Transition Finances: A New Beginning

Leaving the military can be a bit scary. Twenty-five years after the fact, I still remember the angst I felt as I prepared to leave the structure the military had provided me and my family over the previous decade.

Sure, I grumbled occasionally. But looking back, there was a lot to be thankful for, especially as it related to my finances. When it came to money and benefits, there was a lot of certainty and very few unknowns. On the other hand, the move to civilian life came with a big fat question mark.

Despite my concerns it -- mostly by accident -- worked out. Looking back with 15 years of experience working with service members and their families under my belt, I want to share five financial realities you should understand as you make your transition more purposeful than mine.

1. Your budget is going to be different. The harsh reality is that lots of people in and out of the military are living paycheck-to-paycheck. The move to civilian life could make things better ... or worse. Different types of compensation, unique benefit packages, more expensive child care and the disappearance of housing and subsistence allowances all could be part of the experience. For me, the sticker shock of civilian health care coverage was the biggest eye-opener.

2. Cash can ease the transition burden. Having enough cash to cover six to 12 months' worth of expenses is ideal. This money could be used to fill the gap if you can't find a job right away. It could give you breathing room to be choosy about where you want to work, but building that type of cash stash won't happen overnight. Realistically, it's something you should start when you first join the military and systematically add to over time. I didn't excel here and was fortunate to move into my first civilian job while I was still using military leave.

3. Taxes are likely going to get uglier. I'm sure somebody has a different story, but combine what could be new state and local taxes with the elimination of a big chunk of tax-free income (housing and subsistence allowances), and the uncomfortable truth is that joining the civilian world will probably make your tax situation more painful. Yes, it's a first-world problem, but I've consistently paid a whole lot more in taxes since I shed the uniform. USAA's Separation Assessment Tool allows you to compare civilian and military income and benefits for cost of living in different locations, as well as the loss of tax advantages offered in the service.

4. You'll have to recreate your benefits package. Depending on when you leave the military, this may be a smaller or bigger task. For example, if you're retiring, you'll have Tricare; if not, you'll enter the civilian health care fray. Depending on your situation, you may have to replace SGLI with life insurance from a commercial company or your new employer. The military's disability system may need to be turned into disability insurance outside of the military. And prices and options will vary from company to company and commercial provider to provider. One imperative: Ensure that all your insurance coverage keeps pace with your new life out of uniform.

5. Joining the Guard or Reserve may make financial sense. Have you thought about continuing to serve in the Guard or Reserve? Beyond the camaraderie and a network of those with familiar backgrounds and experiences, there are substantial financial benefits to continued service.

  • First, you'll have the opportunity to earn monthly income through weekend drills and annual training.
  • On the insurance front, you'll have continued access to SGLI and the opportunity to take advantage of the fantastic value of Tricare Reserve Select. It's hard to find family health coverage for the $218.01 per month this program offers.
  • Finally, each year of service on active duty counts toward your retirement from the Guard or Reserve. Normally available at age 60, this retirement comes with the same health care active-duty retirees receive and a monthly inflation-adjusted stream of income. This was the path I chose and, although I'm not in a hurry to get to age 60 and begin my benefits, it does give me one reason to get excited about aging.

In the end, transition is a beginning and not an end. Spend time mapping out your plans before you launch the next phase of your life.

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