Financial Planning Tips for Military Retirees


July 19 2018

Around 1.3 million people serve in the U.S. military; more than 800,000 are part of the reserves.1 More than 2 million Americans are considered military retirees. 2

Although the military pension system has changed since 1980, more military retirees will be receiving 50% of their final salary for the rest of their lives. The system allows more service members to retire around the age of 40. The U.S. military’s pension system is considered one of the most generous in the nation. 3

The U.S. military paid veterans $57 billion in pension benefits, which is nearly 10% of the service’s annual budget.4 Even though military pensions are generous, meeting the requirements to qualify for benefits can be challenging. Only 17% of service members stay long enough to qualify for retirement benefits.5

Service members are eligible for pensions after serving active duty in the U.S. Army, Navy, Air Force, or Marine Corps for at least 20 years. They may also qualify for pension benefits if they retire for medical reasons from the service. 6

While the commitment to the military’s mission, the service’s professional training, and the more regimented workplaces may differ from the civilian world, everyday life is similar.

Service members sleep in regular beds, shop at the same stores, and conduct business at the same banks (or credit unions) as civilian workers.7 However, the transition to civilian life can be trying.

If you or someone you know expects to retire from the military soon, read these four financial planning tips to prepare for the transition.

Look at your Budget.

Life in the military provides a level of financial stability. If you lived on base, you may have taken some expenses, such as for clothing, health care, and housing, for granted.

While pension checks may fill some of the void, you still have to monitor expenses you may have ignored while in the service. Car payments, rent or mortgage payments, and clothing costs may place an unanticipated burden on your budget.

Veterans are also eligible to receive savings and discounts on services, but few take advantage of the opportunities. Using some of the veterans’ discounts can save you money and put more cushion in your budget.8 Go to to learn more.

What About Taxes?

You paid taxes on your military income while you were in the service. Your pension payments are also taxable as income on the federal level.9 You ought to look into how your state taxes pension benefits. Different states have different taxation rules. Some don’t tax pension benefits while others do. The tendency for many military retirees is to move to a state that doesn’t tax military pensions, which might be a mistake, analysts warn. You should consider other factors, such as cost of living and other taxes and fees, before making your decision. By doing the math you will find the best place to live (and work) to fit your needs and budget during your military retirement.10

Filling the Life Insurance Gap.

Once you leave active duty, you and your family members lose the Servicemembers’ Group Life Insurance (SGLI).11 You have one year and 120 days to apply for Veterans’ Group Life Insurance (VGLI), which doesn’t require medical exams. However, if you apply after 240 days, you’ll be required to respond to health questions and may be subject to a medical examination. Your maximum coverage equals the SGLI coverage amount you had during your service. You may apply for lower amounts in $10,000 increments. You may also increase your coverage by $25,000 every five years to a maximum of $400,000, until age 60. 12

Learn About your Military Retirement Benefits.

While the military’s pension benefit is an attractive incentive, service members should learn the specific retirement plan that’s available to them. Eligibility depends on your enlistment date.

Service members who entered the military:
• Before September 8, 1980 are eligible for the military’s Final Pay retirement system.
• Between September 9, 1980 and July 31, 1986 may receive the High 36 system.
• Between August 1, 1986 and December 31, 2017 are eligible for the REDUX system. 13

To learn more about developing a financial strategy to suit your military retirement needs, contact us today at 303-741-9772.