Understanding Your Military Pay and What You need to Make When You Separate
Determining what you need to make in a position after your military service is probably the largest issue that you need to address when leaving the military. The consequences of an uninformed decision in this area can and will affect your earnings for the remainder of your life. In order to make an informed decision, you must fully understand your military pay and what civilian compensation package is necessary to equal that pay.
Understanding your military compensation is pretty complex, so I will try to break it down first by the amount of money that you actually receive. A good site on general military pay can be found at: http://www.defenselink.mil/militarypay/. Military members receive basic pay, housing allowances, subsistence (food) allowances, clothing allowances (yearly). If you are a single member and reside in government quarters and eat in government messing facilities, you can substitute housing and subsistence allowances for those services. But, whichever is the case, you should calculate the full allowances into your pay to determine what you will need to maintain at least the same compensation. You must realize that at that point you will no longer be entitled to those services and will need the same as those that reside and eat at their own expense while in the military.
Regardless of your situation account for the full allowances that one would be entitled to if they lived and ate off-base. These numbers should only change in terms of single or married status for housing allowances. Everything else will be the same for everyone at the same grade and years of service.
Military members do pay taxes, but not as much as public or private employees. Any entitlement with the word "pay" in it is subject to tax while all others are not. In regular employment almost all pay is subject to taxation.
Some other items to consider regarding your military pay and benefits package are: Health insurance (which have no premiums taken and no copays), unlimited sick days and no retirement contributions from pay.
As you can see the tax advantages and avoidance of benefit contributions are immense and definitely need to be considered when determining what salary you should accept from civil employment.
Normal compensation packages are more simple. Almost everything is taxed, less the following items: some retirement contributions, possibly health premiums and other health related expenses, 401K equivalent contributions up to certain percentages and other miscellaneous items (parking fees, mass transit benefits, etc.). These items can often be deducted from your pay prior to taxes being deducted.
In looking at regular compensation packages, you can see how many more items need to be deducted from your pay. In particular, you will deduct more taxes, health premiums and retirement contributions.
Additionally, you may now have to pay some out-of-pocket health expenses and if your obligated service has expired you will no longer have on-base privileges.
There is no simple formula to calculate exactly what you need to make to equate to your military pay and benefits, but you can get a good idea. The Department of Defense has developed a calculator which can give you a rough idea of what you will need to make. You can find this at: http://www.defenselink.mil/cgi-bin/rmc.pl . I am not sure how up to date it is, but it is a valuable tool. Unfortunately if you look for the amount that will calculate for you, you will come up short on payday because you will now be paying health premiums, retirement contributions, etc. So, simply take the number provided and add an estimate of what you think these costs might be. Simple web searches of these types of costs will most likely find you an average of such costs. The calculator will at least account for the military tax advantages.
Just remember, your W-2 and LES are not good sources in determining what you need to make when you separate, or you will most definitely come up short. Leave a comment if you need some personal assistance in this matter. Don't sell yourself short.