3 Steps to Guarantee Your Financial Future When Transitioning From the Military
Before transitioning to civilian life, it’s important to take control of your finances in order to protect you and your family, to provide you the freedom to pursue a new successful career and to maximize the military benefits you’ve earned. In order to best prepare, the Department of Defense recommends that you start planning at least 12 months prior to separation from active duty. Here are three ways you can set yourself up for financial success before transitioning from the military.
1) Create a Civilian Budget - The military offers many benefits that you will no longer receive once transitioned from active duty. This change in benefits has to be accounted for when budgeting for civilian life and should be factored in when considering a new employment contract. Other things to consider when putting together your civilian budget include:
a. Determine housing costs - You will need to budget for typical housing costs in the location that you plan to live and will have to take into account that you will no longer receive tax-free housing benefits. On the bright side, there are mortgage benefits available to those who separate from active duty. For comprehensive details on what those benefits are as well as the qualifications, see http://www.benefits.va.gov/homeloans/.
b. Consider tax changes - There are tax changes to consider as well. In addition to using post-tax dollars for housing, you will now also be subject to state income tax, which may vary depending on where you live. Make sure to take this into account in your budget.
c. Decide on an insurance plan - If you are transitioning from the military before retirement you most likely will now be responsible for paying for your own medical, dental, disability and life insurance. Before you make health insurance decisions, review your options carefully and compare prices. If you don’t find a job right away and your spouse doesn’t have a job offering health insurance coverage, consider signing up for the Continued Health Care Benefit Program (CHCBP), which provides up to 18 months of insurance. In your new health insurance program you may be responsible for paying policy premiums, co-payments and deductibles. Make sure to account for these expenses in your civilian budget. Many companies offer a health savings account (HSA) program or a flexible spending account (FSA) where you can contribute tax-free money to cover health related expenses.
d. Protect your loved ones - Prior to your transition, evaluate your life insurance needs. While serving, the military offers a maximum of $400,000 Servicemembers Group Life Insurance with an additional $100,000 for spouses. Your Servicemembers Group Life Insurance expires 240 calendar days after you leave the military. Your new employer may offer a life insurance option, but it’s often limited to a low multiple of annual income. Supplementary life insurance may be a good option. You may also convert your Servicemembers Group Life Insurance policy to a Veterans’ Group Life Insurance (VGLI) policy, but premiums increase over time and can become expensive. Make sure to compare prices and coverage before committing.
e. Negotiate your worth - Finally, when negotiating compensation with your new employer, don’t forget to take additional civilian expenses into account, including housing expenses, all types of insurance, state income tax, as well as no longer having a basic allowance for subsistence. In the civilian world, salary and all other components of total compensation are negotiable. Don’t be afraid to ask for what you’re worth. The worst that can happen is that they say no and you have to decide whether the original offer makes sense for you and your family.
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