When it comes time to make the transition to civilian life, it may feel uncomfortable at first. However, the right support and the right resources can make a big difference in helping you become financially secure and personally fulfilled as you move into the next phase of your life.
In this three-part series, we’ve been exploring some of the steps you can take to make your transition to civilian life as smooth as possible. First, we discussed the importance of planning ahead and finding support programs. In the second post, we focused on networking tips, the importance of mentorship, and the benefits of the GI Bill for skills acquisition.
In this third and final part of the series, we’ll look at the financial planning considerations to keep in mind.
One of the major differences you’re likely to encounter when making the transition to civilian life is taxes. Service members receive several types of tax benefits -- like the tax-exempt basic allowance for housing. Also, those who receive deployment pay in combat zones don’t have that income taxed federally. And many states don’t tax service members’ income and in some cases exempt them from personal property taxes.
As a civilian, that all changes. You can expect to pay income tax unless you live in one of the following states:
- New Hampshire
- South Dakota
With this in mind, it’s important to re-evaluate what your future finances will look like. Be sure to plan ahead and adjust your budget accordingly in order to avoid any surprises.
Saving for retirement looks a lot different when you’re living civilian life. When you leave active duty, you won’t be contributing to your military retirement account anymore. That means you’ll have to decide what to do with the funds you’ve already saved as well as make a plan for your savings moving forward.
Many employers offer 401(k) or 403(b) retirement plans for their employees, and some may even match up to a certain percentage of your contribution. When you start your new career, be sure to inquire about the types of retirement plans available to you.
You can also open an individual retirement account -- either a Roth IRA or a traditional IRA. The difference is that you contribute to Roth IRAs with post-tax dollars, while traditional IRAs are contributed to with pre-tax dollars.
When it comes to the money you already have saved for retirement, your best option will depend on your individual situation. Whether you are part of the military’s legacy pension plan or the Blended Retirement System, be sure to review your benefits in order to make the right decision regarding your retirement savings. As you determine your goals for the amount of monthly income you have once you hit retirement, don’t forget to include all sources of income you have access to from both from your military career and your post-military career.
Having health insurance is vital, as it can protect you from a financial disaster in the event of a medical emergency. And while it may feel like life as a civilian is going to be more expensive, health insurance is something you and your family simply shouldn’t go without.
If you are transitioning to civilian life after 20 years of active duty, you’re eligible for health insurance through Tricare. Veteran Affairs health care coverage also may be available to you based on any conditions associated with your service.
If you don’t qualify for either of these options, consider health insurance plans outside of the military. It may come from a new job, a plan through the Healthcare Marketplace (part of the Affordable Care Act), or even a private plan.
In the meantime, while you figure out your next move regarding health insurance, there are programs that can help you extend your military insurance for certain periods of time. The Continued Health Care Benefit Program can extend your coverage for 18 to 36 months.
CHCBP is open to anyone who is leaving Tricare, including military members and their families, children who lose age eligibility for Tricare, and divorced spouses. Remember -- you’ll have to pay health care premiums in order to continue your coverage with CHCBP.
Housing and all the costs associated with housing can be a big culture shock when making the move to civilian life. But there are options available for service members and veterans that can make it easier to buy a home -- such as a VA Loan.
The United States Department of Veterans Affairs offers benefits to eligible veterans and active service members, making a VA home loan a great option for purchasing or refinancing an existing mortgage. Because the VA insures up to 25% of a VA loan, lenders are able to offer favorable benefits and loan terms to borrowers who qualify for the program. These benefits include:
- No down payment
- No mortgage insurance premiums to pay*
- Flexible credit standards
- Negotiable interest rates
- Options available to tailor your mortgage to your unique situation
- No penalty to pre-pay or to refinance your VA home loan at any time
- An assumable mortgage
*VA Funding fee applies. Subject to credit approval.
Learn more about VA Loans and how they can help you and your family in your transition to civilian life.
We Understand Service Members and Their Families
At Armed Forces Bank, we understand the unique needs and challenges of military families.
No matter where you are in the world or in what stage of your career, we aim to make everything -- from banking solutions to financial advice- - personal, valuable, and convenient for you.