Good financial planning means being prepared for life’s
unexpected occurrences. For military families, that’s particularly
important because of the transient nature of military life.
Good financial planning means being prepared for life’s unexpected occurrences. For military families, that’s particularly important because of the transient nature of military life. Repeated back-to-back deployments make it imperative that both spouses have the same financial goals and decide how the stay-at-home spouse will hold down the financial fort while the service member is away.
“It’s vital that they talk about where they want their money to go, what’s important to them and how they’re going to get there,” said Lisa Wright of Cleburne, whose Marine Corps husband is stationed at Camp Pendleton and is expected to deploy to Afghanistan in March.
This isn’t a conversation to have the night before your spouse ships out.
“It needs to be done in a calm environment so that the service member can go overseas and focus on their mission instead of worrying about money and finances,” said June Walbert, a certified financial planner at USAA Financial Planning Services and a lieutenant colonel in the Army Reserve.
“When you get that coveted call home, you don’t want to talk about money,” Walbert said. “You want to say hello and see how the family’s doing.”
Wright took matters a step further than most.
“I took advantage of every military educational opportunity, every article I could read about military finances,” she said.
Today, she is an accredited financial counselor in the Military Spouse Fellowship Program, which enables people to offer volunteer financial counseling to military families.
Here’s what Wright and other experts say military members and their families need to do before deployment:
GET AFFAIRS IN ORDER
Make sure your bank and credit accounts are joint accounts so your spouse will have access to your financial accounts and other assets while you’re deployed.
Update your beneficiary designations on your insurance policies and bank accounts.
Make sure you have adequate life insurance. The military offers life insurance through the Servicemembers’ Group Life Insurance with a maximum coverage of $400,000.
“No one wants to talk about their spouse’s premature death,” Walbert said. “I tell people we hope for the best but plan for the worst. We want to have enough life insurance in place in case the worst scenario happens.”
If you have other life insurance policies, check to see if they have a war clause that says the insurer won’t pay benefits if you’re a casualty of war.
Draw up important documents, such as your will, durable power of attorney, medical power of attorney and living will.
MANAGE YOUR EXTRA PAY
Review the extra pay you may be receiving, for such things as family separation, imminent danger and hardship.
“These are temporary entitlements, and you should not become reliant on them for daily living expenses,” said Joe Morrin, director of financial planning at First Command Financial Services Inc., which works with military members.
Service members serving in a combat zone may exclude their combat pay from income for federal income tax purposes.
That also includes imminent danger and hostile-fire pay as well as military pay earned while hospitalized as a result of wounds, disease or injury incurred in the combat zone.
As a result, “service members experience about a 25 percent bump in pay because their combat pay is tax-free, plus they get certain pay and allowances that are tax free when they’re in a combat zone,” Walbert said.
ESTABLISH A BUDGET
So what do you do with the extra money?
“Because finances are so often tied up with the amount of stress a person has, it’s good to have a budget in place,” Wright said. “Sketch out a guideline on what’s going out, what’s coming in, and if there is extra money, what do you do with that extra money?”
Have savings equivalent to at least as much as three months of expenses, Wright said. Many financial planners recommend six months.
“Look at extra expenses that may be needed while you are deployed, such as child care, lawn services, snow removal,” Morrin said.
For those serving in combat zones, the military has the Savings Deposit Program, which enables them to deposit all or part of their pay into a savings account up to $10,000 during a single deployment.
Interest accrues at an annual rate of 10 percent and compounds quarterly.
This isn’t a source for money you’ll need in the short term because you can withdraw the money only at end of your deployment.
PLAN FOR RETIREMENT
The Thrift Savings Plan is a retirement savings and investment plan for federal employees, including military members.
The TSP offers the same type of savings and tax benefits as 401(k) plans.
The retirement income that you receive will depend on how much you’ve contributed and the earnings on those contributions.
WATCH YOUR CREDIT
Make sure you’re current with your bills and paying off or paying down your debt. Having good credit is especially important for military members because bad credit can cause them to lose their security clearance.
“There have been many cases where they’ve been denied or their clearance code has been revoked because they’re considered a security risk,” Walbert said.
The Servicemember’s Civil Relief Act provides a wide range of protections for active-duty military members. It’s aimed at postponing or suspending certain civil obligations to enable service members to devote full attention to duty
and relieve stress on the family members.
Among other things, the law limits the interest charged to active-duty service members to 6 percent on credit obligations, including credit card debt, incurred prior to military service.
It’s a lot to think about and a lot to keep track of, but Wright says it’s necessary.
“With military families, it’s never-ending,” she said. “We have to keep on our toes about our finances.”