Leaving military life is a challenging transition for anyone, whether your service member is getting out after four years or retiring from the military after twenty years of service.

Even the most prepared may have a difficult time moving on to the civilian world when they decide leaving the military is right.

One of the biggest issues of transitioning out of the military is finances.

Ideally, military families should begin saving for life after the military long before their service member separates; but unfortunately, that isn’t always possible.

Either way, the impact on your bank account will be felt for sure. The bottom line is, we all need to start preparing for military to civilian transition no matter where we are on our military journey. If we don’t, we could be in for one heck of a case of sticker shock. Here are a few things you should start thinking about sooner rather than later.

1. MILITARY SALARY VS CIVILIAN SALARY

If you break out your spouse’s Leave and Earnings Statement (LES), you’ll notice several different types of pay and allowances. Their “main” pay is their “base” pay, but stacked on to that are other entitlements, such as basic allowance for housing (BAH) and basic allowance for subsistence (BAS), as well as other special pay and allowances. All of these different types of pay ultimately make up your service member’s salary.

In order to keep the same exact lifestyle you’re accustomed to now, start taking a look at the job market and looking at the salary ranges for civilian positions with your service member’s skill set. Sometimes it can be a significant bump in salary to find a civilian job doing pretty much what they’re doing now. Other times, you may find that civilian salaries hover around your service member’s base pay…without the bells and whistles of other allowances. You’ll want to take this into account well before transition is on your radar.

2. NO MORE BAH

As military families, we’re not often afforded the opportunity to decide where we live, but as civilians we can move wherever we choose. As previously mentioned, BAH is an entitlement that’s tacked on in addition to our service member’s base pay. Once our service members exit the military, that money will cease to exist (unless we take that income loss into account when negotiating future salaries with civilian employers). Even if your family is retiring from military service, the lack of BAH might be a hard pill to swallow the first few months, so it’s best to start saving up for a transition buffer now. You’ll ideally want to add a 6-12 month buffer of savings to your exit strategy, which could take a while to accrue.

3. TAXES

Right now, our tax liability as military families is truly not a lot. But once we enter the civilian world, that tax bill will come to roost, so be prepared. You may not be subject to state taxes now, but if you decide to stay in the state you’re currently stationed in, you’ll need to crunch some numbers to see just how high your tax bill will rise. When leaving the military, you may want to consider moving to a state that doesn’t have income taxes. If your service member plans to retire, be sure to look at whether or not your state will tax their retirement pay. Wherever you plan to live after the military, you’ll want to decide where you’ll get the most bang for your buck.

4. MEDICAL COSTS

Medical costs are yet another expense you’ll have on the “outside.” Say what you will about TRICARE; the fact is that we’ll all be paying more for our healthcare once our service member takes off their uniform. If your spouse isn’t retiring from the military, your family will need to secure healthcare through other means, whether that’s a civilian employer or the healthcare exchange. If your service member ever served in combat, they have the option to receive VA healthcare for up to five years after leaving the military, even if they don’t have a service-connected disability. But the VA only covers the family so you will need to talk with your spouse about finding a civilian insurance plan.

For those service members retiring from military service, you’ll still have access to TRICARE…but you’ll still have expenses. In addition to premiums, you’ll now have the added expense of co-pays. Thanks to the recent TRICARE reform, retirees using TRICARE now have higher co-pays. While $30 per specialty visit doesn’t seem like a whole lot, imagine having physical therapy twice a week, to the tune of $240 a month.

Whether your service member ends up getting out after four years or retires after serving twenty, you need to start preparing financially NOW. Even if they just re-enlisted for another tour, plan as if you’re leaving the military next year. Pay down your debt, start a transition savings account, and start researching where your family will set down their roots once military life is over.

I’m not telling you all of this to scare you. I’m telling you all of this because transition is NO JOKE and we all need to be prepared. These are the realities and how your family prepares for these realities will ultimately determine how positive or negative the impact of your transition to civilian life will be.

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