Being a military spouse is like learning a foreign language. You learn to navigate a world full of acronyms and complexities unique to the job. Learning how to translate these into civilian life can pose many challenges. Now that I am in a financial advising role, I have started reflecting on the challenges we have faced as both active duty and during my husband’s transition into military retirement.
Life stages such as the birth of a child, buying a home, financing college education, retirement, caring for aging parents, and more, have an impact on your finances. Military or not, navigating through life stages and understanding your finances and the impact of the choices you make on your long-term goals is complex. For military families there is an added layer of complexity—an element of “you don’t know what you don’t know.”
As the spouse of a retired soldier, who has worked full time during times of deployments, geographic separations, parenthood, home ownership and higher education, in my experience there are a few areas in which careful planning and preparation are essential to financial success.
No one wants to pay more taxes than necessary, therefore understanding income brackets and opportunities for pre-tax retirement savings and other tax savings vehicles is important. Why pay more in taxes when you can apply your earnings to your future retirement savings?
For active-duty military, there are many oddities related to income, property, and sales tax for active service members that don’t apply to civilians. The rules are different for the service member vs. spouse related to income tax and depending upon the state where you are stationed. Having a CERTIFIED FINANCIAL PLANNER™ professional or a financial advisor who understands these unique situations is important for receiving good advice and developing a plan that aligns with your goals.
Home ownership has many advantages, but length of ownership can affect your taxes, and the various types of mortgage-financing options and rates have an impact on your short- and long-term financial goals. Getting advice about the right mortgage-financing option and understanding the rates and loan term and how they impact your savings are important.
For military, The VA home loan program was designed to help military service members and veterans to purchase homes without having to save for large down payments and cash for closing costs. The program also guarantees loans that would otherwise be difficult to get in the private lending market.
However, while living off-post is appealing, home ownership (and a VA mortgage) is not always the best option. If you are buying a home in a military community such as Manhattan, KS, all the benefits of being a VA buyer will then become your obligation as the seller to the VA borrower who comes after you. You may find yourself in a situation where you can’t afford to sell, and must rent your home after you PCS, thereby becoming an absentee landlord with considerably less housing flexibility at your next location. Financial planning, which is more comprehensive than calculating the mortgage you will qualify for, can help you make the housing decision that is best for your family.
Considering both your short- and long-term financial goals, including when you want to stop working and enjoy retirement, will help guide your decisions about current spending and savings. Most employers, including the government, offer retirement savings or pension programs. Understanding how the programs work; how contributions by you and your employer now provide for your future income in retirement; and how you can lessen the taxes you pay now by contributing toward a retirement savings account, are important to ensure you are getting the most out of your employer’s benefit plan.
With the military, various retirement savings programs are offered that are unique to federal government employees. These include the Thrift Savings and Savings Deposit Programs, not to mention a military pension. When a service member “retires” and embarks on a post-military career, there is often enough time to vest in another pension and participate in a qualified retirement account. Working military spouses also can participate in retirement plans through their employer, such as a 401(k).
It is important to diversify allocations and respective risk in all your investments and qualified retirement accounts, to effectively manage risk and return. Otherwise, you could be jeopardizing your savings with an over-aggressive equity exposure, which could result in severe losses. Or you could miss out on opportunities for growth with a too-conservative approach, which would result in not meeting your retirement goals by the time you hope to retire or not having enough money to live on in retirement. A wealth advisor can help you understand your different accounts, how they can be used for short-term and long-term financial goals, and help you optimize your investment strategy.
Having health care coverage is a top priority for most Americans and nearly 90% are insured. The absence of health care coverage poses a big financial risk for individuals, but also to companies if they do not have well employees. As individuals near retirement, they must begin exploring new healthcare options beyond their employer plans. At age 65, you must begin navigating an entirely new system of healthcare—Medicare.
Military health care, Tricare, is a great benefit of service – in most cases all medical expenses are covered at no charge when active-duty. However, dental care and vision correction are not generally covered under Tricare. This is where the spouse’s employment can be a real asset to the family, in that secondary insurance provided by the employer can cover these health care needs. Tricare is offered to retirees with premiums and copays, but with various coverage options and costs.
Navigating post-retirement healthcare options is something a financial planner can help guide you through. They can assist by understanding your needs and help you to minimize your costs while ensuring you are protected.
Estate planning is important for everyone. Estate planning determines and documents who will receive your assets and who will make decisions for you both before and after death. It documents who will make health care or financial decisions should you become disabled and unable to do so. It also appoints executors, agents, guardians, conservators and trustees to handle your affairs and care for minor children or disabled family members. And, perhaps most importantly, estate planning determines your beneficiaries and how they will be selected.
Estate planning can be a simple, fill-in-the-blank, process for some. However, as people accumulate assets, own property, have children or special circumstances (dependency, special needs family members, are remarried, etc.), the estate planning process is no longer cut-and-dried—there are a lot of “what ifs” that should be explored and properly documented within a will or trust and assets deeded appropriately.
Military members are provided access to estate planning services through the Judge Advocate General (JAG) office, which mostly includes preparation of straightforward legal documents. JAG lawyers have limited time and resources and may not be able to recommend solutions for more complex situations, such as trusts, or research the tax implications of how you plan to distribute your assets. Additionally, military families must determine whether to enroll in the Survivor’s Benefit Program, or if it makes more financial sense to rely on life insurance coverage.
Whether civilian or military, it is important to understand the implications of your decisions, the costs of insurance premiums and the actual income guaranteed, and how these decisions can affect Social Security benefits for a surviving spouse. A thoughtful determination is based on many factors, and without an adequate understanding of a family’s unique situation, a wrong (and costly) decision could be made.
The Trust Company specializes in all aspects of the financial planning processes outlined above. Our business is helping others understand how to navigate these areas of financial decision-making. By having employees who come from various backgrounds, including a military spouse like me, we are able to better advise clients on unique and complex situations that might affect them. We would enjoy exploring your situation to give you the best advice for your unique needs. Contact us at (800) 285-7878.
Our advisors are passionate about helping people achieve financial peace of mind. Contact us today to get the conversation started.
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