Life is financially complicated for many U.S. military troops and their families.
Almost half of service members are under the age of 25, and a high percentage are married with children. They don't get paid a lot and they must deploy repeatedly to difficult places, many times where their lives are on the line.
What other job makes someone do this?
And to be honest, even if the move isn't to a dangerous place, it is disruptive and costs money … a lot of money.
Setting up a new household in a new location is a challenge and even more so if it is overseas. All those moves make it very difficult for military spouses to get and keep a job. Those spouses, who find it necessary to work to cover expenses, must deal with employers who know they might move to a new city at any time. That means the employer is hesitant to hire them at all.
On the plus side, troops do get benefits: housing and food allowances and health-care coverage. They may get health care on base, or they may have to use the local doctors and health-care facilities.
And that can all change every time they move, and they do move often. As for housing, they might get a home to live in on a base, or they might get an allowance to find a home in a nearby community.
So, what do they need to do to stay financially ready, for both the military life and after they leave? First, because they tend to live on the edge financially, they need establish an emergency fund. Otherwise, the slightest event puts them in trouble and in debt and, for the troops and their families, those kinds of events can happen often and with no warning.
A service member doesn't need to worry about the "normal" rules of having three to six months' worth of expenses in an emergency fund. They aren't getting laid off, so three months of expenses is an adequate target. It is crucial that service members, like anyone else, stay out of serious debt.
However, service members who find themselves in serious debt are actually considered a security risk by the military and can lose security clearance. To be blunt, service members with no clearance are useless down-range. They lose their careers.
It's key for those in the military to start on their retirement savings as early as possible.
Starting early puts time and the power of compounding interest on their side. I know that saving for retirement might seem difficult for a struggling young person, but the military offers service members the Thrift Savings Plan. It's the federal government's version of the civilian 401(k) plan and will match up of 5% of savings.
By setting aside 5% of their pay in the TSP, matched by the government at 5%, a service member has created a 10% savings rate. That is perfect for the young person just starting out. After a few years, they can increase their contribution to 10% for grand total of 15%. As always, starting early makes it so much easier in the long run.
The current military retirement system is basically what is known as a "defined retirement system." This just means that you get a set retirement based on the number of years you are on active duty. There are currently three existing retirement systems, depending on when you entered the service.
The challenge these service members face is understanding the various types of benefits they can receive. It can become quite complicated, so it's important to seek out professional assistance.
Of course, service members need insurance coverage.
Servicemembers' Group Life Insurance is low-cost term insurance for members of the uniformed services. SGLI is a group life insurance policy purchased by the Department of Veterans Affairs from a commercial life insurance company. Each service member entering a period of active duty or reserve status is automatically covered for the maximum $400,000 death benefit. They should consider the least-costly approach (term life insurance) to cover college costs for the kids and the price of a home for their spouse for the family.
Perhaps the most important thing service members and their families, or any young couple, can do is to have a budget. I call it a "spending plan."
The idea is to spend money with a purpose to achieve your priority goals. It's not easy to do at the start, but, once you've established the habit, it will sustain you for life.
By fully understanding the implications of every spending decision, a service member can keep out of financial trouble. It's a way to avoid deep debt and will include savings plan as part of their "spending plan." The plan puts you in control of your money.
Finally, it's very important to have an estate plan. The Judge Advocate General office (military attorneys) will provide the basics, including important paperwork such as a will, power of attorney, health-care proxy and more.
This is key because estate planning involves making decisions about how your property — real estate, investments, Social Security, cash, life insurance and business interests — is used, maintained and distributed if you become incapacitated and after your death.
Of course, if there are children involved, a trust is often recommended. There are pro bono attorney groups that can help with the more complex issues for service members. It's worth the time to do the homework and find these groups. There are resources to help, but the troops need to ask.
Most military installations have personal financial counselors who can help to craft a plan. There are also pro bono professional programs from groups such as the Foundation for Financial Planning, Financial Independence Training and the Financial Planning Association that can help at no cost.
Of course, service members need to be willing to ask for some assistance with their money matters. We ask them to serve and protect us, so we financial professionals can use our skills to help them. It's only fair.
— By Dick Power, founder and principal of Power Plans. Power is retired from the U.S. Army, having served almost 30 years as a colonel.
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