After serving out their initial contract, all veterans are entitled to certain benefits, such as the Post-9/11 GI Bill and fairly low-cost healthcare. But to retire from the military and gain access to the most coveted benefit — retirement pay for life — you typically must serve at least 20 years active duty in your branch of service.
Even with that monthly paycheck, retirees experience many of the same initial stumbling blocks that other veterans do. If you’re coming up on your military retirement, here are five money moves to make for a successful transition out of uniform.
Make Sure You Have a Cash Cushion
“Prior to retirement, military members should begin saving money and avoid overspending to give themselves a financial cushion before transitioning to civilian life,” said Charlene Wilde, veteran, military spouse and assistant secretary of American Armed Forces Mutual Aid Association (AAFMAA). “These savings can provide a financial safety net in case service members experience a gap between military retirement and civilian career.”
Oftentimes, the transition to civilian life is harder than the veteran anticipates. Especially veterans who spent so long — potentially their entire adult life — in the military. Retirees have the benefit of a pension, of course, but this typically isn’t enough to live off of and will need to be supplemented by another income, so having extra money tucked aside will give you financial peace of mind while you navigate your new life.
Get New Life Insurance
“Another wise move is to invest in supplemental or third-party life insurance to replace Service Group Life Insurance (SGLI) prior to initiating a VA disability claim if you qualify for one,” Wilde said.
“At retirement, all service members lose government-provided SGLI, but if you have pre-existing health conditions, it might be beneficial to enroll in Veteran’s Group Life Insurance (VGLI). The downside to VGLI is premiums can increase rapidly with age and are often very expensive when compared to offerings from private and third-party providers. Giving yourself ample time to plan and save allows you to not only meet with a financial advisor to explore your options and eligibility but also not feel overwhelmed during this time of change.”
Military Money: The Complete Guide on Benefits, Investing and More
Prepare For More New Expenses
Aside from life insurance, exiting the military brings about a bevy of new costs. Veterans will find themselves paying (potentially high) taxes on their military pension, healthcare premiums and Survivor Benefit Plan (SBP) premiums, which can be overwhelming if you haven’t prepared for them.
Some states, such as Washington and Texas, have no income tax in general, therefore will not tax your military retirement pay. Other states, like Alabama and Pennsylvania, do have income tax but don’t tax military retirement pay. And other states still have special provisions that may exempt some of your retirement pay from taxes. Getting a clear picture of your state’s taxes can help you decide if relocation might be the better option for you.
For healthcare, make sure you enroll yourself and your family members (spouse and dependents) in TRICARE, or you risk losing medical benefits. Fortunately, basic TRICARE premiums are fairly low-cost, and you can continue to receive medical services on base, if you choose to do so.
After retirement, you will automatically be enrolled in the Survivor Benefit Plan (SBP), which provides a portion of your retirement pay to your spouse or another eligible person after your death. Unless you elect otherwise, you’ll be enrolled for maximum benefits (55% of your retired pay), which will cost you a monthly premium of 6.5% of the desired coverage. Contact your local TAP office or the Defense Finance and Accounting Service for questions about the SBP and your coverage.
Create Both Short- and Long-Term Financial Goals
“After retirement, allow yourself time to refamiliarize yourself with your new financial picture and goals. If the non-serving spouse has been handling budgets and day-to-day financial decisions for your home through relocations and deployments, communication and collaboration are key. As my husband and I prepared for his retirement, sorting all decisions, whether they be financial or lifestyle/social, into long- and short-term buckets has helped us a lot,” Wilde said.
Mapping out your financial picture will help you adjust to new expenses, as well as stay on track with bigger money goals, such as buying a house. Your goals should help you stay within your budget, avoid debt and hopefully continue to save.
Take Advantage of Transition Assistance
Although you’re required to complete pre-separation counseling, you should take advantage of the resources provided by the Transition Assistance Program. You can also find resources through the Department of Labor’s Veterans’ Employment and Training Service program, and Veterans.gov will help with your job search. Furthermore, Wilde recommends connecting with a military-friendly financial advisor to ensure you’re making the most of your retirement pay and benefits.
Although the transition from military life can be a daunting one, there are plenty of resources to help veterans make the adjustment and thrive in their civilian careers.
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Last updated: May 18, 2021
This article originally appeared on GOBankingRates.com: 5 Money Moves To Make Right Before Retiring From the Military