You ran the numbers. You think you know what you'll earn after the uniform comes off. But did you account for all of it?
The average transitioning service member miscalculates their post-military income by $8,000–$15,000 per year—sometimes in their favor, sometimes devastatingly not. The mistakes are predictable, the math is fixable, and this guide walks through every one of them with real 2026 dollar figures.
All figures in this guide are based on 2026 data: the 3.8% military pay raise, 2.8% COLA, current VA disability compensation rates, TRICARE enrollment fees, and TSP contribution limits. These match the pay tables used in our calculator and across our other guides.
Table of Contents
- Mistake #1: Comparing Base Pay to a Civilian Salary
- Mistake #2: Forgetting Retirement Pay Is Federally Taxable
- Mistake #3: Not Knowing Your State's Tax Treatment
- Mistake #4: Ignoring the Healthcare Cost Cliff
- Mistake #5: Counting VA Disability Before You Have a Rating
- Mistake #6: Using Gross Civilian Salary Instead of Net
- Mistake #7: Forgetting Employer Benefits in the Comparison
- Mistake #8: Ignoring COLA on Military Retirement Pay
- Mistake #9: Confusing BRS and High-3 Multipliers
- Mistake #10: Guessing Instead of Using a Calculator
- The Complete Income Comparison Checklist
- Frequently Asked Questions
Comparing Military Base Pay to a Civilian Salary Offer
This is the most common mistake—and the most expensive. When a service member says "I make $72,000 a year," they're quoting base pay. But military compensation is far more than base pay.
Your real compensation includes:
- Base Pay: $6,010/month for an E-7 ($72,120/year)
- BAH (Basic Allowance for Housing): ~$2,100/month average, tax-free
- BAS (Basic Allowance for Subsistence): $460.25/month, tax-free
- Tax advantage on allowances: BAH and BAS are exempt from federal and state income tax
When you add those allowances and calculate the tax savings, an E-7's total compensation is roughly $109,000–$120,000 in civilian-equivalent salary, not $72,000.
The Real Cost
Accepting a $75,000 civilian job thinking it's "about the same" as your military pay means you're actually taking a $34,000/year pay cut. Over 5 years, that's $170,000 in lost income.
Forgetting That Military Retirement Pay Is Taxable
Unlike VA disability compensation, military retirement pay is subject to federal income tax. Many service members budget their gross retirement check as if it's their take-home amount. It's not.
| Rank / Years | Gross Monthly | Gross Annual | Est. Federal Tax | Net Annual |
|---|---|---|---|---|
| E-5 / 20 yr | $2,224 | $26,688 | ~$2,670 | ~$24,018 |
| E-7 / 20 yr | $2,969 | $35,628 | ~$4,275 | ~$31,353 |
| O-5 / 20 yr | $4,594 | $55,128 | ~$8,820 | ~$46,308 |
Tax estimates assume retirement pay is the only income source and use 2026 standard deduction. Actual taxes vary based on filing status, other income, and deductions.
The Silver Lining: VA Disability Is Tax-Free
VA disability compensation is 100% exempt from federal and state taxes. If you have a VA rating, your effective tax burden on total income drops significantly. If you qualify for CRDP or CRSC, the VA portion of your concurrent receipt is also tax-free.
Not Knowing Your State's Tax Treatment of Military Retirement
Where you live in retirement can cost you nothing—or thousands per year. Over 33 states offer 100% tax-free treatment of military retirement pay. But if you settle in a state that fully taxes it, you're giving back a significant chunk of your pension every year.
| State | Tax on E-7 Pension ($35,628/yr) | Tax on O-5 Pension ($55,128/yr) | 20-Year Cost (E-7) |
|---|---|---|---|
| Florida / Texas / Tennessee | $0 | $0 | $0 |
| North Carolina | $0 | $0 | $0 |
| Georgia ($35K exemption) | ~$35 | ~$1,035 | ~$700 |
| California | ~$3,313 | ~$5,127 | ~$66,260 |
The difference between Florida and California for an E-7 retiree is $66,260 over 20 years—just in state taxes on retirement pay.
Check Your State
See our complete Best States for Military Retirees 2026 guide for a state-by-state breakdown of tax treatment, cost of living, and VA facility access.
Ignoring the Healthcare Cost Cliff
This is the single biggest "hidden income" advantage military retirees have. TRICARE is extraordinarily affordable. Civilian healthcare for a family is not.
If you leave before retirement and lose TRICARE eligibility, or if you're comparing a civilian job offer without factoring in healthcare costs, you're missing one of the largest line items in any family budget.
A civilian job that pays $85,000 but requires you to pay $7,200/year for family health insurance gives you an effective income of $77,800. With TRICARE, that same $85K is truly $85K.
TRICARE Keeps Getting Better
TRICARE catastrophic caps are $4,000 (Prime) and $4,381–$4,635 (Select) in 2026. Most civilian plans have out-of-pocket maximums of $8,000–$18,000 for family coverage. See our TRICARE After Retirement 2026 Guide for full plan comparisons.
Counting VA Disability Pay Before You Have a Rating
It's natural to expect a certain VA disability rating. You served in combat zones, you have documented injuries, your buddy got 80%. But VA ratings are unpredictable, claims take months, and building a budget around income you don't have yet is a recipe for financial crisis.
| What You Planned | What You Got | Monthly Shortfall | Annual Shortfall |
|---|---|---|---|
| 100% ($3,842/mo) | 70% ($1,764/mo) | $2,078 | $24,936 |
| 100% ($3,842/mo) | 50% ($1,105/mo) | $2,737 | $32,844 |
| 80% ($2,051/mo) | 30% ($539/mo) | $1,512 | $18,144 |
The Safe Approach
Build your post-military budget using zero VA disability income. Treat any rating as a financial bonus, not a baseline requirement.
If you need VA disability income to cover basic monthly expenses, you may not be financially ready to transition. See our 2026 VA disability rates guide for all current compensation amounts.
Using Gross Civilian Salary Instead of Net for Comparison
Military members get used to a compensation structure that includes significant tax-free components. When they see a civilian salary offer of $95,000, they think they're getting $95,000. They're not.
A $95,000 civilian salary loses roughly:
- Federal income tax: ~$14,500 (22% marginal bracket)
- FICA (Social Security + Medicare): ~$7,268 (7.65%)
- State income tax (avg ~5%): ~$4,750
- Total deductions: ~$26,518
The Right Comparison: Always Go Net-to-Net
Your military compensation included significant tax-free components (BAH, BAS). A civilian salary is 100% taxable plus you pay FICA. To compare fairly, calculate the after-tax value of both your military compensation and any civilian offer.
Forgetting Employer Benefits in the Comparison
Salary is only part of total compensation—on both sides. The military provides significant benefits that have real dollar values, and civilian employers offer their own packages that vary widely.
| Benefit | Military (E-7 Example) | Typical Civilian ($95K Salary) |
|---|---|---|
| Retirement match | 5% TSP match (~$3,606/yr) | 4% 401(k) match (~$3,800/yr) |
| Healthcare (family) | $0 on active duty | $7,200/yr employee share |
| Paid leave | 30 days/year | 15–20 days starting |
| Education | Tuition Assistance + GI Bill | $5,250 tax-free tuition (if offered) |
| Life insurance | $400K SGLI for $25/mo | 1x salary free, more at cost |
| Pension (at 20 years) | 50% of base pay for life | Rare in private sector |
When Comparing Civilian Offers
Ask about the full benefits package. A $90K offer with no 401(k) match and expensive health insurance could be worth less than an $82K offer with 6% match and employer-paid healthcare. Always compare total compensation, not just salary.
See Your Real Numbers
Our calculator factors in retirement pay, VA disability, state taxes, and TRICARE savings to show what civilian salary you actually need.
Calculate Your Civilian Salary Equivalent →Ignoring COLA Adjustments on Military Retirement Pay
Military retirement pay is inflation-protected for life. Every year, retirees receive a Cost of Living Adjustment (COLA) that increases their pension. The 2026 COLA is 2.8%. Civilian salaries only increase if your employer gives you a raise—and that's never guaranteed.
Over a 20–30 year retirement, this compounding effect is massive. An E-7 starting at $2,969/month will see their pension grow to nearly $4,900/month after 20 years of average COLAs—without doing anything.
E-7 Retirement Pay Growth (2.5% Average Annual COLA)
Over 20 years, the E-7's pension pays out a total of $940,000+ instead of the $712,560 it would have been without COLA. That's over $228,000 in additional income from inflation protection alone.
COLA Is a Superpower
Military retirement COLA is inflation protection that no civilian salary automatically provides. When comparing your pension to other income, remember that your retirement pay grows every year. Learn more about optimizing this in our COLA Trap Guide.
Confusing BRS and High-3 Retirement Multipliers
The High-3 system uses a 2.5% per year multiplier. BRS uses 2.0% per year. Using the wrong one when planning your retirement income overestimates your pension by 20%—a difference of nearly $600 per month for an E-7.
| Years of Service | High-3 Multiplier | E-7 High-3 Monthly | BRS Multiplier | E-7 BRS Monthly | Monthly Gap |
|---|---|---|---|---|---|
| 20 | 50% | $2,969 | 40% | $2,375 | $594 |
| 24 | 60% | $3,562 | 48% | $2,850 | $712 |
| 30 | 75% | $4,453 | 60% | $3,562 | $891 |
Which System Are You Under?
If you entered service before January 1, 2018, you're under High-3 (unless you opted into BRS during the 2018 opt-in period). If you entered after January 1, 2018, you're automatically in BRS. Check your LES or myPay if you're unsure. Read our step-by-step retirement pay guide for detailed calculations.
Guessing Instead of Using a Calculator
Each of the nine mistakes above has a dollar figure attached. When you stack them all up, the difference between guessing and knowing can be devastating.
Military retirement income involves too many variables to solve on a napkin: retirement pay, VA disability, federal taxes, state taxes, TRICARE savings, COLA growth, TSP match, employer benefits, and more. Missing even two of these factors can swing your projected income by tens of thousands of dollars.
| Mistake | Potential Annual Cost |
|---|---|
| #1: Base pay only comparison | $15,000–$35,000 |
| #2: Not accounting for federal tax on pension | $2,670–$8,820 |
| #3: Wrong state for taxes | $0–$5,127 |
| #4: Ignoring healthcare cost difference | $6,000–$21,000 |
| #5: Counting unrated VA disability | $18,000–$33,000 |
| #6: Gross vs. net salary comparison | $20,000–$27,000 |
| #7: Ignoring benefits package value | $5,000–$15,000 |
| #8: Ignoring COLA growth | $3,000–$8,000/yr (compounding) |
| #9: Wrong retirement system multiplier | $7,128 |
| Combined potential error | $15,000–$30,000+/year |
Note: These ranges overlap. You won't make all 10 mistakes simultaneously, but making just 2–3 of them easily puts you in the $15,000–$30,000 range of miscalculation.
The Fix Takes 2 Minutes
Our free calculator handles all of this for you. Enter your rank, years of service, retirement system, VA rating, and state—and get your true civilian salary equivalent in under 2 minutes. No guessing required.
The Complete Income Comparison Checklist
Before you transition, run through this checklist to make sure you've accounted for everything:
Your Pre-Transition Income Checklist
- Calculate total military compensation—base pay + BAH + BAS + tax advantage on allowances
- Determine your retirement system—High-3 (2.5%/year) or BRS (2.0%/year) and your exact monthly pension
- Budget VA disability at $0—until you have a confirmed rating from the VA
- Subtract federal taxes—from retirement pay (VA disability is tax-free)
- Research your state's tax treatment—of military retirement pay
- Factor in TRICARE cost savings—$6,000–$21,000/year compared to civilian plans
- Compare civilian offers using NET pay—not gross salary
- Include employer benefits—401(k) match, health insurance cost, PTO, and other perks
- Account for COLA growth—your military pension increases with inflation every year
- Run it all through the calculator—to see the complete picture
Frequently Asked Questions
How do I calculate my total military compensation?
Add your base pay plus BAH (location-dependent) plus BAS ($460.25/month for enlisted in 2026). Then factor in the tax advantage: BAH and BAS are exempt from federal and state income tax, which adds roughly 20–30% to the value of those allowances depending on your tax bracket. An E-7 earning $6,010/month in base pay has a true compensation of roughly $109,000–$120,000 in civilian-equivalent salary.
Is military retirement pay taxed by the federal government?
Yes. Military retirement pay is subject to federal income tax. An E-7 receiving $2,969/month ($35,628/year) could owe roughly $4,275 in federal taxes. However, VA disability compensation is 100% tax-free. If you receive concurrent receipt through CRDP or CRSC, the VA portion remains tax-free.
Which states don't tax military retirement pay?
Over 33 states offer 100% tax-free treatment of military retirement pay. Nine states have no income tax at all (Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming), and many additional states fully exempt military pensions. See our state-by-state guide for complete details.
How much does TRICARE cost for retirees in 2026?
TRICARE Prime for a retiree family costs $927/year. TRICARE Select Group B family coverage is $1,191/year. Compare this to $7,200/year for a typical civilian employer plan (employee share) or $18,000–$22,000/year for ACA marketplace family coverage without subsidies.
What's the difference between High-3 and BRS retirement pay?
High-3 uses a 2.5% per year multiplier (50% of base pay at 20 years). BRS uses 2.0% per year (40% at 20 years) but includes up to 5% TSP matching and a mid-career continuation pay bonus. For an E-7 at 20 years, High-3 pays $2,969/month versus $2,375/month under BRS.
Should I count VA disability in my budget?
Only after you have an official rating. The gap between expecting 100% ($3,842/month) and receiving 50% ($1,105/month) is $32,844/year. Build your baseline budget assuming zero VA disability income and treat any rating as a bonus.
What civilian salary equals my E-7 military compensation?
An E-7 with a family earning $6,010/month base pay plus ~$2,100 in BAH and $460 in BAS (tax-free) has total compensation equivalent to roughly $109,000–$120,000 in civilian salary when you include the tax advantage on allowances, TRICARE, and retirement contributions.
Does military retirement pay increase with inflation?
Yes. Military retirement pay receives an annual COLA based on the CPI-W. The 2026 COLA is 2.8%. Over 20 years at an average 2.5% COLA, an E-7 pension of $2,969/month grows to roughly $4,866/month—an increase of $1,897/month without you doing anything.
What is the 2026 TSP contribution limit?
The 2026 elective deferral limit is $24,500. Age 50+ catch-up adds $8,000 (total $32,500). Under BRS, the government matches up to 5% of base pay (1% automatic plus 4% dollar-for-dollar). For an E-7, the match is worth about $3,606/year in free retirement savings.
Related Articles
- How to Calculate Military Retirement Pay in 2026: Step-by-Step Guide
- TRICARE After Retirement 2026: Complete Guide to Prime vs Select, Costs & Medicare
- 10 Best States for Military Retirees in 2026: Tax Benefits, Cost of Living & VA Access
- 2026 Military Retirement & VA Disability Rates: Complete Guide with COLA Increases
- CRDP vs CRSC: Complete Guide to Concurrent Receipt Programs in 2026
This article is for educational purposes and uses 2026 pay data. Individual circumstances vary significantly. Consult a financial advisor for personalized guidance on your military-to-civilian transition planning.