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There are many reasons you may have chosen military life. Perhaps it’s a family tradition or you simply had a calling to serve your country. And from a career perspective, there are ample benefits available to military officers and enlisted members, but more risks and unknowns than just about any other profession.
Since life in the military often involves frequent deployments, moving expenses and even spousal job loss, it’s important to not let your finances fall by the wayside. By keeping them top of mind, you can relieve unnecessary stress and achieve a fulfilling lifestyle for yourself and your family.
Financial Planning Challenges for Military Officers & Enlisted Members
Whether you’re deployed overseas or stationed within the U.S., managing money can be a real challenge despite the various online tools and on-base resources at your disposal. The unpredictable nature of your work and relocations that often come with volatile living expenses may also take a toll on your financial planning efforts.
Fortunately, we’ve compiled this useful guide to help you plan for your finances, no matter how challenging your situation may be. And with several organizations and a growing number of financial advisors specializing in helping military officers and enlisted members take on their unique challenges, you have many great options for hiring a professional experienced working with situations like your own.
We’ll help you understand important topics to consider and questions you’ll want to ask to create the best financial plan for your individual needs. This guide paired with professional support from an experienced financial advisor can help you take control of your financial situation and lead a higher quality of life.
Financial Planning for Military Officers & Enlisted Members
There are a number of topics to consider and questions you’ll have when you’re planning your finances as a military officer or enlisted member. Here’s a brief overview:
Living Well on a Military Salary
Military salaries vary greatly and depend on rank, time in service, location of duty, and job specialty. In 2021 according to official Defense Finance and Accounting Service pay tables, enlisted members just starting out can expect to earn about $21,420 a year, while general and flag officers will earn between $113,000 and $200,000 depending upon their pay grade and years of service.
Regardless of how much money you make as a military officer or enlisted member, you’ll need to consider your financial priorities. This is particularly true if you have a family to support and/or are living on one income. If you hope to buy a house some day or cover your child’s college, for example, allocating a large portion of your income toward savings will be important.
Here are a few questions a financial advisor can help you answer to make the most of your military income:
- How much should I have saved today in order to retire comfortably at my desired retirement age?
- If I don’t have enough saved today, what steps can I take to get back on track?
- What financial planning insights have you gained working with other military clients like me?
Repaying Military Student Loans
The federal government as well non-profit organizations like American Legion, AMVETS, and Veterans of Foreign Wars help veterans, active duty personnel, future military personnel, and others in the military community pay for the cost of college. A few examples of education benefits you should be aware of include:
- Reserve Officers’ Training Corps (ROTC) Scholarships: Awarded based on merit rather than financial need, these scholarships are available at more than 1,000 colleges.
- Department of Veterans Affairs (VA) Education Benefits: The VA offers education benefits for veterans as well as widows and dependents.
It’s also crucial to understand the Servicemembers Civil Relief Act. The law states that if you took out student loans prior to entering the military or being called to active duty, your federal and private student loans will be capped at a 6% interest rate.
A financial advisor can explain which benefits may apply to you so that you don’t pay more than you have to for your college education. If you are left with student loans, they may work with you to design a realistic payoff strategy.
Making the Most of Your Military Benefits
When you join the military, you receive incredible benefits that you simply won’t find anywhere else. As a military officer or enlisted member, you may enjoy access to advanced and specialty training, a generous paid vacation policy, tax-free room, board, and allowances, travel, health benefits and so much more.
When you meet with a financial advisor, you’ll discuss how to make the most of your military benefits. Examples of questions a financial advisor will help you answer include:
- Which benefits am I currently not taking advantage of that I should?
- How much of my income should I save each month?
- How should I allocate the investments in my retirement and savings plans?
Buying a House as a Military Officer or Enlisted Member
If you’re not living in government quarters, you’re entitled to the Basic Allowance for Housing (BAH) that provides uniformed Service members with compensation to pay for housing based on costs in local civilian markets.
If you’re ready to buy a house, it’s a good idea to look into the VA home loan. While a conventional mortgage requires a down payment that may range from 3% to 20%, a VA loan does not. You may be able to buy a house with 0% down and no private mortgage insurance or PMI.
Also, a VA home loan comes with more lenient credit requirements so you can get approved even if you don’t have the best credit. In addition, you can score a competitive interest rate and save thousands of dollars over the life of your mortgage.
Since your BAH is not taxable as income, you should consider the potential benefits of not living in military housing, including tax benefits and the opportunity for appreciation when you apply your BAH towards mortgage payments on a home you’ve purchased.
A financial advisor can help you figure out if you’re a good candidate for the VA home loan and establish a price range based on factors like your income and interest rate. They can help you avoid a situation where you’ve bought more house than you can comfortably afford.
Mike Cavaggioni, RA
“Military personnel can really take advantage of their tax-free pay. Allowances such as Basic Allowance for Housing (BAH) and Cost of Living Allowance (COLA) are tax-free income.
Military personnel can use their BAH to pay down a mortgage that they put 0% down on (VA loan) and deduct the interest from their taxes. It’s a double dipping tax benefit that many military personnel do not think about.
If you’re active duty and serving the country, take advantage of the benefits you have rightfully earned.”
Saving for Retirement as a Military Officer or Enlisted Member
To save for retirement, you can use the Thrift Savings Plan (TSP), which is essentially the federal government’s version of a 401k. You can deduct contributions from your pay and enjoy tax advantages today (traditional TSP account) or in the future (Roth TSP account).
You may be eligible to earn a military pension in your late 30s or early 40s. However, you should realize that a military pension may not be enough for your retirement on its own. Therefore, planning and saving for retirement as early as possible is important. If you work with a financial advisor, they can help you answer questions such a:
- How much do I need to save to meet my preferred retirement lifestyle?
- What options should I consider to supplement my military pension?
- Where should I keep my retirement savings?
- What is my long-term investment strategy?
Expenses and Deductions: Keep More of Your Income
As a member of the U.S. Armed Forces, you’re eligible for special tax breaks. For example, the IRS will exclude your income from taxation during months when you’re serving in a designated combat zone or if you’re hospitalized as a result of wounds, disease or injury while serving in a combat zone. If you serve in a combat zone, you’ll also have more time to file your tax return and pay your taxes.
You can use IRS Form 3903 to deduct some of your reimbursed moving costs if you’re moving because of a permanent station change. If you’re a reservist with duties that take you more than 100 miles away from home, you can deduct your unreimbursed travel expenses on IRS Form 2106.
In addition, you may deduct the costs of certain uniforms you’re unable to wear while off duty and choose to include your nontaxable combat pay in your income so you can owe less tax and receive a larger refund.
If you work with a financial advisor, they can help you address questions such as:
- Which tax benefits apply to me?
- Is some of my income exempt from taxes?
- How do I make the most of my deductions?
Your Insurance Needs as a Military Officer or Enlisted Member
You likely receive free medical and dental care through TRICARE as an active-duty service member. If you have a spouse and dependent children, they may enroll in your plan as well for a small enrollment fee and potential deductible.
Also, you may choose to enroll in Service Group Life Insurance (SGLI) and automatically deduct a small premium from your paycheck. If you need other insurance products like car insurance, you may qualify for special rates and discounts from organizations like USAA.
🙋♀️ Have Questions About Financial Planning for Military Officers & Enlisted Personnel?
Financial Planning is a Necessity
You work hard to serve our country day in and day out. Therefore, you deserve a solid financial plan that sets you and your family up for success. Financial planning may help you overcome the financial challenges that many military personnel face, keep you out of debt, and ensure you’re rewarded financially for your relentless commitment to serving our country.
An experienced financial planner can guide you through this process so you can make smart financial decisions for years to come.
Scott Cadieux Offers Personal Finance Tips for Military Families
One survey found that military personnel have higher credit card debt and fewer tangible assets than their civilian counterparts.¹
While the financial situation of military personnel and their families mirrors the general population in many respects, heavy indebtedness and mismanagement of credit cards may be especially acute issues for service members.
Of course, military families face unique challenges, such as deployment to conflict zones, overseas assignments, and the constancy of change, making personal finance even more critical.
6 MONEY TIPS TO CONSIDER
- Take Full Advantage of What’s Available
- The Thrift Savings Plan is one way to save for retirement, and a Roth TSP is now available.
- The Savings Deposit Program allows eligible personnel serving in designated combat zones to invest up to $10,000 and receive a return of up to 10%.²
- Saving in a Roth IRA may be a good idea if you receive tax-free combat-zone pay. This allows you to deposit tax-free income and take tax-free qualified withdrawals in retirement.³
- The Post-9/11 GI Bill covers the total cost of in-state tuition, up to 36 months.
- Servicemembers’ Group Life Insurance protects your family with low-cost life insurance.4
- Set Goals—Like any mission, success begins with articulating goals you want to pursue.
- Establish a Budget—A budget provides the financial discipline that may help you control spending impulses that lead to greater debt levels.
- Pay Yourself First—Determine how much money you need to set aside to reach your savings goal, deduct this amount from your paycheck, and attempt to live within the limits of what remains.
- Establish an Emergency Fund—Uncertainty marks the life of military families, so be sure you have an emergency fund that allows you to be as prepared as possible for these changes.
- Control Your Debt—Indebtedness is one of the enemies of financial independence.
As you think through your financial goals, remember, acting today is your first and most crucial step.
1. The National Foundation for Credit Counseling (NFCC), 2017
2. The Savings Deposit Program is a benefit offered to eligible personnel serving in designated combat zones. The guaranteed rate of return is subject to change.
3. To qualify for the tax-free and penalty-free withdrawal of earnings, Roth IRA distributions must meet a five-year holding requirement and occur after age 59½. Tax-free and penalty-free withdrawal can be taken under certain other circumstances, such as the owner’s death. The original Roth IRA owner is not required to take minimum annual withdrawals.
4. Several factors will affect the cost and availability of life insurance, including age, health, and the type and amount of insurance purchased. Life insurance policies have expenses, including mortality and other charges. If a policy is surrendered prematurely, the policyholder also may pay surrender charges and have income tax implications. You should consider determining whether you are insurable before implementing a strategy involving life insurance. Any guarantees associated with a policy are dependent on the ability of the issuing insurance company to continue making claim payments.
Enjoy a Secure Financial Future
A financial plan is sure to give you the confidence you need to live life on your own terms. Whether you’d like to stay in the military indefinitely or transition to life as a civilian, it can offer much needed peace of mind to you and your loved ones. By working with a financial planner to help you make sense of your current finances, you can strategically plan for the future.
How To Find The Best Financial Advisors for Military Officers and Enlisted Personnel
While you may find a great financial advisor to work with through the referral of an acquaintance, it’s important to consider several factors to improve your odds of hiring the best financial advisor for your individual needs.
You may decide the best financial advisor for you is one who specializes in understanding the unique financial planning challenges and opportunities common among military officers and enlisted members. These specialist financial advisors often have a military background along with considerable experience working with military personnel that could benefit your own financial planning needs.
Because many financial advisors can work with you online, you’re not limited to hiring a financial advisor in your neighborhood when the best financial advisor for you may live hundreds of miles away.
And of course if you don’t know where you’ll be stationed next, it’s even more important to hire a financial advisor who truly understands your individual needs based on their education, experience and commitment to helping people just like you.
In 2021, you’ll find a growing number of financial advisors on Wealthtender who serve members of the military, including advisors specializing in working primarily with military officers and enlisted members. We’re happy to introduce you to Scott Cadieux, a financial advisor experienced in this area featured on Wealthtender. Click his profile page below to learn more.
Are there financial coaches who specialize in working with military officers and enlisted members?
Yes. While financial advisors are generally best suited to help military personnel who need investment advice and guidance, many financial coaches and counselors have considerable experience working with military officers and enlisted members whose uncertain schedules have meant day to day budgeting and financial habits could use improvement.
Use the Wealthtender Financial Coach Directory to find the best financial coach or counselor for your individual needs.
You may also want to consider hiring an Accredited Financial Counselor, many of whom have a military background or even work on base exclusively with military personnel.
The Best Finance Blogs and Podcasts for Military Personnel
With over 250 personal finance blogs and financial podcasts featured on Wealthtender, you’ll find several that regularly publish articles and episodes with financial planning insights useful to military officers and enlisted members.
You’ll also find a list of popular blogs and podcasts for military personnel offering articles and interviews on a range of topics including financial and career advice on The Military Leader and Military websites.
Do you have a favorite blog or podcast for military personnel not featured above? Let us know in the comments section below or by email at firstname.lastname@example.org.
About the Author
About the Author
Brian is CEO and founder of Wealthtender. He and his wife live in Texas, enjoying the diversity of Houston and the vibrancy of Austin.
With over 25 years in the financial services industry, Brian is applying his experience and passion at Wealthtender to help more people enjoy life with less money stress.
Disclaimer: The information in this article is not intended to encourage any lifestyle changes without careful consideration and consultation with a qualified professional. This article is for reference purposes only, is generic in nature, is not intended as individual advice and is not financial or legal advice.