Financial Planning Tips for Military Service Members
Leisl L. Cording, CFP®
Senior Vice President & Financial Advisor
If you’re a member of the military, you know what it’s like to be tasked with the burdens of protecting our country. But you also need to be aware of how your military service impacts your personal finances.
Just as the success of a military mission is dependent upon proper planning, reaching the goals you have for yourself and your family is dependent upon creating a sound financial plan.
Service members have sources of income and savings options that aren't available to civilians. Understanding these benefits and taking advantage of them could help you achieve your financial goals more quickly, relieving some extra stress and allowing you greater focus on the demands of your military service.
Establish a budget, and understand what portion of your military income is taxable.
Start by adding up all your income. A servicemember's income can come in several forms of monetary and non-monetary compensation. In addition, some forms of income are taxable while other types of income are nontaxable. Taxable basic pay varies with rank and time of service, so changes in base pay should be factored into your budget.
Several forms of military compensation are nontaxable, such as Basic Allowance for Subsistence, Basic Allowance for Housing, uniform and clothing allowance, hostile fire pay, basic pay and occupational incentive pay during periods of deployment to a hostile theater, and family separation allowance. In addition to your military income, be sure to include other types of income, such as dividends, interest, a spouse's civilian pay, and child support.
Next, add up all your expenses. It helps to divide them into two categories: fixed expenses, such as housing, food, clothing, and transportation, and discretionary expenses, such as entertainment, vacations, and hobbies. Once you've added up all your income and expenses, compare the two totals. If you nd yourself spending more than you earn, you'll need to make some adjustments. Look at your expenses closely and cut down on your discretionary spending.
Build an emergency fund.
Having a cash reserve or emergency fund may help you avoid taking on additional debt when the unexpected occurs. In general, an emergency cash reserve should equal three to six months of ordinary living expenses.
Build savings for short- and long-term goals, and see if you qualify for the Savings Deposit Program (SDP).
The savings vehicles you use should depend on your time horizon and risk tolerance. Generally, the longer the time horizon, the more risk you may be able to assume. Bank savings options include savings accounts, money market accounts, and certificates of deposit. These are typically more stable choices with the lower risk. Other alternatives include investments that can go up or down in value and may or may not pay interest or dividends. Before investing, carefully consider its investment objectives, risks, charges, and fees, which can be found in the prospectus available from the fund. Read the prospectus carefully before investing.
If you're deployed in a designated combat zone or in support of a contingency operation, you have a unique chance to earn a high-interest rate by participating in the Defense Department's Savings Deposit Program (SDP). The SDP pays 10% annual interest on account balances up to $10,000. Contact your local military office for more details.
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Build savings for retirement beyond your military pension, through the Thrift Savings Plan (TSP).
Even if you expect to qualify for a military pension, it probably won't provide all of the retirement income you'll need. A retirement savings option available to members of the military is the Thrift Savings Plan (TSP). The TSP is like the government's version of the private-sector 401(k) plan.
Your contributions are deducted directly from your paycheck before taxes (which can lower your current taxable income), but there are limits on how much you can contribute each year. Your contributions and earnings accumulate tax deferred until withdrawn, at which time you'll generally pay income taxes on the amount you take out. You can also contribute after-tax dollars to a Roth TSP account, from which qualified withdrawals are generally received tax free.
Safeguard with insurance, taking advantage of Servicemembers' Group Life Insurance (SGLI) and TRICARE benefits.
Insurance programs are often a vital part of a sound financial plan. Life insurance provides financial protection for your family and loved ones. Servicemembers' Group Life Insurance (SGLI) is part of a servicemember's benet package. Basic SGLI coverage is provided automatically when you join the military (although you can opt out or elect lesser coverage amounts), and premium costs are deducted from your pay.
Active-duty servicemembers, retired servicemembers, their qualified family members, and certain survivors may receive health-care coverage through TRICARE, the medical program for the U.S. military. Depending on your status, the availability of medical care at military facilities, and the TRICARE option you choose, you may receive care either through military or civilian providers.
Take advantage of military-provided financial resources and professional financial advising to create the strongest financial plan possible.
Service branches offer campaigns and educational programs to servicemembers and their families. The Air Force, Navy, and Army each require that respective members receive financial education, training, and counseling. Also, the Department of Defense established MilitarySaves.org to help service members and their families plan for their financial futures.
A trusted financial adviser can also provide specialized expertise to help ensure your finances and investments are set up for the best possible outcome. At Weiss, Hale & Zahansky Strategic Wealth Advisors, we’re proud to apply our strategic Plan Well, Invest Well, Live WellTM process to help military service members achieve their financial life goals.
Presented by Vice President, Associate Financial Advisor Leisl L. Cording, CFP®. Securities and advisory services offered through Commonwealth Financial Network®, Member FINRA/SIPC, a Registered Investment Adviser. These materials are general in nature and do not address your specific situation. For your specific investment needs, please discuss your individual circumstances with your representative. Weiss, Hale & Zahansky Strategic Wealth Advisors does not provide tax or legal advice, and nothing in the accompanying pages should be construed as specific tax or legal advice. 697 Pomfret Street, Pomfret Center, CT 06259, 860-928-2341. http://www.whzwealth.com (http://www.whzwealth.com). © 2021 Commonwealth Financial Network®