Whether you’re a military veteran or part of a military family, it is essential that you are aware of important financial concerns that face military service members and their families.
1. Blended Retirement System
A new retirement system for military veterans will go into effect starting January 1, 2018 called the Blended Retirement System (BRS). Instituted under the National Defense Authorization Act. This replaces the prior pension program available through the DoD (Department of Defense).
The new BRS system offers matching funds to up to 5% for service members that enroll and use the Thrift Savings Program (TSP), encouraging you to save money for your future. The TSP program offers both ROTH and traditional savings options. The ROTH version does have more tax benefits as you are taxed the year you make the contributions, but your withdrawals are tax free from the age of 59 1/2 onwards.
This new system benefits a large majority of existing military personnel who will leave prior to the “20 year commitment” period. This will also help them have a retirement savings equivalent to civilian programs.
If you are still serving in the military, it is important that you understand that regular contributions are necessary to have a real retirement fund and to truly benefit from compound interest over time. Taking early withdrawals or failing to contribute can negatively impact your savings.
Two important steps to take here are to contribute the full 5% of your pay into the TSP and enroll in the ROTH version.
2. Returning to the Civilian Workforce
When you leave the military and return to civilian life, you have the ability to increase your income significantly through the next job you take. It is important that you have clear financial goals and a plan in place to achieve these goals. This will help you eliminate debt, buy a house and vehicles as you want to. You also will want to build your emergency savings and begin investing.
3. Housing Plans
Buying a house when you are a service member is typically not the best plan as you may move frequently. This can be hard on your family and also difficult to afford and plan for financially. In most cases, military personnel are stationed in an area for two to three years. During this period, they do not really build up equity in any homes they purchase and can face financial losses when they attempt to sell or even just rent their homes. Another mistake that new homeowners who are military personnel often can make is to take out the full VA loan available to them for the entire cost of the house. This may seem appealing initially but can result in heavy interest over time for a house that you often can’t wait to be rid of when you move!
The best time to buy a house is typically during your last military assignment when you know you can stay in a certain area for a long period of time. It is perfectly fine to wait till then or after and to continue to live on the military base, avoiding the stresses and possible financial loss that can come from premature home ownership.
4. Stress Living Overseas
Military personnel who are stationed overseas, usually face a lot of additional pressure due to the financial and emotional stress their spouses and families may have back home without them. Whether you are a service member heading overseas for the first time or you’re the family member left behind, it is essential that you discuss these concerns and come up with a plan and list of resources to help you cope with emergencies, unexpected delays and pressures as well as daily events. Creating and sticking to a budget plays a big role in your level of stress.
5. Be Careful What Debt You Take On
While having access to immediate cash is always appealing, borrowing through a loan must be a decision you think through very carefully. Far too many military service members fall prey to predatory loans offered by businesses with very aggressive fees. Payday loans are an example of this. Avoid these kinds of loans. Aim to be debt-free as much as you can within reason.
Each service member faces unique challenges and opportunities. Armed with this knowledge and through careful preparation, you can take better care of your finances and thus, your life and your loved ones!