Financial actions are especially challenging when you leave the military, but fundamentally they consist of three components:
- Budgeting for today
- Saving and investing for tomorrow
- Protecting against unexpected risks
Think of these tasks as three as three legs of a stool: Neglecting any of them will unbalance the stool and topple your financial stability. These components evolve from active-duty service, to transitioning from the military, and finally to retirement.
This article addresses the specific habits needed as military families transition from the service to ensure their continued financial success.
Since you did a good job budgeting on active duty, as you transition you should have at least six to 12 months of income saved up to sustain your family. Even if you find a job quickly, you will face new expenses including healthcare, child care, food, entertainment, and even gym costs that were previously provided or discounted in the military.
As you are transitioning, be sure to request VA compensation if you have a disease or injury incurred or aggravated during active military service. The VA will pay tax-free disability compensation from $133 to $3,447 per month, depending on the severity of your disability and your family size. Veterans Affairs or the Disabled American Veterans can help you get this income, which you deserve.
Saving and investing.
As you transition, continue the good savings program you started in the service, but now focus even more on saving for retirement. While in the service, contributing to the Thrift Savings Plan is a good way to save. Generally, you can’t contribute to TSP after you leave the military, but it is advisable to keep your money growing in TSP because it has the lowest costs of any retirement plan.
As you join a civilian company or start your own business, definitely take advantage of retirement savings through a 401(k) or other retirement accounts. Selecting mutual funds with low cost ratios that coincide with your long term goals is the key to success.
Related: Three ways to better your finances today »
As you transition, you need to replace your life insurance. Within 240 days of leaving the military, SGLI can be converted to Veterans Group Life Insurance, with no medical exam. Since VGLI premiums are substantially higher, if you are in average or better health, you will almost certainly be able to get term life insurance for less money from a nonprofit association, or a commercial life insurance company.
For those retiring, your most valuable benefit is your well-earned military retirement. Retirees participating in the Survivor Benefit Plan deduct 6.5% of their current retired pay so their surviving spouse will receive continued payments of 55% of the retired pay if the retiree dies. Most retirees with a spouse of similar age should consider choosing full SBP to take advantage of the COLA adjustment, government subsidy, tax-advantage, and peace of mind.