Creating a Financial Plan
Curtis Sheldon had two missions while serving in the U.S. Air Force: protecting his country and planning a smooth transition to civilian life.
Military members face financial planning challenges as they approach retirement. They could be facing major life changes, such as second careers, relocations and changes to their benefits. Certain tax breaks and potentially free housing, for instance, end when service members exit the military, which makes planning ahead key to a successful next stage.
Long before retiring from his 27-year career as a fighter pilot, Sheldon started networking, saving and investing. By the time he retired, he’d earned a master’s degree in financial planning and decided to launch his own financial planning firm.
“This is a time to set yourself up for your ultimate retirement and make sure nothing sneaks up on you,” says Sheldon, a certified financial planner and president of C.L. Sheldon & Co.
Here are four tips to help senior service members fortify their finances.
1. Establish a Transition Fund
“Finding a civilian job takes time,” says Jonathan Wilson, 38, a national accounts manager at Capital Group who served 16 years as a Navy SEAL. “You need a rainy day fund.”
Wilson, who co-founded the SEAL Future Fund, a nonprofit that helps Navy SEALs successfully transition to civilian life, says it can take SEALs about six months to find civilian employment.
A Department of Veterans Affairs study found that 53% of transitioning veterans applied for unemployment benefits and received, on average, 20 weeks of unemployment pay.
“Transitioning service members never have been in the civilian job market, so they learn as they go through it,” says Christopher Plamp, interim CEO of Hire Heroes USA, a nonprofit organization that helps U.S. military members, veterans and military spouses find quality careers in the civilian workforce. “This is a major barrier to employment and can delay getting a job.” A substantial savings account can provide a cushion during that time.
2. Amp Up Retirement Savings
Many in the military look forward to collecting their well-earned pension. Those who serve for 20 years are entitled to pension pay that equals about 50% of their final salary. The payout can be even greater for those who serve longer.
In reality, however, fewer than 20% of service members have careers of more than 20 years, so most are not eligible for a pension. Even those who expect to receive a pension might want to boost their retirement savings to cover their future expenses.
3. Get a Handle on Future Tax Obligations
Tax bills generally increase for military personnel after they retire from service because they lose access to lucrative federal income tax breaks such as tax-free housing allowances.
The state income tax bill could be higher as well. From a tax perspective, active service members remain residents of the states they came from when they enlisted, regardless of where they are stationed. That can be beneficial for those who come from states that have no income tax. However, that special provision to avoid state taxes is not available to civilians.
“Expect total tax bills to be double what you’re paying now,” Sheldon says. “This is the No. 1 pain point that brings people to my office.”
4. Make Sure Loved Ones Are Protected
Those who serve their country need to take care of themselves as well. With planning and discipline, they can look forward to a more secure financial future.
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