2016 BAH Rates Discussion

The 2016 BAH rates have been announced.  According to the Defense Travel Management Office, BAH rates will increase an average of 3.4%.  The average increase across the whole spectrum is $54 a month.  This continues to slow the growth in compensation in a “fair, responsible, sustainable way.”

As a taxpayer and a budget analyst, it’s a good thing to hear about “slowing the growth of compensation” as defense spending continues to skyrocket without any accountability.  Like all of America, the DoD has an insatiable appetite, unable to reduce any spending.  However, as a service member, and at a time where I feel like I’m working the longest hours, doing more additional duties than ever, and dealing with severe manning issues, hearing about reductions in compensation can be disheartening.  But you may ask, didn’t you just say the 2016 have increased an average of 3.4% or $54 a month?

Yes, the 2015-to-2016 rates have increased; however, in some cases it still doesn’t restore the reductions we took in the 2014-to-2015 rates.  In my zip code (71111 – near Barksdale AFB, LA), and for my pay grade (O3E), the 2016 with-dependent rate is still lower than the 2014 with-dependent rate.  The without-dependent rate is higher.

BAH Year (71111)	With Dependent	Without Dependent
2014	$1,947	$1,647
2015	$1,833	$1,521
2016	$1,911	$1,656

 

Even though I’ve been grandfathered (a.k.a. individual rate protection) into the 2014 rate, it still represents a reduction to future with-dependent O3Es.  As you can see, without-dependent O3Es will make an additional $9 in 2016 compared to 2014.

Remember BAH costs consider rent and average utilities (electricity, heat, and water/sewer).  We must make sound decisions on where we choose to live off base [post, camp, or station].  As a young E-4, I chose to live in a place which my BAH afforded me.  Many E-4s chose to live above their means and it cost them a significant amount of money.  A bigger house not only costs more in rent/mortgage, but utilities generally tend to increase proportionally as well.

While reductions from 2014 may not be a good thing, I think staying within your means, and/or encouraging your subordinates to do the same, may help offset these “fair and responsible” reductions.

Check your BAH rates here: http://www.defensetravel.dod.mil/site/bahCalc.cfm

Dual Military BAH Cut

In the Senate’s National Defense Authorization Act (NDAA) for Fiscal Year (FY16), the Senate Armed Forces Committee is seeking to cut dual-military married couples’ Basic Allowance for Housing (BAH). The purpose of this blog post isn’t to discuss whether this cut is good for our military members who are already facing unique financial issues or whether the politicians and senior Defense leaders continue to choose taking risk to save money with their personnel instead of focusing on large fraud/waste procurements and programs. For a complete breakdown of the impact of this measure, please read this amazing story by the US Naval Institute.

The purpose of this blogpost is to help dual-military married couples prepare for the potential cut. To date my single most popular blogpost is when I helped prepare military members for the FY15 Reduction in Force (RIF) and I hope this blog post helps others as well.

The Proposed Cut

Currently, dual-military married couples without children both receive the “without dependent” BAH rate. For the dual-military married couples with children, the higher ranking members receive with “with dependent” BAH rate and the lower-ranking receives the “without dependent” BAH rate.

The proposed cut allows the couple to receive only one BAH rate. The highest ranking will receive “with dependent” rate regardless if they have children or not. Mathematically, this is unfairly attacking dual-military married couples because if each military member married a civilian, then both members would be receiving the “with dependent” rate. These dual-military married couples were actually saving the military money.

Prepare Now

Dual-military married couples should prepare now by taking the following steps; instead of burying their head in the ground and praying this cut doesn’t happen, like many military members did during the RIF cuts.

1.      Assess your current situation – Can you afford this cut if it were to happen right now? The Senate Armed Forces Committee called this entitlement a “windfall” of money without considering all expenses dual-military married couples go through on a day-to-day basis. Would this reduce the money you currently save or would this cause a shortfall in your finances?

2.      Start looking at the market now – If this cut happens in FY16 and you are forced to leave your current place, start looking at the market now. Some states (like Louisiana) have strict zoning restrictions which prevent kids from attending schools outside the current zone. Will your kids be impacted now if you can’t afford your current market?

3.      Create a soft landing – Deviate slightly from your current financial goals by saving as if this was actually going to happen. You may have to save for the initial deposit or to pay for the difference in rent or mortgage you wouldn’t be able to cover if the cut happens. Either way, starting or increasing your emergency savings account is a great idea.

If you read the US Naval Institute’s article, it describes in-depth examination described this cut as “regressive, discriminatory and costly.” The best thing to do is to prepare now so you aren’t caught by surprise if this cut makes it into the FY16 NDAA.

2015 Military Basic Pay Charts and BAH Cut

Last night, the government passed the $1.1 trillion budget, known as an "omnibus" for the federal government. The bill includes a 1% basic pay increase for all military members except for Generals and Flag Officers which are still in a pay freeze and a 1% cut to our Basic Allowance for Housing (BAH). Here's a link to see the proposed 2015 Military Basic Pay Charts, though the site is not the official DFAS site.

Although I've attached the link, you can simply look at your LES and add 1% to your basic pay while decreasing your BAH by 1%. For me, this equates to a net .07% pay increase. That's less than a 1% pay raise. The main reason for cutting the BAH was the Pentagon and Congress don't feel that renter's/homeowner's insurance should be part of our BAH.

How does this make you feel? For me, I've noticed a significant reduction in personnel with an increase in the amount of work. Not being fully compensated makes it a more difficult burden to bear. Leave me a comment on how you feel.

Sources:
http://www.military.com/daily-news/2014/12/02/congress-agrees-to-troop-pay-bah-cuts-in-budget-compromise.html

Military Retirement Plan

A majority of the people I've helped with their finances have been military members within 5 years, or even days, from retiring. They're concerned about only receiving 50% of their basic pay and not receiving BAH or BAS anymore. Anytime is a good time to start getting your finances settled but the earlier you start in your military career the better.


If done correctly, military members can retire from working at 40 years old. Imagine not having to work at the end of a 22-year career and only being 40 years old. When military members retire, after 20 years in the military, we get 50% of our basic pay (only basic pay) and an additional 2.5% each year after. If you start at the beginning of your career, you can have enough to make up the remaining portion of your basic pay when you retire.


For example, an E-8 at 22 years makes $5,115.30 a month (in 2014). The E-8 is entitled to 55% of his or her basic pay in retirement. 50% for twenty years and 2.5% for both years after. This would be $2,813 every month for the rest of his or her life, or $33, 756 annually and if you start saving now, you can earn enough income to get paid like you did when you were in active duty. You can potentially make enough to earn what you were getting in Housing Allowance (BAH) and Food (BAS).


To make up the remaining pay the E-8 would have to save up $552K and earn 5% when he or she retires. This may seem like a lot of money to save up, but by starting your Thrift Savings Plan (TSP) right away, investing in an Individual Retirement Account (IRA), buying real estate, living within your means and keeping debt to a minimum you can easily save this much money (or near it). $552K earning 5% a year would earn you $27,624 a year.


This discussion is theoretical because you can't withdrawal those savings from your TSP and IRAs until you are 59 1/2. But the point is, starting early and saving as much as you can will put you in a prime retirement position.

I'm Ready to Start Making Money!

Many people have asked me, “My finances are in order, so now what?” I’m very pleased to get this question. When I get asked this, I ensure, and/or assume, they have: accounted for all their expenses (as suggested in my 30-day challenge post), eliminated or reduced their debt levels and, most importantly, established an emergency savings account. If this describes you and you’re ready to start investing and making money, then read on.

·         The first step is to take advantage of tax-sheltered investments. I typically recommend everyone have an Individual Retirement Account (IRA). To determine if you should open a ROTH or Traditional IRA, then read this previous blog post: You can invest up to $5,500 annually in an IRA. Once you have the money in an IRA, you can invest it in pretty much any investment possible—mutual funds, stocks, gold, bonds, etc.

·         If you have more than $5,500 annually to invest, then you should fund your Thrift Savings Plan (TSP). Again, you can choose the ROTH or Traditional accounts, but you are limited to the funds offered by TSP.  For military members, the TSP does not match and for civil service employees, the TSP does match (up to 5% in a complicated matter). You can invest $17,500 (does not include your employer’s contributions) annually to your TSP.  With an IRA and the TSP, you can contribute to $23,000 a year in tax-sheltered investments.

·         On a lateral financial decision, if it makes sense for your particular financial situation, then purchasing a house while in the military is a great investment. When living in the dorms, base housing or renting, you are theoretically “losing” the BAH we receive. If you were a civilian, it would be factored into your base pay, but it is separated in the military. This is a basic discussion and gets more complicated on how to make the decision to buy or rent, but buying a house allows military members to “earn” that BAH.

·         Back to normal investing, if you have more than $23,000 a year to invest, then you can open up a normal taxable, brokerage account with any large bank and purchase stocks, mutual funds, bonds, art, oil, etc up to however much you want to invest.

Mathematically, the earlier you invest the better potential you have for earning a large return on your money. If you do it right, by using tax-sheltered accounts, avoiding fees and saving as much as possible, you could retire early and live a long, financially independent, life.