BY JENNIFER WOODWORTH, PSY.D
It is recommended to consult with a financial advisor before leaving the military and, again, after retirement to assess any changes in expectations and create a plan for financial stability.
As a family transitions from active duty to civilian life, changes in financial stability can be a major stressor, and many families are not prepared. Up to a year before retirement, families can participate in retirement classes to assist with questions and discuss realistic financial adjustments that will need to be considered. For example, according to GIJobs.com a Marine with four dependents and a rank of E7 retires at 20 years of service is earning
$86,000 annually which includes housing allowance and other special pay. This Marine would have to earn $140,878 in the civilian sector to continue with the current quality of life. Since it is most likely unrealistic to
expect this Marine to step into a job where he will earn this amount, setting and maintaining a budget with estimated costs will assist in the financial transition of the family, including understanding what income will be needed to cover all the expenses.
WHAT COSTS NEED TO BE CONSIDERED UPON RETIREMENT?
HOUSING – Housing is one of the largest stressors when retiring from the military, especially if the service member lives on a military installation. Since the housing cost is paid straight to the property manager, there is no need for saving money to pay for rent. Also, while living abroad base housing, maintenance is usually provided as part of your housing and therefore should be considered when eventually renting or buying a home. When moving off base, electricity and water payments are additional to rent/ mortgage and should be calculated into the cost of housing.
Additionally, property taxes should be accounted for as an added expense if you own your own home. Proximity of your home to a Veteran’s Affairs office, a commissary, or to work should also be taken into account for expenses in gas and groceries. The military will pay a onetime relocation cost up to a year after the retirement date of the service
STATE BASED INCOME TAX – If the state that the service member retires in is different than their home of record, they should check for state tax law regulations that will affect their income tax. Some states offer tax exemption while the service member is on active duty, however once the service member retires, this may no longer apply.
RETIREMENT INCOME – Retirement income should be viewed as additional income instead of primary income as it most likely will not support current quality of life, as it is 50 to 75 percent of base pay only and considered taxable income.
DISABILITY INCOME – Disability pay varies in the length of time before benefits are provided to the retiree and should not be counted upon for primary income, especially at the beginning of retirement. It is recommended to begin the process of applying for disability by attending retirement seminars or contacting the US Department of Veterans Affairs prior to one’s date of retirement.
EMPLOYMENT INCOME – In considering additional expenses upon retirement, employment income will most likely be a primary source of income. The retiree may seek employment along with their spouse in order to maintain financial stability. Also, it is recommended to use the experience attained while in active duty service to pursue positions above entry level and commensurate with their ability.
CHILD CARE – Child care may already have been established prior to retirement, however the cost of child care may
increase or decrease based on the family’s employment needs. Child care on a military installation is significantly
less expensive than civilian providers, and families should be mindful of the possibility of an increase in cost. A portion of child care is also tax deductible.
THRIFT SAVINGS PLAN(TSP)/RETIREMENT FUND – Retirees should have a plan with how to continue to invest their money after retirement. It is important to research if the next employment position offers a retirement plan and if they will allow TSP roll over without fees. If taking a federal position, TSP can be continued. If neither is available, consult a financial advisor for additional options.
LIFE INSURANCE OR SURVIVOR BENEFITS PLAN (SBP) – Consult with an advisor before purchasing life insurance and discuss the options of a Survivor Benefit Plan. Look at the short term and long term advantages and disadvantages of each option.
MEDICAL/DENTAL/VISION – Upon retirement, medical benefits will need to be paid out of pocket, even if it is through the military medical benefits program. Additionally, it may be beneficial to compare dental and vision coverages with alternative companies or for your future employer to get the best rate for you and your family.
UNEMPLOYMENT BENEFITS – If a retiree is unable to find employment after retirement from active service, they may be eligible for unemployment benefits. Contact the local office for more information regarding the requirements.
EDUCATION COSTS – The GI Bill may cover some of the costs of attending college or university, however additional costs may be incurred, including additional gas, child care, and meals. Scholarships for retired service members or other resources may assist in defraying some of the costs.
DEBT; CARS/CREDIT CARD/LOANS – It is important for families to evaluate all debt and payment plans for each. Missing payments could increase fees and overall costs of the initial debt.
H U.S. MILITARY – Personal Financial Management Program (PFMP) Personal Financial Management Program (PFMP) is offered within each branch of the military to increase financial literacy. The services offered include financial counseling, debt consolidation, workshops and establishing personal financial goals and steps to achieve the goal. To find a PFMP follow the link provided. www.militaryinstalltions.dod.mil/MOS/f?p=MI:ENTRY:0
Military Family Aid Military relief societies are non-profit, private organizations that provide budgeting, financial
counseling, and other services to members of Air Force Aid Society (AFAS) www.afas.org Army Emergency Relief (AER) www.aerhq.org Coast Guard Mutual Assistance (CGMA) www.cgmahq.org Navy-Marine Corps Relief Society (NMCRS) www.nmcrs.org Reserve Aid www.reserveaid.org Money Management Resources GI Bill Information: www.gibill.va.gov Military OneSource: www.militaryonesource.mil/pfm If providing care for a family member with special needs: www.militaryonesource.mil/efmp/financial-planning?content_id=266924 Military to Civilian Pay Calculator: www.GIJobs.com USAA Military Separation Guide: https://content.usaa.com/mcontent/static_assets/Media/MilitarySeparati onGuide.pdf?wa_ref=LE_lvg_mil_milsep_guide&cacheid=228673125 US Department of Veterans Affairs:https://www.myhealth.va.gov/index.html
Considerations of the aforementioned financial costs and education on the options will allow each family to make the
best decision for them at their time of transition. It is recommended that you consult with a financial advisor before leaving the military and, again, after retirement to assess any changes in expectations and create a plan for financial stability. •
ABOUT THE AUTHOR:
Jennifer Woodworth graduated from The Chicago School of Professional Psychology – Irvine Campus – in August 2013 with a doctorate in Applied Clinical Psychology. She is currently a post doctoral fellow at Aurora Behavioral Health Care – San Diego and has worked in the mental health field for six years. She is also a Marine Corps wife of 12 years and mother to three children ages five, seven, and nine.