There are plenty of things about military life that are uncertain—even in the reserve component — but getting paid isn’t one of them. On the first and 15th of every month, service members can count on a direct deposit from DFAS for a specific amount. It is so predictable that it’s easy to budget around it — even if some wish for a bigger number to that paycheck.
Cue impending separation or retirement. Predictable turns into many question marks, like what will pay and benefits look like? When will the retiree receive it? How much supplemental income do we need to earn to maintain, or improve, our current lifestyle? And, so on. Experts say how much — or how little — you prepare for retirement while you are still in the military, can affect what life looks like after.
Prepare Early
Financial Expert Ellie Kay, who has worked with families and finances for nearly 20 years, says transition planning should start as early as possible.
“It doesn’t matter if you’re going to transition out after three or four years, or after 30. It’s important to start planning your transition as soon as you get in,” she said.
Kay tours military bases around the world with Heroes at Home, a 501 (c)(3) providing financial literacy to military members. She explains that military families have a number of challenges when it comes to transitioning into the retirement stage, but having “little to no margin” tops the list.
“What I mean by that is they have too much consumer debt, they don’t have enough savings, and so they’re forced to take the first job that comes along — which is usually not their dream job, not a sustainable job or one they want to stay in for an extended period of time,” Kay said. “It may not be the job that can yield the most in terms of income either, and so then they end up finding themselves stuck. They’re either changing jobs frequently, or they’re just not satisfied in the job they get right after retirement.”
Three Areas of Focus
In order for service members to have breathing room to be selective in post-military life, Kay offers advice on three areas. The number one is to avoid the pressure of false urgency to take on more debt. Minimize debt — Become super savvy in saving money and paying less for things that are a normal part of a budget.
“If you know you’re going to be retiring in two years, now is not the time to go out and buy a brand new, big honking truck,” says Kay. “Accruing any more debt the closer you get to the retirement stage is not wise, and that may be a little counterintuitive because people may think ‘I need to get my new car now or I need to buy my house now because I can get that loan and a good rate because I’m gainfully employed by the military.’”
These types of decisions should be delayed until the veteran knows where they will be working and living, she adds.
Savings — Establish a savings of three to six months of living expenses, with three months being the absolute minimum.
The Thrift Savings Plan (TSP) and Roth IRAs are useful financial investments, but Kay emphasizes that they are not something that will be drawn immediately upon retirement from the military. The amount of savings that is accumulated provides a cushion as other life decisions are being navigated.
Family Readiness Centers — Make use of the programs available right now, for free. In addition to mandatory transition classes, there are financial-centric programs available through the entirety of a military career. From resume building to retirement budgets, counselors are experienced in a full range of topics.
Resources in the Financial Toolbox
The military retirement checklist is nothing short of overwhelming. Military families adapt to a certain way of life with structure in place. However, there are a tremendous amount of tools to guide every step of that process. Furthermore, current Department of Defense (DOD) resources would require a substantial cost if retained in the civilian sector, but they are completely free for all military ID holders.
Military installations have installation financial readiness management programs that can assist in building a budget around current finances to help determine what type of income to pursue in the next stage of life (visit www. militaryinstallations.dod.mil and choose Personal Financial Management Services in the dropdown menu).
The Military and Family Life Counseling Program (MFLC) allows certified professionals to meet military members and/or their spouses at a location convenient to them (www.militaryinstallations.dod. mil and choose Family Center in the dropdown menu).
If meeting in person to discuss finances is inconvenient, Military OneSource offers online and telephone counseling that can be scheduled at 800-342-9647.
It can be daunting to plan for the future when day-to-day tasks seem time consuming. The DOD understands just how big of a change transition is, which is why so much training and so many resources are devoted to this stage.
Transition classes offer a suggested timeline of checklist items that military families should work on up to 24 months out, but as Ellie Kay referenced — the sooner attention is paid to today’s expenses, the greater likelihood that tomorrow’s budget will provide your military family with the lifestyle you desire.
To learn more about the financial education offered by Heroes at Home, visit http://heroesathome.org/
A Quick Look at the New BRS
Blended Retirement System Highlights
>>Current service members opting into the new Blended Retirement System between January 1, 2018 and December 31, 2018, will receive DoD automatic 1 percent contribution and up to 4 percent additional DoD matching beginning the first pay period after opting in — there is no 60 day/2-year waiting period as there is for new accessions starting January 1, 2018.
>>Those who opt in will be immediately entitled to their own contributions and government matching contributions. However, Service members must have at least two years of service (based on Pay Entry Base Date) in order to entitled to the government’s automatic 1 percent contributions and associated earnings.
>>Service members can make contributions to their TSP accounts and/or a 401(k) or similar retirement account in the same tax year, but are subject to a single IRS elective deferral limit ($18,000 for 2017).
>>Long-term success in the Blended Retirement System is dependent on maximum Thrift Savings Plan contributions and individual participation of retirement savings.
>>Eligibility for DoD matching contributions ends at the end of the 26th year of service.
