Mostly of our financial advisors focus on the civilian population in which they often build their business sector. They often fail to notice the members of the U.S. military who retires from the service. More often, U.S. retiree are often targeted by predatory lenders who manage to put them in great debt and ruin their credit scores. They will often have a hard time for financial transition when they enter the civilian life.
You must plan and spend your money wisely and do not let into the traps of spending unnecessary things just because those things are not in the military.
There are three categories of departing service members:
- The first group are junior enlisteds who joined the military after high school and are just now entering civilian life for the first time as adults. Most of those in this category do not have a proper learnings about financial management while they were in the military.
- The second group are officers and senior enlisted personnel who are leaving after a career in the military. After 20 years of active duty, members of the military can retire with a lifetime pension; regulations differ for the Army and Air Force, and the Navy and Marine Corps.
- The third group leaving the military are disabled service members, who receive various levels of payment depending on their disability. This category is known as disability retirement. Receiving it depends on the service member’s years of active service and, for those with less than 20 years, their disability rating.
For Junior Enlisteds, this group has often have many debt, such as credit card balances, emergency relief loans and et cetera. They often not aware of their credit score and how it can affect when they begin looking for a job that requires a security clearance.
There are enlistees left in the service without any savings and have a little thought on their monthly living expenses outside the military. They often have a hard time to return to civilian life. The enlistees should focus on how to create and maintain a budget, use their GI Bill and other Veteran’s benefits wisely. Perhaps, they have a local credit counselling if necessary.
For Senior enlisted personnel, there are also who struggle financially due to divorce or financial mismanagement. Those who receive a retirement pension will automatically have Survivor Benefit Rider (SBP) if they are married. This will reduce the amount of their monthly pension 6.5%. Their spouse will receive 55% of the amount that the veterans previously received each month. This rider is expensive for high ranking officers and also considered taxable income by the IRS and many states.
Retirement planning for service members who have participated in the Thrift Savings Plan (TSP) are often unaware of what their options are once they separate from service, and many don’t realize that there can be advantages to rolling their plans over into an IRA or the retirement plan of the company they go to work for in the private sector after they leave.
Although many vets want to take a stream of income from their plans after they stop working, the military has only recently begun to explain the advantages of strategies such as stretch IRAs and Roth conversions to those to whom it applies.
Those who receive retirement pensions may also find themselves unable to make direct contributions to a Roth IRA because their incomes are too high when they combine their retirement income with what they now make as civilians.
Advisers need to show them how to use the Roth conversion to make Roth contributions by opening traditional IRAs and making nondeductible contributions, then converting them to Roth IRAs. Note that if the retiree goes to work for a company that offers a Roth 401(k), that money can also be convert to a Roth IRA at retirement
Many veterans who have served our country are not prepared for the economic reality that await them after they retire. Some of them need education in basic finance, while others face more complex issue. But advisor who take the time to service them effectively can count on having them as clients for a long time to come.