Maximizing Military Benefits

Awhile back, I received a phone call from my college roommate. He was ecstatic to share that after completing his assignment on the USS Harry Truman, he would be participating in the prestigious Civilian Institution 810 program. This program allows him to earn an MBA while on active duty in the Navy but requires additional years of service. As old friends chewed the fat, the topic of financial planning popped up. In my previous position, I was a financial advisor at a firm just outside of the Norfolk Naval Base and my services catered to activeduty military services members. So, in honor of Military Appreciation month, let’s discuss some financial planning strategies.

Blended Retirement System (BRS)

Many in the military community were skeptical of the Blended Retirement Program, but as a Certified Financial Planner, I’m happy to report there are a lot of benefits to this planning opportunity for our service members. The BRS can be broken down into four main categories:

1. TSP Matching – The old retirement program, the Legacy 36, did not provide significant retirement benefits for service members that chose to serve less than 20 years. The Thrift Savings Program (TSP) matching component addresses this issue. It is very similar to a civilian 401(k) company match. This allows service members to save a portion of their pay into the TSP and receive matching contributions, to help grow their retirement savings. Funds can remain in the TSP or rollover to an

Individual Retirement Account (IRA) or civilian 401(k) after separation from service.

2. Continuation Pay – For members engaged in 8 – 12 years of service, a retention bonus is offered for additional obligated service. Think of this as a bonus. This can be used for various financial needs such as reducing and eliminating debt, creating a college savings account, funding a down payment on a house, or super-charging your retirement savings. I typically recommend running a financial plan to maximize the use of this lump sum cash infusion.

3. Defined Benefit – This provides an incentive for individuals to serve twenty years and receive a monthly pension, a guaranteed monthly retirement income.

4. Lump Sum – Depending on cash flow requirements, the various service branches allow a lump sum distribution. This is a taxable event and temporarily reduces your monthly pension distribution, so a financial project is warranted. However, this can be an advantageous planning tool. For example, many military veterans start businesses after their service, or college education expenses arise. This can be a funding tool, but the decision should not be made in a vacuum.

Non-Regular Retirement (Reserved Retirement)

Reservists/Guard members are eligible for retirement after 20 years of service using a point system. Unlike activity duty service members that can receive immediate retirement benefits, reservists are eligible for benefits at 60 years of age. This so called “gray zone” creates a retirement gap. It’s important to factor when benefits are available in your retirement plan prior to making any financial decisions.

Service Group Life Insurance (SGLI) & Veterans Group Life Insurance (VGLI) These can be rich benefits for service members and veterans. VGLI is guaranteed acceptance, so you do not need to take a medical exam to get insurance. But keep a close eye on premiums, VGLI can get expensive.

Lot of Moving Parts

There are a lot of moving parts with military benefits. There are many nuances to the various programs available to veterans, that cannot be explained in a short article. Prior to making any decision, run detailed projections to account for retirement funding, taxes, and total costs. And don’t hesitate to reach out to an expert on military benefits.

Bryson Roof, CFP, is a Financial Advisor at Fort Pitt Capital Group in Harrisburg, and has been quoted nationally in various finance publications including CNBC, U.S. News & World Report, and Barron’s.