Articles Embracing Military Retirement (and Your Future!)

May 8, 2015

If you're considering trading in your uniform for civilian clothes, you need to think beyond where to buy that new wardrobe. Retiring from the military may present financial and emotional challenges, especially for career servicemembers. Being aware of these challenges and how to address them may help you face this new phase of your life with a fresh sense of adventure as well as financial readiness.

Factors to Consider

Your next steps will depend on whether you plan to retire fully or go on to a post-military civilian career. However, there are a few considerations that apply to almost anyone retiring from the military:

  • Housing costs. You may have received a housing allowance during your service. Be sure to consider how the cost of housing will affect your updated household budget. (You're updating your budget, right?)
  • Health insurance. You may be able to obtain health insurance through an employer if you decide to pursue a second career. Otherwise, check into health insurance available through insurance exchanges, TRICARE®, or your spouse or partner if you're too young (generally, under age 65) to qualify for Medicare. Health care costs can take a significant bite out of your retirement income.
  • Taxes. Some of your housing and food allowances, as well as certain combat pay, may have been free of federal taxes. Talk to a tax advisor or attorney about how your tax situation may change after retirement.
  • Personal changes. Adjusting to a less-structured lifestyle and reconnecting with non-military family and friends can be challenging. Be sure to reach out for help if you have trouble adjusting to civilian life.

Show Me the Money

In general, if you've been in the military for at least 20 years, you can retire and start receiving pension benefits immediately, regardless of your age. Military pensions also promise annual cost-of-living adjustments (COLAs). (Learn more about your pension options at the DoD's Military Compensation website.)

If you're retiring fully, your retirement budget should factor in your pension payments. Also, consider when to start taking Social Security benefits, as your start date can have a significant impact on the size of your monthly payment. You may want to consider living on your pension and postponing Social Security until at least full retirement age (66 to 67, depending on your birth year) or even as late as age 70 for an increased benefit.

What About a Second Career?

Considering that servicemembers tend to retire at a much younger age than the general population (47.7 versus 62), you may be contemplating a second career, providing a tremendous opportunity to significantly increase your retirement nest egg. By relying on a new job to cover living costs, you could consider putting all or part of your military pension into savings for the future.

Let's take a look at a hypothetical military individual who retires at age 48 with a pension of $1,200 a month. Investing that money in a tax-deferred account earning an average 5 percent annually could yield more than $380,000 by age 65.* In addition, a new employer may offer a retirement plan that could help you make up for any retirement savings shortfalls.

We'll Help You Take the Next Step

Navy Federal is here to serve you and your families. If military retirement is on the horizon, let us help ensure you're on the right path. Talk to a Navy Federal Financial Advisor for personalized investment and retirement information.

*Assumes all earnings are reinvested. Rate of return is for illustration only and is not meant to represent the return of any particular investment. Your returns will vary. Taxes will be due at ordinary income tax rates upon withdrawal at retirement. Premature withdrawals may be subject to a 10 percent tax penalty.

This article is intended to provide general information and shouldn't be considered legal, tax or financial advice. It's always a good idea to consult a tax or financial advisor for specific information on how certain laws apply to your situation and about your individual financial situation.

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