Veteran Insights: Take Charge of your Financial Planning After Separation

William Blanken - 381 Views

Take Charge of your Financial Planning After Separation

 

When we leave military service, life as we know changes in minutes. We get excited that a new life is ahead of us. Our life can become less structured—with fewer rules and more privacy—maybe. One of the many changes to consider is financial stability and developing a plan to be financially solvent. We leave the Armed Forces at different stages; some leave after a few years and some are lifers. For all Military\Veterans, no matter what stage we find ourselves in, proper financial planning is vital. In many cases, service members have been targeted by predatory lenders and salespeople who often manage to put them deep in debt and destroy their credit scores. Even those of us who manage their money well are often unprepared for the financial transition that we will face when we enter civilian life.

If you’re leaving the military, whether you have an advisor or are trying to do this on your own, don’t let yourself fall into the traps that await those returning to the less organized universe outside the services. This advice can help.

Although there are of course exceptions, probably the majority of departing service members can be divided into three general groups.

 

  • The first group consists of the junior enlisted, who joined the military after high school and are now just entering civilian life for the first time as adults. Many of those in this category never received more than a cursory financial education of any kind while they were in the service.

 

  • The second group are officers and senior enlisted personnel who are leaving after a career in the military.After 20 years of active duty service, members of the military can retire with a lifetime pension; regulations differ for the Army, Air Force, Navy, and Marine Corps.

 

  • The third group leaving the military are disabled service members, who receive various levels of payment depending on their disability. This category is known as disability retirement. Receiving it depends on the service member’s years of active service and, for those with less than 20 years, their disability rating.

 

Young Enlistees Returning to Civilian Life

 

This group has often racked up substantial debt, such as car loans, credit card balances, mortgages and other consumer loans. Some of you are often unaware of what your credit score is or how this will impact you when you begin looking for a job, particularly one that requires a security clearance.

Many of you enlistees leaving the service have no savings of any kind and have given little thought as to what your monthly living expenses will be when you return to civilian life. Service members in this category might find it wise to focus on learning how to create and maintain a budget, using your GI Bill and other veterans’ benefits wisely, and perhaps going to a local credit counseling service.

 

Survivor’s Benefits

Those who receive a retirement pension will automatically be assigned the Survivor Benefit Plan (SBP) if they are married. The rider pays out 55% of the deceased veteran’s monthly pension to the surviving spouse throughout his or her lifetime. However, opting into the rider reduces the veteran’s monthly pension by 6.5%, which can be seen as an expensive cost. It is also considered taxable income by the IRS and many states.

 

Retirement Planning

Service members who have participated in the Thrift Savings Plan (TSP) are often unaware of what your options are once you separate from service. Many don’t realize that there can be advantages to rolling your plans over into an IRA or the retirement plan of the company you work for in the private sector after you leave the service.

Veterans who want to receive a guaranteed stream of income from your plans after you stop working also need to understand that the qualified annuity you could purchase inside the TSP does not offer many of the benefits of modern annuity contracts. Most commercial carriers now provide features such as income riders, a doubled payout for managed care, or an up-front bonus that is paid into the contract upon purchase.

Those of you who receive retirement pensions may also find yourself unable to make direct contributions to a Roth IRA because your incomes are too high when you combine your retirement income with what you now make as a civilian.

 

Tax Planning

Tax withholding can also be a major adjustment in some cases because most service members receive one or more tax-free allowances in addition to your basic pay while you are in the service. As with Roth IRA contributions, this issue can also be compounded by the additional income from a retirement pension.

 

Insurance and Other Benefits

Although the pay that military service members receive is often below that of civilian pay for an equivalent job, the benefits that we receive while we serve are second to none. Of course, this is not always the case in the private sector, so be sure that when you are about to enter civilian life are prepared for this change.

Those of you who are receiving retirement pensions may want to contribute a few months of this pay into a savings account to cover all applicable deductibles and other out-of-pocket expenses that won’t be covered by your new health, dental, vision, or disability policies. As a Financial Advisor, I make certain that us vets thoroughly understand our Veterans Administration benefits and what we have available.

 

The Bottom Line

Many of us veterans who have served our country are not prepared for the economic reality that awaits us after we retire from service. Some of us need education in basic finance, while others face more complex issues.

Of course, no one plan is not the same for everyone. A comprehensive personal plan is need for those of us facing certain issues to see how different scenarios could play out.

 


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