Some 39,000 U.S. troops will be headed home from Iraq by year’s end. Many will begin the difficult process of transitioning out of military life – including starting a second career. Some cities offer military veterans better employment opportunities than others.
In response, USAA and Military.com have commissioned a list of Best Places for Military Retirement: Second Careers. Among the top ranking cities in this year’s list are: Oklahoma City, Okla.; Norfolk, Va.; Richmond, Va.; Austin, Texas; and San Antonio, Texas.
In addition to location, there are other factors that can help or hurt a veteran’s transition. June Walbert, a certified financial planner practitioner with USAA, offers these helpful tips to ensure a smooth transition.
* Deliver the goods. Many military retirees haven’t interviewed for a civilian job in decades, if at all. Government programs such as the Transition Assistance Program and Transition Boot Camp are a must. Hiring a resume-writing pro, enrolling in an interviewing skills class and using tools such as Military.com’s skills translator can help summarize military skills and experiences that will make sense to a civilian hiring manager. Also, don’t underestimate the power of friends and acquaintances. Networking with them can produce tips and ideas, maybe even a job.
* Know that all paychecks are not created equal. In the military, stacked on top of base salary is an array of allowances including a generous tax-free housing benefit. Military retirees have access to TRICARE, but civilian vets may now have to pay for life, medical, dental and disability insurance – expenses that could put a significant dent in a paycheck.
* Build a transition fund. A job hunt should start well before one retires from service. It’s a wise idea to have nine to 12 months of living expense money saved to bridge any potential financial gaps.
* Get it covered. Life insurance is often overlooked during transition, likely because it’s unpleasant to consider one’s premature demise. But it should be evaluated as a component of a financial plan. The military offers a maximum of $400,000 Servicemembers’ Group Life Insurance (SGLI) and $100,000 for spouses while serving. Veterans’ Group Life (VGLI) insurance is an option upon leaving the service and if applied for within 120 days of retirement, no medical underwriting is required. But due to cost, VGLI is generally a good option only for tobacco users and the chronically ill or injured. Retirees in good health should consider a commercial life policy at least six months before retirement to help them get the coverage they need to protect their family at a more affordable price. An added benefit of a non-employer-provided policy is it’s portable, meaning if there’s a lapse in employment the policyholder’s family is still covered. The life insurance calculator at va.gov can help calculate the amount of life insurance needed.
* Take care of the one you love. In addition to evaluating life insurance, retirees need to consider whether the Survivor’s Benefit Plan makes sense for their situation. In many cases, it can provide a cost-effective way to provide a monthly income from their retired pay for a surviving spouse in the event something should happen to the policyholder.
* Roll it over. Many military members take advantage of the Thrift Savings Plan, a tax-advantaged way of saving for retirement, and wonder what to do with the investment account upon leaving the service. Vets have basically three tax-free courses of action to consider:
–Leave the funds within their TSP account.
–Roll their TSP into a traditional Individual Retirement Account.
–Roll their money over to their new employer’s plan.
All of these choices are initially tax-free and allow for the continuation of possible tax-deferred compounding. Any tax-free combat pay contributions included in their TSP balance can be rolled directly into a Roth IRA to maintain its tax-free status and, over time, accumulate tax-free earnings. This would not generate any income taxes.
This transition period also is an ideal time to take a retirement snapshot. Putting a financial plan in place helps everyone understand what their true retirement’s lifestyle expenses will be. But for vets, they’ll have a clearer picture regarding how much debt to pay down or how much needs to be saved and invested during their remaining work years. The good news is their military retirement paycheck could be effectively leveraged to do just that.