Posted by BEST FINANCIAL GROUP LTD

Financial Planning For Veterans

Financial Planning For Veterans

Many financial advisers choose to focus on a demographic group of the population from which they build their clientele. An important group that is often overlooked in the United States military personnel who retires or leaves service. In several cases, these service members have been targeted by predatory creditors and suppliers, who can end up putting them into financial trouble and destroying their credit scores. Even those who oversee their money well are generally not prepared for the financial transition they will face when entering civilian life. 

If you are leaving the military, even if you have an adviser or prefer to do it alone, do not fall into the traps that await those returning to the less organized world outside the services. These tips can help you.


The Three Categories of Veterans who leave the Services

Although there are exceptions, most members who leave the service can probably be divided into three general groups. The first group comprises young enlisted men who joined the military after high school and are now entering civilian life for the first time as adults. Many in this category have never received more than any superficial financial education during their service.

The second group is made up of senior and enlisted officers who leave after a military career. After 20 years of active service, soldiers can retire for life; regulations differ for the Army, the Navy, Air Force, and the Marine Corps.

The third group left by the military comprises disabled service members who receive varying levels of pay based on their disability. This category is known as a disability pension. Payment depends on years of active service and, for children under 20, the disability assessment.


Help for Young Enlistees Returning to Civilian Life

This group tends to accumulate large debts, such as car loans, credit card balances, emergency loans from the army community service department (ACSD), and other consumer loans. Usually, they don't know what their credit scores are or how they will influence them when they start looking for a job, especially one that requires a security clearance. 

Many of the recruits who leave their jobs have no savings and have no idea of their monthly expenses when they return to civilian life. Service members in this category and their advisers should probably focus primarily on learning how to create and maintain a budget, using the GI bill and other veteran benefits wisely. They can speak to local crediting advisory services. 


Survivor's Benefits: Opting Out?

Those who receive a pension will automatically receive the Survivor's Benefit Plan (SBP) if they are married. The rider pays 55% of the deceased veteran's monthly pension to the surviving spouse. However, the rider option reduces the veteran's monthly pension by 6.5%, which can be considered a high cost. It is also counted as taxable income by the IRS and several states.

Also, the longer the veteran lives, the less the surviving spouse will receive. For example, a couple in which the veteran lives up to 85 years of age with a spouse who dies two years later has not benefited greatly from SBP in relation to cost. In most cases, beneficiaries of retirement pensions will be able to ask their spouse to abandon the waiver and use the additional income to buy a life insurance policy. This has many advantages over SBP. 

It will often be cheaper and pay a non-taxable lump-sum death benefit, which will remain constant or increase as long as the policy is in place, depending on the type of coverage chosen.

The best option here is not the same for everyone, and it is an opportunity for consultants to create a comprehensive plan for clients faced with this dilemma to see how different scenarios can unfold. For example, the plan can show what would happen if the couple decided to use SBP, and the veteran dies within five, fifteen or thirty years, and compare it to what would happen if the veteran dies at those times with term or permanent life cover.


Pension Planning

Service members who partook in the thrift savings plan (TSP) are often overlooked in their choices when they leave the service. Many do not realize that transferring their plans to an IRA or the pension plan of the company for which they work in the private sector after leaving the service. 

Veterans who wish to receive a guaranteed income from their plans after they stop working should also understand that the qualified annuity they can buy from the TSP does not offer many of the benefits of modern annuity contracts. Most commercial carriers now offer features such as additional revenue, double payment for managed assistance, or an initial bonus paid into the contract at the time of purchase.

Those receiving retirement pensions may not be able to contribute directly to a Roth IRA because their income is very high when they combine their retirement income with what they are doing now as civilians. Consultants can show you how to use Roth conversion spreads.


Insurance and Other Benefits

Although the salary received by military service members is generally lower than the salary of civilians for equivalent work, the benefits they receive from that service are not as high. This is not always the case in the private sector; therefore, make sure that you are prepared for this change when entering civilian life.

Those receiving retirement pension may deposit a few months of this payment into a savings account to cover all applicable deductibles and other expenses that will not be covered by their new health, dentistry, vision, or disability. Policy advisers must also ensure that veterans fully understand the benefits of the veteran's administration and what they can gain from it, such as VA mortgages.


Tax Planning

Withholding tax can also be an important adjustment in some cases, as most military personnel benefit from one or more tax deductions and basic salaries during service. As with Roth IRA contributions, this problem can be exacerbated by additional income from a pension.



Conclusion

Many veterans who have served our country are unprepared for the economic reality that awaits them after retirement. Some of them need basic financial education, while others face more complex problems. But consultants who take the time to serve them effectively can improve the veteran's financial situation; hence, the need for veterans to consult a financial expert to help with their financial planning.


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