Military Transition Guide: Financial Tips for Success

Did you know that approximately 200,000 active duty service members undergo the process of military transition to civilian life each year?

Regardless of whether you have been in the military for four years or are in the process of retirement after a long period of 20 or 30 years of service, military transition is not a decision to be taken lightly, much less a process to delay its preparation.

Going from military service to civilian life is much more than a simple change of status or career. For service members, it can be one of the most complicated, important and difficult transitions they will experience. Not only is it just a drastic life change in general, but it’s one that can significantly affect their physical, mental, and financial health. 

The remedy to those side effects of military transition? Excellent financial planning, which allows you to transition out with a plan of action in hand that’s designed specifically for your success. This article is intended to be a guide and a reference for military transition, based on our own experience as veterans and financial professionals. We’ve been where you’ve been.

How to Separate from the Military

In the United States military, the term "separation" refers to a person who leaves active duty, either because he or she has reached the expiration date of the term of service (ETS) or because he or she is in the process of retirement.

As a first step in separating from the military (in either of the two cases mentioned above), you should contact the Department of Defense (DoD) Transition Assistance Program (TAP). The DoD, in this instance, will issue you DD Form 214, also known as a "Certificate of Release or Discharge from Active Duty.” This is probably the most important document you’ll receive from the military. Without it, you won’t be able to access VA benefits.

And, during this first step of the process, remember that all active duty service members who are going to separate or retire, without exception, must make an appointment with their local transition counselor to access all the necessary information about the process.

When to Start Preparing for Military Separation

Although it’s never too early to start preparations for military separation, the Department of Defense normally recommends starting your planning at least one year in advance for your EAS (End of Active Duty). In the event of natural retirement, the suggested time is two years early, if possible.

What to Know About the Transition Assistance Program

As mentioned above, for the military separation process, it’s essential to access the Transition Assistance Program (TAP) of your respective field of service (Army, Marine Corps, Navy, Air Force or Coast Guard), offered by the DoD.

This program provides information, training and tools to ensure that both the active member and their family are prepared for civilian life.

Not sold on the benefits of TAP? Here are a few of the benefits you can take advantage of:

  • Mandatory counseling before separation from the army, accompanied by employment workshops from the Department of Labor (DOL).
  • Disability Transition Assistance Program (DTAP), designed and focused on the specific needs of service members with disabilities.

Make Sure You Have the Documents You Need

To properly start the process, you’ll want to log onto the DoDTAP page on milConnect to access documentation related to the DoD Transition Assistance Program (TAP). There, you can:  

  • Fill out, review, and print the electronic document DD 2648 (Online Form of Standards of Career Readiness and Counseling for Military Members, Prior to Separation, Transition, Retirement, or Release from Active Duty REFRAD) prior to attending informational meetings. You’ll need it.
  • Access the previously entered transition documents, if applicable, before the electronic form was entered.
  • Download your Military Training and Experience Verification (VMET) document or DD Form 2586.

Take Advantages of Benefits

In accordance with the law, the Office of the Veterans Transition Program, along with the Interagency Association of the Transition Assistance Program and all other branches of the service, came together to create a Declaration of Benefits Guide for military members in the process of separation.

Why wouldn’t you want to take advantage of the resources in this guide? It talks all about:

  • Financial advice
  • Tax returns
  • Non-medical advice
  • Spousal education and career opportunities
  • Relocation
  • Health and wellness coaching
  • Adult disability and elderly care
  • Peer-to-peer support
  • Language interpretation services
  • Building healthy relationships
  • Online accreditation opportunities (COOL)
  • Resources for higher education
  • Employment opportunities
  • VA benefits
  • Military transition information

Think of that guide as your first briefing on what transition will mean for you and how you can effectively separate from the military in a way that actually prepares you for civilian life.

Financial Tips for Separating from the Military

Regardless of why you leave the military, much of your success in preparing for your return to civilian life consists of planning for the financial problems you may face. Here are a few practical tips based on our own experiences that can help make the process a whole lot easier and a whole lot less stressful.

Save Before Separating

The first step to a good financial base is to create a savings account, in order to start saving money before leaving the military, and thus have your own financial support during the transition period. 

If you can, work to start saving 6 months to a year before the big event. How much should you save before separating from the military? As is the case with any emergency savings fund, you should save at least six months worth of living expenses. However, given the nature of military transition, we suggest working to save between nine and 12 months of living expenses. 

Design a Realistic Budget

Once you leave the military, your living expenses are sure to increase, as you’ll no longer receive tax-free allowances. Plus, the cost of housing, food, insurance, and other common expenses usually increase as you move off base.

Designing a realistic budget, listing your new income and expenses (adjusted when necessary), can help you stay afloat as you adjust to your new financial circumstances. Not sure how much to save? Try the 50/30/20 rule. Or, aim to save at least 10% of your new salary while you’re just getting adjusted to civilian life.

Keep Saving for Retirement

Finding a new way to keep saving money for retirement is critical. In fact, it’s so important that we’re gonna say it again. Saving money for retirement after military transition is critical. This means opening an individual retirement account (traditional or Roth) or accessing a 401(k) or 403(b) plan with your new employer. Similarly, you must also decide what to do with your military retirement funds.

Protect Your health

Without health insurance, you could be closer to financial disaster. If you retired after 20 years of service, you are a candidate for Tricare insurance. However, if you didn’t serve for 20 years, you can get health care coverage through the VA. If you’re not happy with the options they give you, you will need to look for out-of-the-military insurance, keeping in mind other factors such as copays, out-of-pocket maximums, deductibles, or coverage limits.

What Happens to Your TSP When Separating from the Military?

The Thrift Savings Plan (TSP) is a retirement savings and investment plan for all federal employees and members of the United States uniformed services, sponsored by the Department of Defense. 

At its core, a TSP is a long-term savings account (technically), which you can withdraw from without taxes or penalties until you are 59½ years old. It’s basically the government's version of a 401(k) plan.

Now, what to do with your TSP when you retire from the military? This can be a challenge. There really isn’t a “right” answer here. But, here are some options to consider.

The best options include:

1. Leave the money in your TSP account.

2. Transfer your TSP account balance to an individual retirement plan (traditional or Roth).

3. Transfer your TSP account balance to your new recruiter's 401(k) plan.

Less viable (and less recommended) options include:

4. Withdraw the global balance from your TSP account.

5. Transfer your TSP account balance to a qualifying annuity.

Often the best option is to leave it right where it is due to the wide diversification and low cost that TSP funds offer.

Healthcare Options After Military Transition

During the process of separation from active duty and depending on the reason for it, you may be able to obtain other medical coverage associated with Tricare. Through Tricare, military members and their family members may qualify for one of the following three transitional health care options:

1.    TAMP (Transition Assistance Management Program)

2.    CHCBP (Continuing Care Benefits Program)

3. VA Health Care (Veterans Health Administration)

Life Insurance Options After Military Transition

When leaving the military, the Group Life Insurance (SGLI) offered by the government gets left behind as well. This insurance ends 120 days after you transition from military service or retire.

However, if you are a veteran who is retiring and transitioning, you have the opportunity to convert your SGLI into a VGLI or Veterans Group Life Insurance.

VGLI allows you to continue with the same life insurance conditions that you had during active duty. However, the cost of VGLI is higher compared to the same SGLI coverage because your premiums are based on your age at separation.

On the other hand, you can also replace your SGLI by purchasing life insurance with a different and non-governmental provider such as USBA, which is a non-profit organization that has offered life insurance for 60 years, not only active duty and reserve service members, transitional veterans and retirees, but also to their family members.

Investing in Your Future with Veteran-Owned Wealth Stack

Being considered a veteran in the United States is an honor for life, and we’re honored to continue to serve our fellow service members and veterans. 

Our founder is a proud veteran who graduated from West Point and went on to serve in Baghdad. After separating from the military and working his way up Wall Street, he’s here to bring military members and veterans like you the financial knowledge he wished he’d had when he first started out.

Wealth Stack is a platform designed to help not only teach you how to invest but also teach you how to build long-term wealth through financial literacy. We’ll teach you everything you need to know in order to help you feel less scared about the risks involved with investing and more confident in your ability to create wealth for yourself and your family.

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