Financial Planning for Military Families
Handling the different aspects of a military family’s finances requires a unique approach and execution.
A financial plan is particularly important for every military service member and their family. The unique lifestyle of servicemen and women requires planning for various moves around the country, perhaps moving to another country, providing for a family while on deployment, or transitioning from military life to civilian life. It’s important for a military family to bring the same kind of discipline they’ve brought to their service to their country to the planning of their family’s financial life.
Members of the military are offered Servicemembers Group Life Insurance (SGLI) coverage while they’re in the service, but they lose that coverage when they transition out of the military. Veterans’ Group Life Insurance (VGLI) is a program that allows veterans to continue life insurance coverage after separating from service. VGLI provides lifetime coverage with no health requirements that’s equal to the amount of SGLI coverage the service member had before leaving the military.
Once enrolled in VGLI there is the opportunity to increase coverage by $25,000 every five years up to the legislated maximum of $400,000. However, considering the rule of thumb that an insured should be covered for at least 10 times annual income, those VGLI coverage limitations may not be adequate, and there may also be better, less expensive alternatives.
Future Financial Security
The retirement pension is one great benefit offered to military service members. However, retired pay will stop on the service member’s death, unless that individual participates in the Survivor Benefit Plan (SBP). Retirees participating in the SBP pay 6.5% of their current retired pay themselves so that upon death their surviving spouse will receive continued payments of 55% of the full retirement benefit. Most retirees should consider choosing full SBP to take advantage of the COLA (cost of living) adjustment, government subsidy, tax advantage and peace of mind. Even with all this available, it may not be enough to fully fund an adequate retirement.
Additional retirement funds can be accumulated through contributions to the Thrift Savings Plan (TSP). The TSP is currently changing to include a match percentage from the government. However, military members may not be able to contribute to the TSP after they leave the military and many service members continue working once they transition back into civilian life, resulting in the need for looking at other retirement savings options. Financial planning can look ahead and determine which of those options, or even what mix of them, might work best.
Managing the financial landscape of being a service member or military veteran can be complicated. Handling the many different aspects, including a military pension, TSP and other retirement accounts as well as insurance policies and estate planning considerations requires a unique approach in partnership with a trusted fiduciary adviser for assurance of proper and thorough execution.