Navigating Retirement: An Overview for Military Personnel, Federal Employees, and Veterans
Retirement marks an exciting yet complex phase, particularly for military personnel, federal employees, and veterans. With unique benefits at your disposal, crafting a strategic retirement plan is essential for a smooth transition. Here’s a professional guide to help you navigate this journey effectively.
Key Areas Of Focus
Understanding Your Benefits:
Begin by familiarizing yourself with the benefits stemming from your service. The Thrift Savings Plan (TSP) is a valuable asset similar to a civilian 401(k), offering low fees and diverse investment choices. Additionally, understanding your pension, including calculation methods and potential rank-based adjustments, is crucial.
Veterans Benefits:
Comprehending the range of benefits available through Veterans Affairs (VA) is vital. These benefits cover education, housing, and healthcare, just to name a few. Start by exploring resources on the VA’s website and enrolling in suitable programs. Consulting with a VA benefits advisor can further streamline this process.
Transitioning To Civilian Life:
Leaving the military or federal sector often involves lifestyle and cultural adjustments. Begin networking early and consider participating in transition programs designed for veterans. Exploring new career opportunities can provide additional income streams and fulfillment.
Make sure you contact your local Veterans Service Officer (VSO) in the area you’ll be permanently established. This person can further assist you in any local services you may be eligible for. There are also third parties that can be good points of reference too. Some of these include the VFW and American Legion.
Be extra careful not to fall prey to any scams, suspicious organizations, or websites claiming to help Veterans for a cost or incentive. Do not give out your information without verifying the third party’s credentials with the VA or VSO.
Navigating Healthcare Options:
Healthcare is a cornerstone of any retirement plan. See if you qualify for healthcare through TRI CARE, Veterans Affairs, or Federal Employees Health Benefits (FEHB) plans. Assess these options to achieve a balance between comprehensive coverage and cost efficiency. Factor in your anticipated medical needs and choose a plan that aligns with your retirement budget. Also, consider enrolling your dependents in these benefits too.
For those separating from the military, your life insurance stays active for 120 days after you leave the service. You can switch to Veterans’ Group Life Insurance (VGLI) during this time. If you wait more than 120 days, you must show you’re healthy. Check the VA website for more info. You can also look into private insurance options that work best for you and your family.
Buying Back Time:
For federal employees with prior military service, buying back military time can significantly enhance retirement benefits. Buying back military time allows federal employees to count their military service towards their federal civilian retirement. This process involves making a deposit to cover the period of military service, which then gets added to your federal service time, increasing your total years of service for retirement calculations.
Here’s an in-depth look at the process and its advantages:
Benefits of Buying Back Military Time
Increased Pension:
Buying back military time can substantially increase your monthly retirement annuity. For example, a federal employee with 30 years of service and an average salary of $65,000 could see their pension increase from $1,788 to $2,085 per month. This increase can add up to significant additional lifetime earnings.
Enhanced Leave Accrual:
Buying back military time can also increase your leave accrual rate, giving you more vacation time each year. This is particularly beneficial for those who value additional time off.
Early Retirement:
Buying back military time may allow you to retire earlier with full benefits. This can be a crucial advantage for those looking to transition out of the workforce sooner.
Factors Affecting the Buy-back Process
Interest Accrual:
If you wait more than three years after starting federal service, interest will be added to the deposit amount. The interest rate varies annually and compounds, increasing the total cost the longer you wait.
Non-Refundable Payments:
Payments towards the military buy-back are non-refundable. Once you make the deposit, it cannot be returned, so it’s essential to be certain about your decision.
Waiving Military Retirement Pay:
Most military retirees cannot receive credit for federal civil service unless they waive their military retired pay. There are some exceptions, but this is a critical consideration when deciding to buy back time.
How to Buy Back Military Time:
Calculate the Cost:
Use a military buy-back calculator to estimate the cost of buying back your time. This involves calculating your military earnings and the deposit required. The cost typically includes a percentage of your military base pay plus interest if you are outside the interest-free grace period.
Obtain Your Military Service Records:
You’ll need your DD214 or equivalent documentation to verify your military service.
Submit Your Application:
Complete the necessary forms and submit them to your agency’s human resources or payroll office.
Updating Your Estate Plan:
Estate Plan:
Make sure your estate plan is up-to-date. This includes naming beneficiaries for your financial accounts and preparing key documents.
Beneficiaries:
Designate who will receive your bank and brokerage accounts, life insurance, TSP accounts, and IRAs.
Within your Estate Plan, you might want to consider the following items below, which should be completed by a professional Estate Attorney …
Will or Living Trust:
Will:
A legal document that states who will receive your assets and who will take care of any minor children after you pass away. A will can outline and cover things that a Trust does not and vice versa. Wills are simpler, but they go through probate and become public. There are different types of Wills.
Living Trust:
This is similar to a will, but it can help you avoid probate (the legal process of distributing your assets). Trusts can manage assets during your lifetime and after death, avoid probate, and remain private. They take effect immediately. There are different types of Trusts.
Durable Financial Power of Attorney:
This allows someone you trust to manage your finances if you become unable to do so.
Advanced Health Care Directive (Health Care Power of Attorney):
This lets someone make medical decisions for you if you can’t make them yourself.
Incapacity Clause:
This legal document can be added to your Trust Documents and needs to be completed BEFORE you could potentially become incapacitated. Check into the 5-year look back also to see if this applies to your situation.
Social Security for Federal Employees:
Federal employees under the Federal Employees Retirement System (FERS) are eligible for Social Security benefits, just like private-sector workers. Here’s what you need to know:
Eligibility:
Federal employees covered by FERS are eligible for Social Security benefits. This includes those who started their federal service after 1983.
Contributions:
Both employees and their agencies contribute to Social Security through payroll taxes. These contributions are based on your earnings.
Retirement Benefits:
Social Security provides a monthly income based on your lifetime earnings. The amount you receive depends on your average earnings over your working years and the age at which you start receiving benefits. Make sure you’re checking your earnings record and regularly reviewing your Social Security statement to ensure your earnings are recorded correctly. This affects the amount of your future benefits.
Use Online Tools:
The Social Security Administration (SSA) offers online calculators to help estimate your benefits. These tools can assist in planning your retirement strategy.
Disability Benefits:
If you become disabled and cannot work, Social Security can provide financial support.
Survivors Benefits:
Your family may receive benefits if you pass away, helping to provide financial stability.
Decide When to Claim:
You can start receiving Social Security benefits as early as age 62, but the longer you wait, the higher your monthly benefit will be. Consider your financial needs and health when deciding the best time to start.
Understand the Windfall Elimination Provision (WEP):
If you receive a pension from a job where you did not pay Social Security taxes (like certain federal jobs under the Civil Service Retirement System), the WEP may reduce your Social Security benefits.
Coordinate with Your FERS Pension:
Your Social Security benefits are one part of your retirement income, along with your FERS pension and Thrift Savings Plan (TSP). Plan how these sources will work together to support you in retirement.
Financial Planning and Budgeting:
Developing a robust financial strategy is imperative. Create a detailed budget that includes both anticipated income and expenses postretirement. Drawing down 4% of your portfolio each year in retirement is generally considered a safe way to maintain your income.
Consulting a financial advisor can help streamline this process and take the worrying off your plate. Specializing in military or federal retirement can offer personalized guidance to align investments with your long-term goals. Utilize websites and smartphone applications to track your spending and budgeting. Make sure these include high levels of encrypted cybersecurity. Some Apps that I like are EveryDollar & RocketMoney. Find one that works for you!
Consult with a Financial Advisor:
By taking a comprehensive approach to your retirement planning and leveraging the unique benefits available to you, our team can help you pave the way for a fulfilling and rewarding new chapter in your life.
Held to a higher fiduciary standard, the elite CFP® certification represents a high level of competency, ethics, and professionalism within the Financial Planning and Advisory field. Keith Tatlock CFP® President of Command Wealth Management, proudly maintains this standard of excellence that provides clients with the assurance of comprehensive and holistic financial planning.