Leaving the military -- retiring or separating -- is an exciting yet nerve-racking milestone. After years of structure, discipline and following orders, you're stepping into a life where you have the freedom to forge your own path. Unfortunately, many service members underestimate the big financial changes that come with this transition, which can leave some unprepared for what's ahead.
Preparing for life after the military matters; it's a game-changer for your future. Without preparation, the loss of benefits, higher taxes, tighter budgets and family stress can snowball, making the exciting milestone overwhelming. Instead, you want to start planning to meet your obligations with confidence, not struggle to pay bills and be in a constant financial freefall after your last payday.
Here are some key steps to ensure your financial readiness for civilian life.
Understand the Financial Shifts Ahead
Leaving the military means starting a new financial reality -- one that's a different world than what you know today. Wrapping your mind around the coming changes is the first step to avoiding surprises later. Here are some of the changes you can expect:
What You'll Lose
All the benefits you rely on today won't follow you into civilian life. You'll lose tax-free income such as the Basic Allowance for Housing (BAH) and Basic Allowance for Subsistence (BAS). In your future civilian job, you might earn an income equivalent to what you make now, but your take-home pay will be less because your income will be taxable.
Special pays tied to deployments, mobilizations or skills such as jump or dive pay disappear, too, along with bonuses. If you're not retiring, Tricare, dental coverage and perks such as commissary and exchange privileges all disappear. Right now, you may not realize the layers of financial cushion the military provides that you have been leaning on but will lose later.
New Expenses
There's also the potential for new costs to test your budget. If you're separating without benefits, you'll need to shoulder the costs of health-care and dental premiums and copays in the future. Your Servicemembers' Group Life Insurance (SGLI) will no longer be available, meaning potentially higher rates with a civilian provider or the Veterans' Group Life Insurance (VGLI). You'll also need to plan for a civilian wardrobe to fit your next job, lifestyle extras such as gym memberships or no military discounts, and potential job relocation expenses. These expenses can sneak up fast if you're not tracking them early.
This shift isn't just about you. It's impacting your family, too. Leaving the military changes your spouse's and your kids' identities, routines and finances. Planning for the full impact keeps everyone on track with less stress.
Build Up Your Savings
The first and best way to prepare your finances is to build up your savings. With all the changes coming and many unknowns, building up your savings before you leave the military is paramount. You need at least six months of your living expenses in a high-yield savings account ready for when you need it.
You not only need to prepare for the expected unexpected but also things such as making less than you made before, fewer benefits and the risk of leaving or losing your civilian job once you've started. It's common for the newly retired or separated to switch jobs once or twice within the first few years of leaving service.
You can build up your savings by cutting expenses now, getting a side hustle and selling unused or unwanted items. Getting rid of the excess can also lighten your load if you move.
Get Out of Debt
Carrying a bunch of consumer debt into civilian life is like dragging an anchor behind you. It's going to make the transition that much harder. Paying it off, or at least paying it down, before you separate or retire will lighten your burden and give you room to pivot. With so many financial unknowns ahead, such as higher taxes, new costs and uncertain income, having less debt means more flexibility to handle surprises or under-projected expenses.
Start chipping away now by paying more than the minimum on credit cards, car loans or any debt. Every extra dollar you throw at it today reduces the debt hanging over your civilian budget. Set the goal to start the next phase of life with as little debt as possible.
Develop a Civilian Budget
Your life's about to transform, so your budget needs to keep pace with that change. Mapping out your civilian finances now lets you spot costs and opportunities on paper so you can adjust your plan before living it out in real time. It's like a dress rehearsal for your finances.
Start by estimating your new income, factoring in less (or more) take-home pay and new expenses such as housing, utilities, and health-care and dental premiums. It won't be exact, but even a rough draft beats stepping into the "what's next" blindly. Research the cost of living in your desired location, including state and property taxes, to get a clearer picture. Then test your budget while you're still serving. Live on it for a month, see how it goes and adjust as needed. Before you leave the military, it is a great time to live on less and start paying down debt. Preparation now will 100% save a lot of stress later.
Maximize Free Resources
As a service member, you have access to many free resources paid for by the military. Don't let them go to waste. Take advantage of the resources available now to save money and set yourself up for success in civilian life.
Start with the Transition Assistance Program (TAP), resume workshops and budgeting classes. All are available before separation and can be gold mines for sharpening your skills and finances. Research or talk to someone about U.S. Department of Veterans Affairs (VA) benefits and nonprofit veteran support to see what's waiting for you post-service. If education or training is one of your goals, jump on it while you're still in uniform to get every penny of free tuition assistance.
Then max out your medical benefits before they are gone, especially if you're not retiring since Tricare won't go with you. Schedule a physical, fill prescriptions and tackle lingering issues such as that nagging knee you've ignored. Get it checked and documented now. It could save you thousands later. Don't skip the dentist, either. Your cleanings and checkups are free today, but they'll cost you later. Squeeze every drop from these perks while you still can.
The military has given you skills such as adaptability, determination and discipline to help you through this transition. Now's the time to use them. Start stockpiling your savings, eliminate debt, figure out a civilian budget and use every free resource before you're out. It doesn't have to be perfect. It won't be. The point is to get started. That way, you and your family can begin civilian life financially prepared, not reeling. You've finished your commitment, and now it's time to focus on your next career and future.
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