By: Lindsey Davee, AFC®
Military Spouse
As military families prepare for the transition to civilian life, the journey can be both exciting and daunting, as it offers the promise of new opportunities and adventures while simultaneously presenting challenges and uncertainties that require careful navigation. This next chapter in life can create a whirlwind of emotions, where the thrill of embarking on this next step is often accompanied by the stress of adapting to a vastly different lifestyle and the complexities of financial planning.
Each servicemember's path to retirement is unique, shaped by individual experiences and circumstances. For example, my husband served 19 years in law enforcement before joining the military, so our own transition may involve multiple retirement plans. While my husband will enjoy the benefits of two retirements after completing 20 years of service, I anticipate working for an additional five to seven years post-retirement.
Since retirement isn’t always the same for everyone, it’s important to tailor your family’s financial strategies to fit your specific needs.
10 Key Factors to Consider as You and Your Servicemember Prepare for Transition:
1. Start Living on Your Estimated Retirement Income and Create a Budget
Begin adjusting your lifestyle to reflect your anticipated retirement income 18-24 months before your retirement date. Develop a comprehensive budget that outlines your expected monthly expenses and income and aim to live on that budget. Servicemembers can estimate their military retirement pay through their benefits portal or online calculators. You should ensure to factor in the Survivor Benefit Plan deduction. This proactive approach will help identify areas for improvement and clarify necessary adjustments.
2. Evaluate Future Employment Opportunities
Consider the career you or your servicemember will pursue after military life. Research potential job locations, state taxes, and the cost of living in those areas. Many servicemembers and their spouses may be exempt from state income taxes during active duty, but this may change upon retirement. If you've put your career on hold, now is the time to enhance your skills and build your resume through volunteer work or take some courses to build upon.
3. Plan for Healthcare Costs and Insurance Options
While TRICARE covers many healthcare expenses during active duty, some services may not be covered after retirement, such as hearing aids and chiropractic care. Review your current TRICARE benefits and estimate out-of-pocket healthcare costs during retirement. Familiarize yourself with changes to your coverage and investigate other medical insurance options, including dental and vision insurance, to ensure your family's healthcare needs continue to be met.
4. Set Financial Goals
Establish clear financial goals, such as building up your savings, paying off debt, and preparing for the transition to civilian life using tools such as AAFMAA’s Military Transition Timeline. Aim to save at least three to six months of expenses to cushion against potential delays in pay or employment.
5. Identify Income Sources
Explore various income sources that will support your family post-retirement, including:
- Employment opportunities for you or your servicemember
- Military retirement pension
- VA Disability benefits
- Social Security payments, if eligible
- Investment accounts (TSP, 401(k), IRA, etc.) but be sure to check eligibility
- Passive income streams, such as real estate rentals or dividends
6. Consult a Tax Professional
Retirement can mean complex tax implications, especially if you have multiple income sources. Consult a certified tax professional to understand how your tax situation may change in the first year of retirement, including potential state tax benefits related to military pensions.
7. Review Life Insurance Needs
Assess the life insurance needs of both you and your servicemember. Use the L.I.F.E. method to calculate coverage based on liabilities, income needs, final expenses, and future financial goals for dependents.
Liabilities: Debts and obligations +
Income: The amount needed over a specific number of years +
Final Expenses: Costs associated with end-of-life arrangements +
Education and Other Goals: Future financial needs for children or other dependents +
= Total Insurance Needs
8. Compare Costs of Current and Future Locations
If you plan to relocate after retirement, conduct a cost comparison between your current location and your future home to understand how you may need to adjust your budget based on changes in living expenses.
9. Engage in Transition Classes and Briefings
Plan to attend all transition classes, briefings, and appointments along with your servicemember. This shared experience can strengthen your partnership and ensure both of you understand the benefits and resources available.
10. Practice Patience and Manage Stress
The transition to civilian life can be stressful making it essential to be patient and support one another throughout this journey. Open communication and shared goals can help ease any stress and foster a positive outlook for the future.
Preparing for retirement is a multifaceted process that requires careful planning and consideration. By taking proactive steps, military spouses can help ensure a smoother transition to life after the military, and pave the way for a fulfilling and financially secure future. One more way to ensure that is by securing your finances with the right amount of life insurance — including a supplemental term or whole life policy in addition to those you are eligible for based on your military service.
Embracing this transition as a team can strengthen your relationship and provide a solid foundation for the next chapter in your life. Remember, the journey may have its challenges, but with thoughtful planning and open communication, you can navigate this significant life change with confidence, ultimately leading to a successful and rewarding retirement experience.