Opting to leave the military and return to civilian life is a huge decision that many service members debate for a long time. Once the die is cast, there’s a great deal to think about, from whether or not to retire (if that is an option) to where to live to what kind of job or career to pursue next. This change in life circumstances comes with many emotional transitions as well. Along with all these other choices, of course, there are financial issues to think about, too.
What are the main money concerns and financial changes that transitioning service members will need to keep in mind when leaving their military days behind? Though this is a deep topic with a lot to take in, here’s a look at the basic issues to think about:
Members of the military receive highly favorable tax treatment. For instance, you may be able to maintain residency in a state without income tax while living in a state with it, and much of your income may have been exempt from taxation. This is all going to change when you transition, so it’s very important to be prepared. Retiring service members will want to think about where they plan to live, as different states handle the issue of taxing military retirement income more or less favorably.
While in the military, service members are covered by the excellent SGLI life insurance program. Veterans may choose to convert their SGLI coverage to Veterans Group Life Insurance, or VGLI, within one year and 120 days of leaving the military. However, unless you have a serious health problem and are unlikely to qualify for other coverage, this is probably not the financially sound choice. Purchasing a simple term life insurance plan is likely to protect your family best.
The very valuable TRICARE benefit will typically come to end when you exit the military, so it’s key to have another option set up so that there is no gap in coverage. Transitioning members who are not covered can pay for coverage through the Continued Health Care Benefit Program (similar to COBRA), buy a plan through the Affordable Care Act, or, of course, obtain coverage with their new employer. Those who are officially retiring through the military can purchase coverage through TRICARE Prime.
Most experts advise leaving TSP funds where they are, at least for the short term, and possibly for the long term as well. It’s hard to beat the very low fees offered by this plan. A new employer might offer an appealing 401K or 403B that is worth considering, but look carefully at costs and returns. Also consider IRAs.
If you’ve been waiting patiently (or not so patiently) to finally settle down in your “forever home,” this may be a very exciting moment for you. Don’t forget to take advantage of the generous benefits of the VA loan system.
For some, however, not having access to BAH may come as a bit of a shock. Remember to consider the value of BAH when negotiating civilian salary.
This is the big one, right? (And too big to effectively cover here). The military offers a vast array of support and assistance for departing service members who will need to find new civilian employment. The best advice is to take advantage of this as much as possible, and to network assertively as your time in the service comes to an end.
Although it’s optimal for everyone to maintain an emergency fund to cover 3-6 months of living expenses at all times, the fact is that service members may tend to be less concerned about this due to the general feeling that their jobs are “layoff-proof.” This is certainly less true in the civilian world, so now is definitely the time to make sure that a financial cushion is there. It may also be wise to have a transition fund set up and waiting for you on the “other side” just in case it takes longer to find that perfect civilian job than anticipated.
Transitioning out of the military is a major change, but one that all service members eventually pass through. Planning for the financial changes ahead of time can help this life passage proceed more smoothly.