Happy almost Memorial Day, and welcome to today’s chat on personal finance for military families! Joining us today is contributing editor Kim Lankford, who also happens to be a military spouse. Thanks for being here, Kim.
Hi Everyone -- thanks for participating! I look forward to answering your questions.
Kim, to start us off, can you tell us about some of the biggest financial challenges you and your husband have had to face as a military family?
My husband has been in the Army for 18 years and he's been deployed three times -- and each time he has to go away always has different challenges. The first time he was in Iraq, I was about to have a baby. The second time, my son was 2. And last time he was 7. Each was very different -- but a few key things always helped. The most important financial document to have every time is a power of attorney, which grants me permission to handle his finances for him while he's gone, because you never know what will crop up.
Wow! I'm sure some of our viewers have experienced similar difficulties when it comes to deployment.
Are there any other key things families should do before a family member is deployed?
The last time he was deployed, we made an extra effort to take advantage of the higher Thrift Savings Plan contribution limits for deployed servicemembers. Instead of the regular $17,000 contribution limits, you can contribute up to a total of $50,000 in 2012 while deployed. This time, we even started to set aside a bit more money before he was deployed so we could afford to take advantage of the higher contribution limits and boost our retirement savings.
That's a lot more than I can contribute to my retirement account!
Alright, let's get started with our first question from Bob.
And even if you can afford to add a little extra, that can help a lot in the long run -- the money will grow tax-deferred until retirement. A lot of servicemembers find that they can afford to boost their contributions a bit while they're gone because most of their income is tax-free while in a combat zone -- so their take-home pay is higher, but their expenses may actually be a bit lower when they're gone. Also, if you contribute some of the tax-free deployment money to a Roth IRA, the money goes in tax-free and comes out tax-free in retirement.
Our next question is from Jerry Hart, a retired veteran.
Hi Jerry. That's such a wonderful idea to be able to blend your two areas of expertise as a CFP and retired Air Force veteran. I think that could provide a lot of help to military families. So many of them have slightly different financial issues than non-military families that some general financial planners may not realize. One area that I've been receiving a lot of questions about recently is how to determine whether to stay in the military for 20 years to get a pension, or leave earlier and take a higher-paying job. Or some people have been asking about the financial implications of staying for 20 years vs. 30 years. All of those are big financial issues that a CFP could help with a lot -- to put it all into a financial-planning perspective -- and someone with military experience like yourself would be so familiar with the issues. On the opposite end, I also think it would be great if some CFPs could help more members of the military when they're just getting started, so they can see how to take advantage of all of the special financial benefits, retirement-savings plans, tax and insurance rules, etc., and get a great start.
We have another CPA joining the chat, as well. Hi Christina.
We actually have a question related to what you just mentioned, Kim.
Christina, those are such great ideas. Thank you for sharing. That's one of the thing that helps so many families before deploying -- to sit down together and talk about finances beforehand, both big picture (how much to save for retirement while deployed) but also the basics such as which bills and due when and the online banking passwords. And it's important to talk about extra expenses you may have while your spouse is deployed -- such as for extra child care and home repairs.
Hi Josh. I just did a column on that topic today! There are a lot of issues to consider in addition to the new job's salary, because there are a lot of valuable tax breaks and benefits you'll need to replace after you leave the military. If your legal residence has been on a state with no income tax while you've been in the military, for example, then you will need to pay state taxes after you leave. You'll also lose your tax-free housing allowance, and will no longer have access to super low-cost life insurance (SGLI). Also consider how much extra you'd receive from a military pension for staying beyond 20 years. My column with the link below includes a lot more details and resources to help with that decision.
She offers a great summary of the benefits and special tax breaks available to servicemembers.
Alright, our next question is about life insurance.
Josh, we also received a very thoughtful comment from Perry Hurtt, a former marine on Kim's column today. Here's what he had to say about leaving the military for a new job: "I got out at 16 years, got no retirement, and have never regretted the decision. I love the time I spent...I love the Marine Corps...it wasn't a matter of just wanting to get out. When you get past the fear of leaving the safety net behind and start looking at the benefits of a corporate job or starting your own business, it'll make sense. Prepare first...do the research, but by all means don't let the financial aspect be a reason for staying in the military!! Good luck! "
The Servicemembers Group Life Insurance (SGLI) is a very good deal, and you should definitely take advantage of that while eligible -- it costs servicemembers only $312 per year for the maximum $400,000 in coverage, regardless of their age, health, or likelihood of being deployed. And they can also get up to $100,000 in low-cost coverage for their spouse. You may need some additional coverage on your own, depending on your family's life insurance needs, but it's definitely good to take advantage of SGLI while you can. After you leave the military, you can switch to Veterans Group Life Insurance (VGLI), but if you're healthy you can generally get a better deal on your own at that point. That column I wrote about leaving the military goes into more detail about your options and strategies.
I'll find the column Kim is referring to in just a minute. In the mean time, here's a question from John.
Thanks for sharing, Perry. It is such a personal decision and there are so many issues to consider -- it's very helpful to hear from many people who have gone through the experience themselves. When talking with people who recently retired or left the military, that's exactly what they recommended -- talk with some friends who have left about their experience, both financially and personally. Their discussions really helped them prepare.
Hi John. I love your question, because it's something that my family just did ourselves! Long-time servicemembers now have the extra perk of being able to transfer their GI Bill benefits to their spouse and/or children. To qualify, you must be on active duty or selected reserve, have generally served for at least six years and agree to serve four more (the rules are slightly different if you're close to retirement). And the benefits can be big: The GI Bill currently covers the cost of in-state tuition and fees at public colleges for up to four academic years (or up to $17,500 per year for private colleges), plus a housing stipend and money for books and tutoring. Spouses and servicemembers must use the benefits within 15 years; children aren't limited to the 15 years but must use the transferred benefits by age 26. My husband transferred his benefits to my 8-year-old son last year and it's a huge relief -- it's giving us a tremendous head start on our college savings.
That's great, Kim. Definitely a special perk!
Here's our next question from Connie.
That's a good question! You can generally get both Social Security benefits and military retirement. The Social Security Web site has a lot of great resources that can help you calculate your benefits. I just did a column about a week ago about a new way to get your Social Security statement online, which can help you calculate your benefits -- www.socialsecurity.gov/mystatement.
Alright, looks like we have time for one or two more questions. Here's a good one about state tax breaks for military personnel.
One other thing about deployment I wanted to mention is the Savings Deposit Program, which is a special savings program for deployed servicemembers that actually guarantees 10% returns per year (and is not a scam!). It's important to find out ahead of time the information you need to take with you to sign up because you can't sign up until you're actually deployed. You can deposit up to $10,000 and get 10% annual interest while you're deployed and up to three months after you return. It's a good idea to start setting aside money ahead of time so you can take advantage of the program while deployed. A guaranteed 10% is a very sweet deal right now!
And here's another helpful resource from moneytalk1
Thanks for passing along the resource!
Moneytalk1's resource was www.extension.org/militaryfamilies. Looks like it has a lot of great information and answers. Thanks for sharing!
Kim, any other thoughts on tax friendly states for coverrw?
USAA's military retirement study gives a lot of great information about the tax situation in each state for military retirees. Also, for active duty members -- a key point to keep in mind is that a new tax law now lets military spouses maintain the same state of legal residence as the servicemember -- so if they both live in a state with no state income taxes then are stationed in another state, they can both maintain that state of residence with no income taxes as long as the servicemember is in the military. There's a link to more information about that in the tax section of
my "leaving the military" column below.
Alright, unfortunately we are out of time for today’s chat.
Kim, thank you so much for joining us and for providing such thoughtful answers. And thank you to all the servicemembers, military spouses, veterans, and anyone else who joined us today! We appreciate all that you do or have done for our country.
Thank you all for your great questions! I really enjoyed talking with everyone.