Transitioning to Civilian Life
Transitioning from military service to civilian life is a significant change that can affect nearly every part of your finances. Changes to income, housing, health care, insurance, taxes, retirement savings, and veterans benefits can all influence your financial picture after separation.
Planning ahead can make the transition easier. Here are five financial considerations to keep in mind as you prepare for civilian life.
1. Build an Emergency Fund
An emergency fund is money set aside to help cover unexpected expenses or periods when your regular income is interrupted.
A common goal is to have enough savings to cover three to six months of normal living expenses. If you're leaving the military without a civilian job already lined up, an emergency fund can provide additional financial flexibility while you search for employment and adjust to your new circumstances.
Your expenses may also change after separation. For example, housing, insurance, utilities, transportation, food, and other household costs should all be considered when evaluating how much you'll need.
Even if saving several months of expenses isn't realistic before leaving the military, having some money set aside can still provide an important financial cushion.
2. Understand Your Future Tax Situation
Your taxes may look different after leaving military service.
Where you choose to live can make a difference because state income tax rules vary, including how states treat military retirement income. If you're retiring from the military and beginning a civilian career, having both retirement income and wages from a new job can also affect your overall tax situation.
Before separating, consider:
The income tax rules in the state where you plan to live
How military retirement income is treated in that state
The tax implications of beginning a civilian career
Whether your withholding needs to change
How your overall income may affect your tax situation
Because state tax laws can change, verify current requirements with the appropriate state tax agency or a qualified tax professional rather than relying solely on an older list of states or exemptions.
3. Understand Your Insurance and Coverage Options
Leaving military service may change both your health and life insurance coverage, making it important to understand your options before you separate.
Health Insurance
Health insurance can become a significant part of your civilian budget. Consider potential premiums and other health care expenses when planning your post-military finances and determining how much you need in your emergency fund.
Your available coverage will depend on your circumstances.
If you have a civilian job lined up: Review the employer's health care benefits, including the portion of premiums and other costs you'll be responsible for paying.
If you're retiring from the military: Review your eligibility and coverage options through TRICARE.
If you're separating but not retiring: You may want to explore the Continued Health Care Benefit Program to determine whether you're eligible for temporary coverage.
Some veterans may also qualify for VA health care. Navy Mutual provides additional information about understanding VA health care.
If those options don't apply to you, you can also explore health insurance coverage through the federal marketplace at HealthCare.gov.
Life Insurance
Life insurance is another important consideration during the transition.
If you currently have Servicemembers' Group Life Insurance (SGLI), review what happens to your coverage after leaving the military and understand the options available to you before your existing coverage ends.
Veterans' Group Life Insurance (VGLI) may be one option. You may also choose to compare VGLI with coverage available from commercial insurers based on your financial needs, health, family circumstances, and budget.
Rather than automatically replacing one policy with another, consider how much protection your family actually needs and compare the costs and features of the options available to you.
Survivor Benefit Plan
For retiring servicemembers, the Survivor Benefit Plan (SBP) is another important consideration.
SBP can provide continuing income to an eligible beneficiary following a military retiree's death. Because decisions about survivor benefits can have long-term financial implications for your family, it's important to understand your options before retirement.
Learn more about Survivor Benefit Plan basics.
4. Consider What to Do with Your Retirement Savings
If you've been contributing to the Thrift Savings Plan (TSP), leaving military service is a good time to evaluate how your retirement savings fit into your long-term financial strategy.
You may have options for your existing TSP savings after separation, including leaving the money in the plan or considering whether moving retirement assets to another eligible account makes sense for your situation.
Before making a decision, compare factors such as:
Investment options
Administrative and investment fees
Access to your money
Your other retirement accounts
Your long-term retirement goals
Potential tax consequences of moving money
Avoid making a retirement-account decision simply because you're leaving military service. Consider the long-term implications before transferring or withdrawing retirement funds.
5. Understand Your Veterans Benefits
Leaving active service doesn't mean leaving behind every military-related resource. Depending on your eligibility and circumstances, VA programs may provide assistance with education, employment, disability, housing, health care, and other needs.
Taking time to understand the benefits that may be available to you can be an important part of planning your transition.
Helpful resources include:
Education
Employment and Career
Additional Benefits and Support
Preparing for Your Next Chapter
Separating or retiring from the military is a major life transition. Giving yourself time to understand how your income, expenses, insurance, taxes, retirement savings, and benefits may change can help you make more informed decisions as you begin civilian life.
You don't have to make every financial decision at once. Start by identifying what will change immediately after separation, determine which benefits or coverage require action, and build a financial plan that reflects your family's new circumstances.
Author - Navy Mutual
