11-2011, 04:30 PM   #11
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Is this a case of 'the grass is greener'? First, the military is not for everyone, however, family life is what you make it. Yes, in 20 years the Air Force took me away from my wife and kids several times, however, what I realize now that I did not then was what the military retirement system was really worth, and that includes TRICARE. It is why I am retired now. I have several friends that got out, or were never in, that are still working and may never really retire like us.

I did not retire as a Colonel or General, but my military retirement plus SS provides 120% of my annual expenses. My advice, the same my father gave to me, think long and hard before you pull the trigger. The grass on the other side is green but not greener. You will put in long hours, travel when you don't want to, and work for some real SOB's. Hey, sounds just like where you are not doesn't it. Look to make your present situation better now.
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Old 04-11-2011, 05:40 PM   #12
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How did you go about doing this? What are the requirements for the VRA route? Do you need specified certifications for specified periods of time?
The FAA has several sources to hire from:

VRA (military ATC with applicable experience)
CTO (applicants with an FAA issued control tower operator certificate)
CTI (went to school for ATC)
REINSTATE (prior GS-2152)
RMC (retired military controller--no FAA benefits, just a paycheck)
PUBNATS (announcements open to the general public; I've heard this is largely a thing of the past.)

I'm eligible for VRA and CTO as far as prior experience. The following is a portion of the VRA announcement:

Quote:
The following veterans are eligible:
1. Veterans who have a compensable service-connected disability rating of 10% or more; or
2. Veterans who served on active duty in the Armed Forces during a war or in a campaign or expedition for which a campaign badge or expeditionary medal was awarded; or
3. Veterans who served on active duty in the Armed Forces during a military operation for which an Armed Forces Service Medal (AFSM) was awarded on or after June 1, 1992; or
4. Veterans who have separated from active service (for other than training purposes) within the last three years.

In addition to the above criteria, all veterans must have been discharged under general or honorable conditions.

***Additional Qualifications***: Applicants must possess 52 consecutive weeks of air traffic control experience in a military or civilian air traffic control facility which demonstrates possession of the knowledge, skills and abilities required to perform the level of work. This experience must have provided a comprehensive knowledge of the laws, rules, regulations and procedures governing the movement of air traffic; knowledge of aircraft separation standards and control techniques; and the ability to apply them properly, often under conditions of great stress.
Additionally, the FAA lists the following ATC experience as non-qualifying:

Quote:
a) Military Flight Following Experience
b) Military Ground Control Approach (GCA)
c) Ship-based air traffic control experience
d) Tactical Air Traffic Control
e) Radar Final Controller
f) Air Operations
g) Flight Planning
h) Flight Data
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Old 04-12-2011, 07:32 AM   #13
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I am current in the air force not navy. I am an officer and have not notified my chain of the separation intent as I still have 3 years and don't want to jeopardize any opportunity over this time (always keep your options open). The decision to leave isn't one I've stumbled upon and I don't believe it is a grass is greener situation. I love the people I work with and the military comradarie. I already work standard 10-12 hour days (at least) so long hours don't bother me. Moving every 2-3 years and deploying every 12 months for 6 months does. In the officer side of ATC we don't get to do controlling as much as we'd like but we are certified and are eligible for VRA and CTO appointments according to KH's post above.

If I can get a job, DoD or FAA where I can buy a home and set some roots, do more of actual ATC'ing, and make the same or more than I currently do, that is a winning situation for me and my family. I am aware of swing shifts and that aspect doesn't bother me. I know I will be losing out on some of the advantages of being in the service (it is a trade-off). Believe me I don't think is going to be all rainbows and butterflys but at this point my wife and I have talked through this and this is the conclusion we are at.
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Old 04-13-2011, 10:41 AM   #14
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Thanks for the head's up. I'm aware of the risks associated with leaving this stable career but the reality is my wife and I have already decided for the most part against a 20 year career. I have other career backups in mind (business mostly, have bachelor's working on MBA).
Any more insight into the best way to go about putting my money to work over the next 3 years to maximize what I will need it for? Again after about 3 years I need enough money for a down payment on a home, and to make the transitiion from military to FAA which could take a bit longer than my military benefits will last.
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I am current in the air force not navy. I am an officer and have not notified my chain of the separation intent as I still have 3 years and don't want to jeopardize any opportunity over this time (always keep your options open). The decision to leave isn't one I've stumbled upon and I don't believe it is a grass is greener situation. I love the people I work with and the military comradarie. I already work standard 10-12 hour days (at least) so long hours don't bother me. Moving every 2-3 years and deploying every 12 months for 6 months does.
I know I will be losing out on some of the advantages of being in the service (it is a trade-off). Believe me I don't think is going to be all rainbows and butterflys but at this point my wife and I have talked through this and this is the conclusion we are at.
Welcome to the board, (yet another) ATC.

I'd take the number of ATCs on this board to be a cautionary indicator at the rumored ease of making the military-->civilian ATC transition. When people aren't having fun at their occupations (or when they're not able to get employment in them) they start showing up at ER boards.

I'm with SamClem-- you don't have the altitude or the fuel time or the income to screw around with paying down debt. It's a lot easier and much more successful to make the minimum loan payments while conserving cash. If you accelerate debt repayment and suddenly need some cash then your options are few and ugly. Of course, as Sam points out, this depends on your ability to remain disciplined enough to actually save all that extra cash.

Here's an option that none have mentioned yet-- the Reserves/ANG. My spouse left active duty for the Reserves just shy of 18 years, which had significant financial impacts. However the quality-of-life impact was a gargantuan improvement while keeping her options open. Depending on where you relocate, drills and even stints of active duty may be plentiful. If you're anywhere near a major HQ like NORTHCOM or STRATCOM (or my personal "favorite" PACOM) then long periods of active duty are plentiful for someone with a flexible schedule, and you'd also develop a great contacts network for plenty of GS/contractor options. (Of course the downside may be that you're living near NORTHCOM or STRATCOM.) I'm always amazed at how much of the shore-duty military is run by the Reserves/Guard.

Even if you're not in a position to drill or take active duty, just being IRR gives you the options of getting back on Reserve drills or active duty. You and spouse would have to balance these options with the realistic expectation of a one-year deployment every four or five years. That may accelerate your IRR decision.

My main point here is that during my own active duty years I was blissfully ignorant of the Reserves at a time in my life when I would have highly benefited from leaving active duty for drilling/ADSW. When spouse did it a decade later, I was stunned at how much better a military career can be when you remove the assignment officer from the equation. You may decide that Reserve/Guard is not for you, but it's worth digging into the issue and learning all about it before passing over it.

Another benefit of showing a big interest in the Reserve/Guard is that your chain of command suddenly becomes a lot more interested in your retention, in a good way. It's not unheard of for both senior active-duty and Reserve officers to observe what the assignment officer (or your chain of command) is doing to you and then having a closed-door conversation with the miscreants. It's much more effective than getting your MBA, although that's a big help too.

As for piling up the cash, I recommend five-year CDs in a PenFed account. You can open them in increments of $1000 (quickly getting the money out of hot little hands temptation), and five-year CDs offer a higher yield for the same six-month early-withdrawal penalty as three-year CDs. Don't dither over low interest rates-- just pile up the savings and lock it away in CDs before you find something "better" to spend it on. Best of all you'll have a known sum of cash at a definite date with no risk of principal loss. Any other efforts to "chase yield" will raise the risks far out of proportion to their potential return.

You already "get it", but it's always nice to put some numbers to the concepts:
Saving base pay and promotion raises | Military Retirement & Financial Independence
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Old 04-13-2011, 12:21 PM   #15
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I'd take the number of ATCs on this board to be a cautionary indicator at the rumored ease of making the military-->civilian ATC transition. When people aren't having fun at their occupations (or when they're not able to get employment in them) they start showing up at ER boards.

To the contrary, there are a lot of jobs out there that either involve controlling or are closely related. Where it's tough is getting into the FAA right now due to the federal budget issues, but at least they have not implemented a complete hiring freeze like many other agencies or departments.

Just a few years ago the FAA was hiring like a madman. I actually turned down an offer in 2007 because the then administration had slashed salaries for new hires by an average of about 30% and imposed a series of highly unpopular work rules. Instead, I accepted a job in the private sector making a little less than double what I would make with the FAA at the facility they offered me. I was also unemployed at that time and even with the FAA putting out offers quickly, they can still be slow in actually hiring someone (it would've taken 8 months before I got a slot to the academy). But then came a new administration which largely reversed these measures and implemented a plan to bring the pay back up to close to what it was by 2012. But I suppose the FERS pension will go away in 2012 anyways which would make the FAA look less appealing again

I may have shot myself in the foot turning down the FAA a few years back, but at least I still have a good job. I feel really bad for some of the college grads with loans to repay and a currently very slow hiring process. They have less opportunities than an ex-military controller with proper ATC experience because they earn no certifications and have no experience. In other words, the FAA is literally the only game in town for them as far as ATC is concerned.
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Old 04-13-2011, 12:44 PM   #16
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Nords,

Thanks for the advice. Guard/Reserves is definetly an option I will keep in mind, and truthfully although my wife and I are fairly sure we have made up our minds, active duty will remain an option until I sign the separation papers. I will most lilkely take your advice on the 5-yr CDs. How do you feel about USAA's 5 yr CD with a 2.25% APY? Also, I haven't read that post about saving pay increase. Very informative.

Thanks again!
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Old 04-13-2011, 03:14 PM   #17
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Nords,

Thanks for the advice. Guard/Reserves is definetly an option I will keep in mind, and truthfully although my wife and I are fairly sure we have made up our minds, active duty will remain an option until I sign the separation papers. I will most lilkely take your advice on the 5-yr CDs. How do you feel about USAA's 5 yr CD with a 2.25% APY? Also, I haven't read that post about saving pay increase. Very informative.

Thanks again!
Rate on five-year CD: 2.25% at both PenFed & USAA

Minimum CD size: $1000 at both PenFed & USAA

Early withdrawal penalty:
PenFed (Javascript pop-up window on disclosure link):
Quote:
Certificates having a term greater than 6 months up to and including 4 years [...] dividends for the most recent 180 days will be forfeited.
Certificates with a term of 5 years or greater [...] dividends for the most recent 365 days will be forfeited.
USAA (page 61 of their 93-page PDF):
Quote:
CD Early Withdrawal Penalties:
CD Term: Penalty
30 days or less: 30 days’ interest
More than 30 days and up thru 1 year: 90 days’ interest
More than 1 year, but less than 7 years: 180 days’ interest
7 years or more: 365 days’ interest
Looks like PenFed has recently tightened up their early-withdrawal penalties. Over Christmas break I distinctly remember discussing the five-year/six-months penalty with my daughter, but now it seems to be a year.

USAA's penalties were a lot harder to find, but it looks like they have the edge. I'd go with USAA, but keep an eye on PenFed and NFCU's rates to see how they compete when rates start rising again.
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Old 04-14-2011, 07:25 AM   #18
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Just to offer my opinion on the financial situation: I agree with those favoring cash flow for when you get out over paying down debt. If you can really buckle down and pay off all debt and save up about a 9-12 months emergency fund, that would be the ideal situation. However, since this would involve a considerable amount of financial pain, it is probably not something most people would be able to accomplish given your situation. In lieu of having zero debt and an acceptable emergency fund when you get out, I would agree that a solid cash cushion with debt is better than no debt with little cash. You are going to need cash when you get out as you can probably expect a period of unemployment. Even if the FAA is in a hiring frenzy when you get out, you can still likely expect a wait of between 6-9 months before you are actually hired on.

Nords brings up a good idea of looking at a 5-year CD which can be redeemed at any time as an option. I've heard this argument before that one should put money in the longest duration CD with the best terms available--a high interest rate, low penalty for early withdrawal, FDIC insured, denominated in US dollars, etc--over something like a CD ladder. The logic being that one gets the best rate at the time and if rates rise or money is needed, then simply take the early withdrawal penalty and use the money or invest it in a higher interest rate CD. While there is merit to this concept, I never personally favored it.

When I had a dedicated emergency fund, I found it easiest and most efficient (for me) to create a layered emergency fund. Here's how mine roughly worked:

1.) About two weeks worth in a checking account
2.) Three months in a high-yield savings account
3.) Three months in a three year CD ladder (one month’s cash in a one year CD, one month’s cash in a two year CD, one month’s cash in a three year CD).

My current strategy involves essentially keeping my "emergency fund" in tax-advantaged space (namely the TSP G Fund) in order to maximize tax efficiency. This is something I think you should look at down the road once you have a larger portfolio, but for now you should stick to holding the emergency fund in taxable. If you want to read more on this strategy, the following article from bogleheads.org is a good summation: http://www.bogleheads.org/wiki/Placing_Cash_Needs_in_a_Tax-Advantaged_Account

Lastly, some people keep their entire emergency fund in a high-yield checking account. Some of these accounts offer very nice interest rates for the current environment, but they also have a series of requirements which must be met to get that high rate. Typical requirements include something like the following: direct deposit, x number of point-of-sale transactions on the debit card per month, opt for electronic statements and enroll in online banking. If these requirements are not met monthly, the checking account pays a drastically reduced interest rate. Previously I had looked at using one of these checking accounts, but I went with the "placing cash needs in a tax-advantaged account" strategy mentioned above instead. The following link has a decent list of high-yield checking accounts: High Yield Reward Checking Accounts - Compare reward checking account rates

There are a lot of options available to you, but the important thing is to avoid a cash flow problem for when you get out (i.e. have a nice sized emergency fund). Once that is accomplished, I would favor paying down the military loan first since that has the higher monthly payment. Additionally, there are typically options for deferment of student loans which is a benefit other loans do not have. In summary I would favor this order to allocating future capital during your remaining three years of active duty:

1.) Save up 12 months emergency fund
2.) Pay down military loan
3.) Pay down student loans

-----------------------------------------------------------------------

Nords listed some favorable reasons for going into the Guard or Reserves. I am currently a controller in the ANG (AF Reserves do not have ATC), so if you have any questions in particular I may be able to help you out. I would strongly consider continuing service in a reserve component when you get out; it opens up a lot of doors and provides some excellent benefits.
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Old 05-06-2011, 10:17 PM   #19
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I would think long and hard before getting out of the military. I am currently at a CTI school for ATC and am looking to start ROTC in order to go the military route (don't ask why I am on a retirement forum lol). Most of my friends who have graduated are waiting two plus years for the chance at getting picked up by the FAA (I only know of one who has gotten picked up in under two). I have chosen I won't sit around for countless years waiting to get picked up, as it's going to get harder and harder. There are over 5,000 applicants currently in the system and that number will grow because of the drastic change in the number of CTI schools pumping out applicants. I recently attended a NATCA meeting and they basically told us we better have a backup plan.

PS, If any of you are Air Force guys, let me know how AF life is. I'm looking to be an Air Battle Manager or Air field ops manager. Thanks!
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Old 05-07-2011, 10:30 AM   #20
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Join Date: Nov 2006
Location: Bossier City
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Agree strongly with at least staying in the guard or reserves. When I turn 60, in 6 1/2 yrs, my Air Force Reserves service & retirement will add $15k (today's $$) to my annual income. Since both my wife & I will have fairly modest 401k accumulations, and my ok but not huge federal pension, that $15k will be an important source of income for us. We don't anticipate much from SS, since I haven't paid in to it since the early 80's & she is a relatively low income earner. I'd stick around long enough to at least earn the retirement.
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