For the 250,000 soldiers, sailors, airmen and Marines who leave the military every year, the move represents a beginning, not an end.
I left active duty back in the ’90s. With a little planning and a lot of good fortune, I barely skipped a beat. But after counseling countless others through the process, I know there’s work to be done. If you’ve also made the transition, I urge you to add your insights to my points below and share them with those still in uniform. If you’re still serving, know this: the same type of planning and attention to detail that is a hallmark of military operations can serve you well in your transition from the military.
When it comes to personal finances, here are your marching orders:
Build a cash stash. It cannot be overstated how important cash is during a transition out of the military. So start building a transition fund early – way early. My son will be joining the Army when he graduates from high school (I pushed for the Air Force, but apparently the apple doesn’t fall far from the tree). We’ve already discussed him setting up a savings account called “Getting Out,” so he can start putting back a little each paycheck for the inevitable transition to the college campus or civilian workforce.
Your goal should be to have six to 12 months’ worth of expenses in a separate savings account. Yes, that’s a lot, but it’s important. It will fill the gap if you can’t find a civilian job right away and allow you to be more selective in choosing the job you want. You will also avoid debt as you get outfitted for the job search and encounter the other inevitable expenses that come with this significant life change. Finally, it can supplement Post-9/11 GI Bill benefits for those going back to school. In the end, such preparations will pay off in any circumstances.
Account for expense differences. If ever there was a time to map out a clear plan for income and expenses, it’s when you’re planning to leave the military, because a lot will be changing. For starters, you’ll lose your tax-free housing allowance (or free housing), subsistence allowance and inexpensive or no-cost life and health insurance. And that’s just the tip of the iceberg.
So figure out in detail what you’ll need to get by each month, being mindful to adjust expenditures for where you’ll be living. Then, as a means to build up cash and condition yourself to live on less, try cutting back your lifestyle long before your military paycheck stops coming.
Transition your benefits. I still recall the angst I felt stepping out from under Uncle Sam’s protective shadow. Replacing, recreating or improving on the array of benefits you enjoy while serving can be a bit scary. Let’s look at two key areas:
- Health insurance. The first step is to understand any transitional benefits that may be available to you. The Transitional Assistance Management Program provides 180 days of free TRICARE to some who separate. The Continued Health Care Benefit Program provides transitional coverage, but you have to pay for it. In 2015, the program costs $1,275 a quarter for individuals and $2,868 for families – definitely a big piece to include in your transitional budget. You could choose to use VA for health care. Generally VA will only provide care for the servicemember, but enrolling allows you to meet the health-care law’s coverage requirement. To take advantage of VA benefits, you must apply. For five years following separation, combat veterans can receive enhanced eligibility and care for conditions related to their in-theater service. Beyond that, you will need to evaluate and access health care through your new employer or the marketplace.
- Life insurance. Most will leave the military with $400,000 of Servicemembers’ Group Life Insurance (SGLI) life insurance; that coverage ends 120 days after separation. The Veterans’ Group Life Insurance (VGLI) program allows servicemembers to replace SGLI with more expensive group term coverage. The key advantage of VGLI is that the coverage can be obtained within 240 days of separation with no medical questions. But since VGLI premiums increase as you age, a civilian replacement may be more cost-effective. The key is to not forget to assess your needs for life insurance during the transition. Make sure not to leave those who depend on you in a lurch.
Consider the Guard or reserve. This particular point is special to me. At my dad’s urging, I joined the reserves after six years on active duty. For me, it was all about staying connected to my military roots while making a few extra bucks. But beyond that, today the benefits include affordable health care through TRICARE Reserve Select (roughly $50 monthly for an individual or $205 monthly for a family), the potential for a military retirement check at 60 and continued participation in the Thrift Savings Plan.
Use available resources. Though it’s not something that comes naturally to many in the military, don’t be afraid to ask for help setting up your transition. The military’s own transition program, Transition GPS, is a great place to start.
In addition, The American Legion is rolling out a host of new resources and programs. It has always been a superb resource for helping veterans tap into VA benefits. And at USAA, we’ve built an entire organization to help you with the process. Check out our website, www.usaa.com, for checklists, information and calculators to help you with the move to civilian life.
Transitioning out of the military is an exciting time. While I’ve touched on a few of the key financial considerations, there are obviously a lot more on your plate. Take the same approach that’s worked for you in the military to help smooth the move: plan and prepare.
J.J. Montanaro is a certified financial planner with USAA Financial Planning Services, one of the USAA family of companies. USAA is The American Legion’s preferred provider of financial services.