Although it comes with big changes, a military transition is often overlooked and rarely spoken about as a life event–but it certainly is one. Making the switch can be a daunting experience for not only service members but also their families, no matter when it takes place. However, the transition is manageable and can be full of exciting prospects, as well as a time of growth and new beginnings. Being organized and prepared is key, especially in times of high unemployment.
Let’s take a look at a few tips that can make a military transition go more smoothly…
1. Make a plan
If you’re retiring from the military, odds are that you haven’t interviewed for a civilian job in years, if ever. Interviewing is an art form that requires specialized training and practice. You must first learn the ropes and then practice. The Transition Assistance Program and the Transition Boot Camp are both government-funded programs that are a must. You can simplify your military skills and experiences by hiring a resume writer, enrolling in an interview skills class, and using tools such as the skills translator. In addition, make sure you utilize the talents and connections of friends and acquaintances. By networking with them, you may come up with valuable tips and ideas, or perhaps even a job.
2. Know that not all earnings are created equal
Along with a base salary, the military offers a wealth of allowances, including a generous tax-free housing benefit. Don’t forget to account for those additions to your military base pay as you compare civilian job offers versus life in the military. You’ll have access to Tricare as a retiree, but you may be paying for life, medical, dental, and disability insurance as a civilian — expenses that might reduce your take-home check. Consider this while negotiating your compensation since pay in the civilian sector is negotiable.
3. Set aside a transition fund
The job you want may take a few months to land. Set aside enough money to cover your basic expenses during that time. It is possible to accomplish this goal by starting small and saving a few dollars a month. Starting the job search well before retirement is advisable. A sensible strategy is to save nine to twelve months’ worth of living expenses so that you can bridge any potential gaps in your finances. And keep this amount for the first six to nine months in case your initial job is not what you thought.
4. Consider getting life insurance
People often overlook life insurance during the transition phase, probably because it’s unpleasant to consider one’s premature passing. Yet, it should be taken into account as part of a sound financial strategy. Servicemembers’ Group Life Insurance can cover up to $400,000 and spouses’ life insurance up to $100,000. If you are leaving the service within 120 days of retiring, you can get Veteran’s Group Life insurance without any medical underwriting. Due to its cost, VGLI is better suited to tobacco users and people who are chronically ill or injured. To ensure their families are protected, retirees in good health should take out a commercial life policy at least six months before retirement. Another advantage of non-employer-sponsored health insurance is that the coverage follows you wherever you go, so even if you stop working, your family is still covered.
Commercial health insurance may even be cheaper than VGLI and have unique benefits, such as living benefits. For example, if you become terminally or chronically ill, you may be able to receive a portion of your death benefit early to help pay for such things as a nursing home or end-of-life costs. Reach out to us to discuss whether you need life insurance or not.
5. Even your loved ones can benefit from VA benefits
Life insurance is an important decision, but don’t forget about the Survivor’s Benefit Plan! The premiums are paid with pre-tax dollars and your benefits receive the cost of living adjustments. This plan can provide a monthly income for your spouse in case something happens to you. Beneficiaries receive cost-of-living adjustments to their benefits, which are paid with pre-tax dollars. Additionally, the survivor benefit plan can help to reduce financial stress and uncertainty during a difficult time.
Note that if you decide the Survivor’s Benefit Plan is not right for you, you must opt out or you will be automatically enrolled to provide 55% of your retired pay to your spouse in the event you pass away. Each family should consider their personal situation and if they have planned for this possibility along the way.
6. Learn about Tax Free investment opportunities.
What should you do with your investment account after leaving the military? Many veterans use the Thrift Savings Plan (a tax-advantaged retirement savings plan) to save for retirement and wonder what to do with their money once they retire.
Generally speaking, there are three tax-free options you can choose from:
Leave your TSP where it is and do not withdraw funds.
Consider rolling it over into an individual retirement account.
Roll the funds over into your new employer’s plan.
Although all of these choices are tax free, more and more people are choosing to convert their TSP balance into a Roth IRA. With this option earnings accumulate tax free, plus any combat pay contributions included in your TSP balance will roll directly over and maintain their tax free status.
It makes sense to opt for the third option if the plan you have at work offers quality investments since you would maintain borrowing power from the TSP balance and your accounts would be streamlined. If you roll them over to a future employer’s plan, you may be able to receive your funds sooner. You might also be offered a matching contribution as part of some civilian retirement plans. That means your employer will match up to a certain percentage of what you contribute.
There is one last alternative – cashing in your TSP. That is generally never a good idea, especially for those under the age of 59.5, because income taxes would be due, as well as a possible 10% penalty.
In this transition period, take a step back and assess your goals for retirement. This is the perfect time to take an honest look at your finances and determine what you need for retirement.
The benefit is that you’ll know whether you have to be diligent about paying down debt or savings and investing during your remaining work years. The good news is that your military retirement check could be effective for doing just that.
It might feel like you have fallen behind in everyday life experiences while serving our country. Therefore, it is crucial to engage with your local veterans’ community, which is full of other folks that have been where you are and can help guide you through transitioning. Don’t be afraid to lean on your community and military transition resources to successfully navigate through this time in your life.
The opportunities in civilian life are endless, and this new direction in life requires an effective financial approach to help you achieve your goals. We recommend partnering with a fiduciary financial advisor who can help assess your personal situation and put together a plan that takes your whole financial picture into consideration. Feel free to schedule a meeting. We’re always here to help.