Retired Service Members & Veterans: Gain More Confidence and Peace of Mind for Your Financial Future
Returning to civilian life after serving in the military can be a huge transition, to say the least. From adjusting to a new routine and understanding your benefits to navigate the VA and starting a new career, there’s a lot to unpack. At Aviance Capital Partners, our goal is to help retired service members and veterans find confidence in their long-term financial futures. Whether you are newly retired from the military or a veteran who has retired from the workforce completely, here are the top 5 financial tips we suggest for veterans.
1. Understand & Manage Your Cash Flow
No matter where you are in your post-military career, understanding and managing your cash flow is an essential aspect of your long-term financial plan.
Veterans in the Private Workforce
Younger veterans who are transitioning to a private sector job should prioritize budgeting and tracking expenses. Now that you’ve returned to civilian life, there are likely additional expenses to manage that you didn’t have to think about when you were actively serving. As tedious as it may sound, tracking your expenses can be a great way to understand where your money is going every month and find opportunities for financial improvement.
Another important aspect of managing cash flow is to avoid overusing credit. Unfortunately, veterans can be more likely to suffer from credit card debt than their civilian counterparts. But we believe it doesn’t have to be that way. With the right knowledge, veterans don’t have to fall into the trap of credit cards.
Credit is a powerful tool, but if not used wisely, it can derail your finances for years to come. A common guideline is to make sure you only charge what you can afford to pay off every month. Racking up credit card purchases that exceed your monthly cash flow is a quick way to trap yourself with late fees and expensive interest charges. Remember that your credit score can affect your ability to finance large purchases (a house, car, or other major purchase) and it should be protected like actual cash or other assets.
As a retired veteran, the question becomes how much should you expect to receive from your military pension each year. What you can expect from your military retirement benefits depends on when you joined the military. You may be enrolled in one of the following:
- Legacy High-3 (High-36) System: For service members who joined prior to January 1, 2018. This is a defined benefit plan that provides a lifetime monthly annuity after 20 years of service. The monthly benefit you will receive depends on your years of service and it is calculated at 2.5 times your highest 36 months of base pay. With this plan, any TSP contributions you make will not be matched by the government
- Blended Retirement System (BRS): This plan when into effect on January 1, 2018, and it includes matching TSP contributions, retention bonuses, and a monthly lifetime annuity after 20 years of service. This annuity is calculated at 2% per year served.
Once you have an idea of what to expect from your military retirement pay, you can factor in any private sector or individual retirement plans, and Social Security, to better understand your monthly cash flow. At that point, adjustments to your retirement plan may be needed depending on whether you will have a cash flow surplus or shortfall.
2, Consider a TSP Rollover
Veterans can also consider a TSP rollover upon retiring from their military service. Since TSP accounts are similar to the private-sector 401(k), they have the option to be rolled over into a traditional or Roth IRA upon separation from service in the military.
The advantages of a TSP rollover include:
- Full investment control: TSP accounts are limited to a handful of approved investments. IRAs, on the other hand, have a much broader investment selection which could improve your returns over time.
- Portability: IRAs are much more portable than TSPs. If you choose to transfer your IRA to another custodian, you will usually be able to keep your investments. With a TSP, however, the investments are only held within the plan and must be sold and reinvested when rolled over to an IRA.
- Professional management: Rolling over your TSP funds to an IRA will allow you to hire a professional investment advisor to manage the account. There are fees for this service, though, so that will need to be weighed against the potential return.
- Higher expense ratios: TSPs are very low-cost investment options. Transferring your account to an IRA will more than likely result in higher expense ratios, which could impact your long-term returns. There is also no fee to leave your account invested with the government.
- Might have to pay taxes: If you choose to roll over your TSP to a Roth IRA, you will be required to pay tax on any pre-tax contributions and earnings made to your TSP. Depending on your account balance, this could be a huge tax liability that will need to be considered before making the rollover.
- Less creditor protection: Though both IRAs and TSP accounts are protected from creditors on a federal level, TSPs offer unlimited protection while IRAs only have $1.3 million of protection.
Whether you choose to keep your plan invested with the government or roll it over to an IRA, it’s crucial to balance your investment suitability, flexibility, and expense concerns prior to making the switch.
3. Optimize Disability Payments
If you were injured during your time of service, you may be eligible for disability payments. These are tax-free benefits for certain qualifying conditions; in some cases, veterans’ survivors may also receive payments.
There are also special housing grants available to those with service or aging-related disabilities. To find out if you qualify for the Specially Adapted Housing (SAH) or Special Housing Adaptation (SHA) grants, visit the VA’s website here.
Regardless of your situation, we believe that working with a qualified financial professional can help veterans find and optimize the additional tax-free income and other benefits that convey with a disability rating.
4. Assess Your Life Insurance Coverage
As an active duty service member, you could have been enrolled in the Servicemember’s Group Life Insurance program (SGLI). This coverage was probably the most affordable option depending on your income needs and responsibilities in the military. But now that you have retired from active duty, you will have to decide if the Veteran’s Group Life Insurance program (VGLI) still makes sense for your needs.
What many veterans don’t realize is that VGLI coverage is often not the most affordable option now that you’re out of the military, especially as you age. In fact, there are many private providers that offer much higher coverage levels at lower rates. Since VGLI coverage caps out at $400,000, many veterans may find themselves underinsured, especially if they have a mortgage or other personal debts or want to provide education funding for children or other dependents.
You may also consider the Survivor Benefit Plan (SBP), which is an annuity similar to a life insurance policy that provides surviving spouses with a continuous, inflation-adjusted, monthly payment based on a percentage of your retired pay.
There are many factors to consider when choosing the right life insurance for your family’s needs, which is why we believe it’s important to partner with a financial professional who can help you navigate your options.
5. Consider Long-Term Care
It’s estimated that nearly 70% of people who reach the age of 65 will need long-term care at some point in the future. For veterans, this number could be even higher as the demand for long-term services among veterans has increased by 14% in recent years. Because of this, it is crucial that veterans assess their long-term care needs and take advantage of the VA benefits available.
The VA can provide services including:
- 24/7 nursing and medical care
- Physical therapy
- Help with daily tasks
- Comfort care
- Pain management
If you are eligible for assistance, the VA will cover some of these services based on enrollment in the VA health care program.
You may also qualify for VA Aid and Attendance or Housebound benefits which provide additional monthly payments if you need help with daily activities or are housebound. Though the application process can be tedious and time-consuming, it’s worth it to maximize the benefits that are owed to you as a veteran.
At ACP, we can help guide you through this process and ensure that you are not leaving any stone unturned when it comes to optimizing your long-term care benefits.
Take the Next Step
Navigating your finances as a veteran or retired servicemember can be overwhelming to say the least. But we believe it doesn’t have to be that way. At ACP, we strive to walk alongside our clients through every stage in the financial planning process, helping you make well-informed decisions about your cash flow, retirement plan, insurance needs, and more. If you’re ready to take the next step toward a confident financial future, we would love to hear from you! Please click here to schedule an introductory phone call today.
Disclosures: Aviance Capital Partners, LLC (“ACP”) is an SEC registered investment adviser located in Naples, Florida. Registration as an investment adviser is not an endorsement by securities regulators and does not imply that ACP has attained a certain level of skill, training, or ability. While information presented is believed to be factual and up-to-date, ACP does not guarantee its accuracy and it should not be regarded as a complete analysis of the subjects discussed. All expressions of opinion reflect the judgment of ACP as of the date of publication and are subject to change. Not all services will be appropriate or necessary for all clients, and the potential value and benefit of the ACP’s services will vary based upon the client’s individual investment, financial, and tax circumstances. The effectiveness and potential success of a tax strategy, investment strategy, and financial plan depends on a variety of factors, including but not limited to the manner and timing of implementation, coordination with the client and the client’s other engaged professionals, and market conditions. This should not be construed as specific investment, financial planning or tax advice tailored to an individual reader. ACP suggests that readers consult a financial professional, attorney or tax advisory professional about their specific financial, legal or tax situation. Past performance does not guarantee future results. All investment strategies have the potential for profit or loss, and different investments and types of investments involve varying degrees of risk. There can be no assurance that the future performance of any specific investment or investment strategy, including those undertaken or recommended by ACP, will be profitable or equal any historical performance level. Additional information about ACP, including its Form ADV Part 2A describing its services, fees, and applicable conflicts of interest and its Form CRS is available upon request and at https://adviserinfo.sec.gov/firm/summary/146597. For current ACP clients, please advise us promptly in writing, if there are ever any changes in your financial situation or investment objectives, if you wish to impose any reasonable restrictions to our management of your account, or if you have not been receiving at least quarterly account statements from your account custodian.