And for active-duty #dependents.
Katie's husband, Thomas, has been an active-duty US Air Force JAG since 2021, and we've received many questions over the years about military benefits and finances. Here's the TL;DR on the perks of being active-duty military or a dependent based on Katie's personal experience, from accessing VA loans to basic allowances for housing.
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Katie:Henah's on vacation this week, so it's a conversational roundup of me talking to myself, which is pretty reflective, actually, of what my house is like most of the time. Anyway, so enjoy. As some of you may know, my husband Thomas has been an active-duty US Air Force JAG since 2021. And over the years, we've received a number of questions about military finances—as in, the finances of those in the military, not the government military budget, which is much larger than mine. But there's a lot more than meets the eye. So I figured I'd cover some of the bennies of being active-duty military or a hashtag #dependent, which is what I am—a military spouse.
So to start, I'm gonna disclaim that as with most things Money with Katie, this is not an objective, exhaustive list. It's really just gonna be a reflection of my own experience, and I'm gonna try to address the really major stuff. So there will be benefits that I don't cover today. We're gonna link a full list at benefits.gov in our show notes.
All right, so the most common military-related benefits question that we get is definitely around buying a house with a VA loan. Especially if you are moving a lot for different tours or duty stations or bases, this is probably one of the most financially consequential aspects of active-duty military life. Now, elephant in the room is, I've never bought a home, with or without a VA loan. So I'm not speaking from personal experience here, but there are a few main things to know about VA loans. Number one, there's technically no down payment required. Now, a lender might require that, but the VA does not. The interest rates can be lower. Your closing costs are allegedly limited, and you don't need to get private mortgage insurance, which is typically what you have to have with a traditional loan if you put down less than 20%. And you can use a VA loan multiple times, but you can't have two of them at once. So you have to pay off the first one before you could go get a second one, and you have to live in the house being bought with the loan. So we'll link the VA home loan process checklist in the show notes. It's on page nine of the PDF, but those are the basics.
Lending is pretty complicated and there are definitely a lot of caveats that we won't dive too deep into today. But the TL;DR for me, or as one reader put it in her email, “What would Katie do?” is that if you are active-duty military and real estate investing is of interest to you, it's probably worth considering, at least. You do have to live in the house. But you could do a house hack with a duplex, triplex, or a fourplex.
There's actually a blogger I know named Reluctant Landlord who has purchased a home in every duty station her military family has lived in, and then she just manages them all remotely after they leave. We've had to move every two years, and we aren't super keen on long-distance real estate investing. So it just hasn't made a ton of sense for us yet, especially given the timing of our moves and his military commitment. The housing market over the last few years has been so hot that unless you had basically an all-cash offer that was over asking, it was not going to be considered. And I haven't confirmed this personally, but I have heard from others that offers backed by VA loans are less competitive in that type of environment.
The other thing I think I could make the case for why no money down is amazing, if the house is totally within your budget, like super affordable, as most houses in the US today are, you know—they're all super cheap and affordable—but as long as your monthly payments aren't going to balloon enormously, I think that's great.
But I do worry a little bit about the advice to put down 3%, 0%, as little as possible, because it indicates to me that someone may not actually be able to comfortably afford the house. Like if you're putting less down out of strategy, I think that's cool, but there's more of a temptation to overextend yourself, we'll say, if you have no down payment or a very low down payment. So I would just be wary of that.
The second most valuable aspect if you are active-duty military for 20 years or more is probably the pension. So Thomas does not plan to stay in for that long, so this doesn't really apply to us. But there was a change in 2018 to the way the pension works, from the Legacy plan to something called the Blended Retirement System, which combines traditional monthly retirement checks of the Legacy system with new features that allow members to take some government benefits with them, even if they don't serve up to the 20-year mark, or whatever, to qualify for a full retirement pension. If you serve the full 20 years, you receive a lifetime income from the military that's gonna be 40% of the average of your highest 36 months of active duty, and then you get a 2% increase to that 40%. So 40% to 42% to 44% to 46%, whatever, for each additional year of service above and beyond 20.
So if you were making $100,000k at your peak and then you quit at year 20, you would get $40,000 per year, adjusted for inflation, for the rest of your life. But if you stayed till year 22, then you would get $44,000 per year, adjusted for inflation, for the rest of your life. So it's not a bad deal. And on the topic of retirement, the military has a TSP instead of a 401(k), which stands for Thrift Savings Plan, and the Department of Defense will contribute up to 5% of your base pay based on your contributions. So I wouldn't consider this like a unique military benefit, necessarily, since it pretty closely mirrors the way things work in the private sector, but it is worth knowing.
And then two other income-related things that I would argue are more impactful: You get a basic allowance for housing and a basic allowance for subsistence, in addition to your base pay, which are scaled to the cost of living at your base. So someone who lives at Pearl Harbor in Hawaii would get a higher stipend than someone who lives in Minot, North Dakota. Crucially, these two stipendsare not taxed; they are not taxable. So this could be thousands of dollars per month in untaxed income. I wanna say somewhere between 30% and 40% of Thomas's income is stipends. So the stipends are higher depending on whether or not you are married, and that actually did play a role in our decision to get married in 2021 in a courthouse a year before our traditional wedding, 'cause his stipend amount went up.
Another big aspect on the tax front is, there's a rule that I can't remember the name of…I asked Thomas; he couldn't remember either. So if anyone knows, let us know. But it says you can either keep your former state as your state of residence during your service, or adopt your state at the assigned base that you go to, which can have really big implications for income tax. So we lived in Texas and then we moved to Colorado, and soon we'll live in California. So surprise, surprise: We opted to keep our Texas state income tax rate of 0%. So we'll get to live near the base in Northern California but not pay California state income tax, because we are moving there for a military active-duty assignment, which is basically the greatest way to live in California.
There's also military Tricare, which is the military healthcare coverage. It's similar to private health insurance in that there are different plans you can choose from and each one has different co-payments and cost shares, but word on the street is, it's pretty good. I actually have United Health through my employer, but I guess I'm technically also covered by Tricare. I just haven't used it. But I've had other women tell me, “Oh, if you're gonna have a baby, you should try to do it while you have Tricare, 'cause it's really good.” So I guess I would consider Tricare to be a good military benefit as well.
And then for us, everything else kind of falls under the category of everyday perks that add up. So now we're getting into the realm of smaller-impact things, but that are still fun and might be pretty great over time. The biggest one is credit cards. They'll waive their annual fees. There are two different laws that make this possible, depending on if you got the card, the line of credit, before or after your active duty or spouse's active duty began. So there are SCRA benefits, which are for lines of credit opened before active duty. They'll waive fees on credit cards retroactively, and I believe they also cap the interest rate you're allowed to pay. And then there are MLA benefits, for lines of credit opened during active duty, I think. I feel like every time I look into this or call a credit card company, they tell me it's the other way around, but pretty sure SCRA is for things before, and MLA is for things during. The process for getting these things applied can be kind of complicated. Sometimes they give you a hard time; sometimes they don't. I usually just call, but you can apply online in some cases, and then once it's on your account, any cards you apply for at that bank in the future, during the active duty service, also will not have an annual fee. So that's really great. That can really add up.
And a lot of stores will give you 10% off if you show a military ID. I have a little card that says “Active Duty Spouse.” It looks really official, and I'm always like, “You're welcome for my service.” And it works for that too. I just went to Madewell the other day and I spent like $80 or $100 on a couple of shirts, and they asked me randomly if I was, I think they said, like healthcare worker or military, active duty, military dependent. And I was like, “Yeah,” and I showed 'em my card and I got 10% off. So that's cool.
I know the military Epic pass, that's another really deep discount benefit where, I don't know, $200 maybe? I mean, it's really cheap. You get a really good deal on it if you are gonna ski even once in a season at an Epic resort.
And my last thing is not even a money tip, but it's been kind of cool, and we actually, because we travel so much, we've used it a lot, is you get to board planes earlier, which on Southwest, everyone knows how valuable that is if you get to board with A.
So that is pretty much the breakdown of how military benefits have been nice for us in the last few years. There are obvious cons as well, but this episode is just about the perks and the pros and the optimism. So I hope it was helpful. Maybe if you have an active-duty military person in your life that you think this would be useful for, send it their way. Regardless, thank you for listening to this week's Rich Girl Roundup, and we will see you next week when Henah is back from vacation.