By Rear Admiral Brian Luther
Transitioning from military service to civilian life, subsequently followed by retirement, requires the same level of planning as any mission, flight or operation conducted while on active duty. Many service members suffer avoidable mistakes that needlessly jeopardize their future due to a lack of planning or situational awareness of benefits earned, change in pay status or laws that are applied since they’re no longer on active duty. The following is an eight-point checklist to help military personnel and veterans avoid financial planning mistakes for a smoother and more successful transition.
1. Fail to Plan, Plan to Fail
Delaying transition planning is like setting sail without a chart. You will be on a journey without ever being sure of the destination. The sooner you chart that course, the quicker you will reap the most significant benefit of planning: Time. That concept allows both savings and investments to grow, which will do so exponentially larger and faster with the benefit of compound interest. Procrastination will also stunt your retirement nest egg, jeopardize your financial security and can let small problems fester and grow into large ones. Just as a well-prepared captain ensures a safe voyage, your financial journey starts with foresight and proactive planning.
2. Cover your Blind Spots
Failing to grasp and utilize the full range of benefits offered by the Department of Veterans Affairs (VA) and other military programs is an easy mistake one can avoid. Pensions, healthcare and educational assistance are part of a key recipe to a secure future. Overlooking programs like those can often leads to unnecessary financial strain. “Service beyond self” means ensuring you and your family make the most of available resources, much like how service members like me ensured every Sailor knew the full capabilities of our ship before embarking on a mission.
The military member should conduct the proper “mission preparation” before engaging the services of a company or advisor. Not every company that offers military specials has service members’ best interests in mind.
3. Don’t Forego Free Money
Underfunding the Thrift Savings Plan (TSP) and not capturing the full government match is a common mistake. Many service members miss this “free money” by not maximizing government matching contributions. TSP has very low costs, which allows more of your invested money to work for you — and has a family of funds and target date funds. This allows each individual to diversify investments and avoid concentration risk. I encourage service members to be financially empowered by making the most of this valuable benefit. Think of it as ensuring the vessel is fully supplied and ready for any journey.
4. Hidden Cost of Healthcare
According to the Bureau of Labor Statistics, the average retiree spends around 20% of their income on medical costs. This can be an unpleasant surprise for a military family that has enjoyed the extraordinarily low TRICARE premiums. Overlooking planning for these costs, or not maximizing available TRICARE and VA healthcare benefits, can lead to financial hardship. Many underestimate their needs and end up with inadequate coverage. It is important to understand these costs and plan accordingly based on the circumstances. Not doing so is similar to a captain not preparing for the potential of a significant storm at sea.
5. Emergency Fund Evasion
Employment and pay is transparent and predictable while in the military. Additionally, a member can bank months of leave, which acts as a de facto emergency fund. Those benefits expire after leaving the military, which creates the potential of putting the service member at the risk of an unexpected expense. That is, until they build up an emergency fund. To some, it does not make sense to fund a safety net when they have never experienced a funding emergency. It is important to prepare in advance for future events. As the proverb says, “The best time to dig a well is before you get thirsty.”
Funding an emergency fund does not have to break the bank, either. In the beginning, the frequency of saving is more important than the amount. Once you have mastered the art of saving, the amounts will grow with your pay and you will be amazed at how fast savings can grow.
6. Life Insurance Limbo
Service members’ Group Life Insurance (SGLI) is a great benefit, if you are part of the group. As previously mentioned, it is important to plan in advance of future events. SGLI allows service members to not think about insurance until they leave the service. Life Insurance is an age- and health-based product. The longer you wait to purchase it, the more expensive it will be — assuming you are healthy enough to get coverage. Without evaluating your evolving needs, you can leave your loved ones financially vulnerable. Policies offering long-term care benefits or accelerated death benefits can also address the issue of future healthcare costs. After all, ensuring the everlasting welfare of your family is the ultimate goal of your financial plan.
7. Post-Military Career Conundrum
Retirement is a significant accomplishment, and, like professional athletes, it can be challenging for service members who have defined themselves by their career to transition into something else. However, ending military service doesn’t have to be the end of the professional journey. As the Roman philosopher, Senaca, wrote, “Every new beginning comes from some other beginning’s end.” Retirement is simply the beginning of an exciting new phase of life with an opportunity to face new challenges and make positive impacts in the civilian world.
Unfortunately, many service members don’t plan proactively for a second career, missing out on opportunities to maximize their earning potential, achieve further personal growth and cultivate greatness in others. A well-crafted career plan can provide both financial stability and personal fulfillment. Continuous growth doesn’t end with retirement. It’s a lifelong journey, constantly navigating new waters.
8. Community Castaway
When retirees and veterans are asked what they miss most about their service, one of the most common responses is, “The people.” But, that does not have to be the case. Isolating from veteran organizations and support networks is a mistake that leaves service members without valuable resources and guidance. Engaging with these communities provides support and enhances the transition to civilian life. The principle of “service beyond self” emphasizes the importance of community and mutual support.
Retirement planning for military service members involves nuanced considerations and opportunities. Taking steps to proactively maximize available resources, and seeing it as a new mission focused on all there is to gain, rather than what is lost, can ensure a more secure and fulfilling retirement. Planning is not a one-time thing, but rather an ongoing discipline; a checklist that needs to be constantly revisited with regular reviews and adjustments.
In these ways, active duty military personnel and veterans can avoid common financial planning mishaps and foster a more fiscally fruitful civilian life.
