A financial plan is important for every military service member and family. Their unique lifestyle requires planning for various moves around the country, perhaps moving to another country, providing for a family while on deployment, or transitioning from military life to civilian life. It’s important to take the time to understand each military member’s unique situation in order to help them best control it.
Think about insurance. First and foremost, veterans will lose their SGLI (Servicemembers Group Life Insurance) coverage when they transition out of the military. VGLI (Veterans Group Life Insurance) is a good alternative, but for a lot of service member companies such as AAFMAA (American Armed Forces Mutual Aid Association), Northwestern Mutual, USAA (United Services Automobile Association), Navy Mutual Aid and others can offer better policies. Life insurance helps protect assets and family in the event anything should happen. It is also critical to consider the impact on a military member’s spouse should something happen to the military member. How will it change their life? What additional expenses will they now have to meet? This is why it is so important to have enough life insurance coverage for one’s spouse to handle the unforeseen changes and loss of life.
Financial planners should be sure to shop around for the right home and auto insurance policies for their military clients as well. Many people have been with an insurance company for a long time and might be paying too much for their insurance policies without realizing it. Every few years, take the time to shop around and consider other quotes.
The retirement pension is one great benefit from military service. However, retired pay will stop on the service member’s death, unless that individual participates in the Survivor Benefit Plan (SBP). Retirees participating in the SBP pay 6.5 percent of their current retired pay so their surviving spouse will receive continued payments at 55 percent of the full retirement benefit when the retiree dies. Most retirees should consider choosing full SBP to take advantage of the COLA (cost of living) adjustment, government subsidy, tax advantage and peace of mind.
Additional retirement funds can be accumulated through contributions to the Thrift Savings Plan (TSP). The TSP is currently changing to include a match percentage from the government. Military members may not be able to contribute to the TSP after they leave the military, but it is usually advisable to keep their savings in the plan because of its low costs. However, many service members continue working once they transition back into civilian life, resulting in a sequential retirement. Not only will they have money in their TSP, but if available, can take advantage of a 401(k) option and consider additional retirement accounts such as a Roth or traditional IRA.
Managing a military member’s financial landscape can become very complicated. Handling the many different aspects, including a military pension, TSP and other retirement accounts as well as insurance policies and wills, requires a unique approach and execution.
Ross Cutler, CFP® is a Senior Relationship Manager with AAFMAA Wealth Management & Trust.