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. In honor of Veteran's Day, U.S. News spoke to four experts for their advice on how military families and veterans can tackle five of these financial challenges:
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 into one's investment accounts while stationed in Afghanistan doesn't always work due to some financial institutions' online security measures designed to prevent fraud (after all, the average consumer probably isn't logging into an investment account from Afghanistan). He suggests using military-friendly investment companies like 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.
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Jason Hull, a former armor officer and 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 pre-tax money and then you never get taxed on any of that money."
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, president of Rosenthal Wealth Management Group, a northern 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 choosing to use 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. However, Nordman says this can be a costly mistake. "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 admits that during his relocations, he bought and sold several houses himself.
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."
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 reserves, that gives you more than one stream of income."
Due to the unpredictable nature of military assignments, 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 other 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.
4. Getting the right financial advice. Rob Drury, executive director of the Association of Christian Financial Advisors and a former U.S. 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 401(k)."
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."