Last year, when a close family member transitioned from military service to civilian life with debt at such a young age, I was challenged to ask myself, “As a Financial Planner, how could this have happened?”. It’s like the shoemaker, whose children have no shoes. I then asked myself, “How can I make a difference?”.
So, I made a decision to become more educated.
What I have learned is that this is a unique class of client, similar in some ways to a Police Officer or a Firefighter. Many of whom will “retire” early in their 40’s and 50’s with 10-15+ years to go until full retirement age (FRA) between 65 and 67. Qualified retired soldiers from the active component with 20+ years of service may begin taking pension benefits immediately at this “young” age, some as early as even age 37. Conversely, those in the reserve component, entitled to a pension benefit, cannot be draw benefits until age 60. This creates a “gray period” requiring income planning for the date of retirement from military service up until FRA. As a result, retired military clients typically become part of the “working retired”, and this can create a unique planning opportunity for an “encore” career in which the client can follow his passion, try something different, or work to make up for a retirement gap that had not previously been well planned for. Military benefits can contribute to the assets military folks will utilize in retirement and if planned properly, this can be a big benefit to those retirees in the future.
Right now, in 2017, soldiers are facing a retirement decision between the current High-3 pension and the new Blended Retirement System (BRS) – a decision that needs to be made in 2018. Consequently, this pension change will create additional retirement assets flowing into the Thrift Savings Plan (TSP), a defined contribution plan offered to our soldiers, as all new soldiers entering service in 2018 will be covered under the new BRS. Educating members on the differences between the old and new pension, TSP funds, asset allocation, their benefits, helping them to create a spending plan, identifying retirement gaps, and creating debt and savings plans are crucial to ensuring a sound financial picture. Since this group does require security clearance, credit cleanup and debt payoff planning are important components of working with this client profile. The peace of mind of our active soldiers is critical to their mission, safety, and success.
A recent article in Investment News: ” New military pension rules need financial advisers to step up and serve” , by Jeff Benjamin, outlines these challenges for advisors.
Engaging a Financial Planner that understands the unique military retirement benefits offered (High-3, Redux, BRS, TSP), bonuses, continuation pay, deployment benefits, possible disability, education and healthcare benefits, the irrevocable decisions that may need to be made when it comes time to draw on benefits such as pension and social security for example, that can be coordinated with decisions around life goals can go a long way in creating a solid plan.
I have enjoyed this more than I have ever imagined and feel blessed to have the opportunity to help “Serve” those “Who Serve”.
To learn more, see “New in 2017: Huge Changes ahead for Military Retirement”.