1/11/2013 8:00 PM ET|
5 money issues for military families
If you or your spouse is in the armed services, you face some unique financial challenges. Here’s what experts say about how to handle them.
With frequent moves and the potential for overseas deployment, military personnel and their families face unique challenges when it comes to managing their money and saving for the future. U.S. News spoke to four experts to get their advice on how military families and veterans can tackle these five financial challenges:
No. 1: Managing money during an overseas deployment
Online banking has made it easier to monitor money and transfer funds during deployment, but according to Doug Nordman, a retired Navy officer and author of “The Military Guide to Financial Independence and Retirement,” logging in to one's investment accounts while stationed in Afghanistan doesn't always work because of anti-fraud security measures used by some financial institutions (after all, the average consumer probably isn't logging into an investment account from Afghanistan).
He suggests using military-friendly investment companies such as USAA because they "understand the challenges of managing money overseas." USAA offers insurance policies and banking products for military members and their families, so its products may be more tailored to service members' needs. For instance, USAA offers a $15 monthly refund allowance on ATM fees, a plus for someone who travels or relocates often.
Jason Hull, a former Army armor officer and the owner of Hull Financial Planning in Crowley, Texas, suggests automating retirement contributions and bill payments, especially during a deployment. "It's less for you and your spouse to have to worry about, and it gives you less opportunity to make financial mistakes," he says. It can be tempting to buy a flat-screen TV, but "if you've automated your finances, you don't have as much wiggle room to make bad decisions like that."
Those deployed to a combat zone can take advantage of the combat-zone tax exclusion. "If you make contributions to your Roth Thrift Savings Plan, they get special treatment and you won't be taxed on your earnings as long as you satisfy the requirements," Hull says. "It's effectively the holy grail of personal finance, because you're taking pretax money, and then you never get taxed on any of that money."
No. 2: Moving every few years
Frequent relocations are part of military life, but they can make it difficult for officers to adjust to higher living expenses, says Larry Rosenthal, the president of Rosenthal Wealth Management Group, a Virginia firm that works with several military clients. "We're right outside of Washington, D.C., so the cost of living is very high. Somebody located in this area after coming from the Midwest may run into a little bit of sticker shock," he says.
Faced with the option of using their housing allowance to rent or buy, some service members opt to buy a house and then sell or rent it out once they're reassigned. Nordman says this can be a costly mistake, though. "The vast majority of service members should rent until they know they're going to be in a place at least five years, and if you think you're gonna be stationed in a place for more than five years, you're wrong," says Nordman, who says that during his relocations, he bought and sold several houses.
He tried to unload one after three years and made a profit on the sale of another. "I've seen the good and the bad, and in retrospect, it's best to minimize your financial risk," he says. "It is no fun being a long-distance landlord."
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No. 3: Balancing the spouse's career
Frequent relocations make it challenging for an officer's spouse to hold down a job. "A lot of military spouses end up having a series of short-term jobs, but dual military couples are on the rise," Nordman says. "If the other spouse stays in the service or in the Reserve, that gives you more than one stream of income."
Because military assignments are unpredictable, Hull suggests budgeting for a single income. "That way, any spousal income that you get is extra money that you can throw to debt planning or retirement," he says, adding that the spouse could try getting into the Department of Defense employment system or find nontraditional work that's less dependent on location.
"If you're going overseas, can you teach English as a second language? Can you do crafts? Or consult? Find something that you can do really well where you can create a niche."
Military spouses may also qualify for tuition assistance through the Military Spouse Advancement Accounts program.
No. 4: Getting the right financial advice
Rob Drury, the executive director of the Association of Christian Financial Advisors and a former Air Force major, says service members can have a hard time getting objective financial advice. "It's not a culture that allows for financial planning personnel, so there are a lot of restrictions," he says.
Some service members fall prey to high-pressure sales tactics for "special mutual funds" or other products. "Don't get sucked into a high-commission financial product just because your command major is selling it," warns Hull. "There are companies that hire military members that just got out of the service to go back and sell products to the old units, and they don't serve the buyer well."
Nordman agrees, adding, "It's tough to find a good financial adviser who understands military issues. They may not understand how a military pension works or how your pay in the military is structured -- how your situation is different from someone who's contributing to a 401k."
No. 5: Transitioning to civilian life
While some service members like Nordman retire after serving 20 years, not everyone can afford early retirement. "The vast majority of people who try to retire with a military pension do not, usually for reasons beyond their control and beyond performance," says Drury. "Defense is not a growth industry. There simply isn't the room for advancement that there once was."
Hull says those planning to pursue a second career in the civilian world should receive as much education as possible through the military assistance program. "If you went into the military straight out of high school, it's a great way to get your bachelor's degree paying very little money out of pocket," he says. "It helps you in your promotion boards and helps you in the civilian world. But remember, you're in college to translate military skills into marketable skills. It's OK to have fun and let loose, but do it in moderation."
In addition to letting loose, some people are tempted to overspend on their higher salaries. Says Rosenthal: "Most military people end up saving a lot of money in their second career when they're able to make more money in the private sector, but it's important that they spend less than they bring in each month."
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Having fought in 2 wars I know first hand as an enlisted member of the Corps. Your housing, food, hazardous duty pay, seperation pay, and any other incidentals are tax free to begin with. If you deploy your base pay is not only tax free up to around $80,000, but the memeber is not spending money they normally would back home.
Stop buying $30,000 cars, booze, iPhones, porn, and big screen TVs and you will do just fine.
It really depends on where you are stationed. You can be stationed in England making a salary, TDY money, and a good cost of living allowance. Some assignments you make out with cheap rent, low cost of living, TDY money making opportunities, and a desk job. You can be stationed in expensive **** California where you have to watch your money, expensive rent, gas is 4 dollars a gallon, no TDY's, and you work your **** off with no base housing available but the important thing is to get a game plan for where you are at and always save something even if its just a few dollars a month and stick to it. Plan Financially, transition-wise, Spouse wise(The hardest one), and Plan out you or your families future. No one size fits all. Thats the irony of military life Everybodies situation is slightly different.
I have seen people retire with a nest egg of quarter of a million with a job waiting on them or I have seen folks retire with nothing. There are so many factors involved, divorced, single, Officer, Enlisted, Senior Enlisted, Junior Enlisted, Gov Civilian, contractor and they all have their own situation. Look at what is going on now and you can imagine. The person prepared to weight this out is well prepared.The bottom line you always have to plan regardless of who you are and what you do and remember as someone told me MR. Hard Times is always right outside your door whether you are in uniform or not.
Like they told us "If the Military had wanted you to have a life, we would have issued you one"...
Survive and Thrive.
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