We all know the popular military saying, “Hurry up and wait.” It applies perfectly to the years leading up to retirement. You know you should be doing something, but it seems like you need to wait until closer to the actual time.
What can you do in the two to three years leading up to military retirement? Here are the top three things you should start a few years in advance.
1) Assess your life insurance needs.
Servicemembers Group Life Insurance (SGLI) provides up to $500,000 of coverage to active duty service members, and Family Servicemembers Group Life Insurance (FSGLI) covers military spouses for up to $100,000. That coverage expires 120 days after retirement. Most families still need some life insurance coverage after retirement. The process of obtaining insurance can be slow, and you want to get replacement coverage in place before you start making other financial decisions during retirement.
Not sure how much life insurance you need? I recommend the life insurance needs calculator at the Department of Veterans Affairs website. It allows you to enter your expenses, liabilities, income, and assets to assess the life insurance needs for each adult family member.
While you're at the VA website, learn about VGLI and the SGLI conversion options. These may not be your best options, but you should know about them in case you are in a situation where they make sense.
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2) Start learning about the Survivor Benefit Plan.
You will have to make a decision about the military’s Survivor Benefit Plan (SBP) at retirement.
This may be the largest financial decision that a military retiree’s family makes in their life, and it can be hard. In my experience, the people who are the happiest with their SBP decision are the people who started learning about SBP early and took the time to really understand the nuances of the program. The basic SBP program is simple, but there are a lot of important details. Then you need the time to analyze your estate plan and see whether there is a need for SBP.
The best resource to learn about SBP is the twice monthly virtual presentations offered by Navy Mutual Aid Association. These presentations are currently offered on the third Friday of the month, at noon and 7 p.m. Call Navy Mutual at 888-298-4442 to get login information. There are many other great resources to learn about SBP. These include:
- Navy Mutual Aid Association’s SBP calculator
- The DoD Military Compensation website’s SBP webpages
- The Defense Finance and Accounting Service (DFAS) SBP webpages
- The Department of Defense Office of the Actuary Survivor Benefit Plan info and calculators
It is important to be sure you are getting accurate, unbiased information. There are many biased or inaccurate sources of SBP information. Avoid taking advice from friends, coworkers, or anyone who will earn a commission if you choose something other than SBP.
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3) Attend to your personal finances.
You want to move into retirement with three financial tasks accomplished: A bare-minimum post-military budget written (and hopefully practiced!), debt paid off, and a transition fund.
Your bare-minimum post-military budget should include every essential expense, and all your guaranteed forms of income. For many families, that may only be military retirement pay. For other families, this may include spouse employment, GI Bill benefits, or investment income. In most cases, it isn’t appropriate to include post-military employment income because it can take a while to get into another job.
As a bonus, start living on the income you have calculated on the post-military budget. Use the extra income to accomplish the next two tasks.
Paying off debt can be an important part of a retirement financial plan. If you have debt, use these last few years to really focus on paying it off, or at least paying it down. Many families may be comfortable with a mortgage going into retirement, but it may not be the best time to take out a new mortgage. Your goal is to reduce your required monthly payments, not increase them.
Lastly, build up that transition fund. This is the chunk of money that will help you with the expenses of military retirement and, if the retiree intends to pursue a new career, bridge the gap until the new income begins. I’ve never had anyone tell me that they were sorry that they had a transition fund.
Your transition fund needs will vary depending on your age, family situation, monthly obligations, and post-military plans. A single service member planning to head immediately to school using the Post 9/11 GI Bill will have very different needs than a married service member with several kids in college and a large mortgage.
You don’t have to wait to start doing any of these things. In fact, you shouldn’t wait. If you start a few years prior to retirement, your overall retirement process will be smoother and less stressful. And that will help when all the other hurry-up-and-wait things start coming down the track.
