Military Financial Guide to Transitioning to Civilian Life

Now is the time to dip your toe into the civilian pool and get a feel for the jobs out there for which you'd be qualified. If you’re thinking of attending college after leaving the service, it’s a good time to start exploring your interests and options.

Step 1: Start working on your job search. A majority of veterans surveyed, 55%, list the search for a job among the most challenging things about transitioning out of the military, according to a report from Syracuse University’s Institute for Veterans and Military Families. Also, according to the report, 41% of veterans said they had challenges adjusting to civilian culture.

Step 2: Take time to engage with your service’s transition assistance program (TAP). TAP is a formal counseling and instruction program designed to assist departing military members and their families transition to civilian life as smoothly as possible and find work as quickly as possible.

Since October 1st, 2019, this program has been required by law. Each service branch runs its own program:

• Army — Soldier For Life Transition Assistance Program
• Navy Transition Assistance
• Air Force Transition Assistance Program
• Marine Corps Transition Readiness Program

The process starts with a detailed self-awareness counseling session, followed by an intensive three-day workshop, called the Transition Readiness Seminar. You can select from three career tracks:

• Employment
• Entrepreneurship
• Vocational training

You aren’t limited to just one: If you can arrange the time off with your chain of command, you can participate in two or all three tracks.

Most major installations have a TAP office on site. If you’re married, your spouse can also participate in MySTeP, or the Military Spouse Transition Program.

It’s a good idea to begin the transition process early, even if you’re currently planning to reenlist. The program costs nothing, and any number of situations could potentially occur to cause you to change your mind or take that choice away from you. For example, you could get involuntarily separated due to a reduction in force, or you could get medically retired because of an illness or injury you cannot currently foresee.

The six-month mark should be the deadline date for completing your three-day transition readiness seminar. Though the sooner you can complete that seminar, the more time you will have to implement what you learn before you actually leave active service.

Step 1: If your transition plan involves professional certifications or retooling yourself to learn a new vocational skill set, you should have this process well underway.

You can use Post 9/11 GI Bill benefits to attend most trade schools, and online instruction also qualifies for Post 9/11 GI Bill benefits. You don’t necessarily have to wait until you ETS to enroll. You can take online courses even while deployed or on sea duty.

Step 2: Start researching and consider joining trade or industry associations, especially while enrolled as a student. Many such associations encourage students to enroll by offering discounted membership dues.

Typically, you’ll get a subscription to the association’s trade journal as part of your membership. It’s a great idea to start reading up on news and issues that specifically pertain to your industry. It will give you a leg up over other applicants when you get to the interview.

Step 3: Make use of DoD SkillBridge. This public-private partnership program provides uniformed service members opportunities to participate in internships, industry training or apprenticeship programs over the last 180 days of service.

Step 4: If possible, have a few meetings with people actually in the industry you are targeting. Attend an industry event, or simply ask to take someone out to lunch so you can pick their brains. Find out who does a lot of hiring in the industry and who’s especially connected in that industry, in or out of town. Start taking note of those names and get contact information for them.

Most people are happy to spend a few minutes assisting a transitioning veteran. Invest the time to speak with these people before you start applying for jobs.

Now is the time to think about medical insurance for you and your family after your ETS date. Leaving the military qualifies as a TRICARE Qualifying Life Event (QLE). You don’t necessarily have to lose TRICARE coverage, though it may make sense for you to shop around.

Step 1: See if TRICARE can still work for your insurance needs. If you’re involuntarily separated under honorable conditions, a reserve component member separating from a mobilization lasting at least 30 days for a preplanned mission or in support of a contingency operation, or meet other specific criteria, you may be eligible for the Transitional Assistance Management Program (TAMP). This program provides premium-free coverage under TRICARE for 180 days after your regular TRICARE benefits expire.

You will be eligible for any of these TRICARE plans:

• TRICARE Prime (required when it’s locally available where you live)
• TRICARE Select
• US Family Health Plan (enrollment is required in specifically designated locations)
• TRICARE Prime Overseas (enrollment required)
• TRICARE Select Overseas

TAMP is not valid during terminal leave. If you have terminal leave remaining, you will be covered by your original TRICARE coverage, whether TRICARE Prime, TRICARE Remote or TRICARE Select.

Step 2: If you don’t qualify for TAMP, you may be eligible for the Continued Health Care Benefit Program (CHCBP).

The CHCBP is designed to function as a temporary bridge between the TRICARE and military health care systems and civilian health insurance. It provides the same coverage as TRICARE Select, including prescription drugs. The CHCBP provides coverage for up to 18 to 36 months while you line up employment or purchase your own individual or family coverage.

Departing service members are eligible for up to 18 months of CHCBP coverage. Dependent spouses and children who lose TRICARE coverage are eligible for up to 36 months, as are unremarried former spouses who lose TRICARE.

At one month out, you’ll have one foot in military life and the other foot in civilian life. Creating a detailed checklist can help as you navigate this pivotal time in your transition to civilian life. Tasks to accomplish at the one-month mark include:

Meet with your admin NCO and go over all your paperwork. Lock in a job or enroll in school, if you haven’t already. Decide on transportation details including car insurance.

STEP 1

Ensure you’ve got all your points, all your decorations are correct and there are no gaps in your service record. You should also verify your final pay and your retirement status, if applicable.

STEP 2

Meanwhile, you should be actively filling out job applications. With one month to go, you are in the home stretch. If you aren’t already locked in with a job, you should have multiple interviews booked for the week you get out of the service and arrive at your permanent home of record.

When it comes to their earning potential right after they leave the military, most departing service members may be in for a shock: The majority of exiting veterans lose money when they leave, says Castro.

“The military is actually a very well-paying organization,” he says. “It’s one of only a few large organizations that pay a middle-class salary and benefits.”

Use the Bureau of Labor Statistics website to quickly find the mean, median, top quartile and bottom quartile salaries or hourly wages for 800 different occupations and detailing the mean and median wage for 800 different occupations and 400 various industries.

Other sites, such as Salary.com and Glassdoor.com, can help you further refine your estimate. Additionally, you can also check trade and industry association publications and surveys for more detailed information specific to your trade or profession.

STEP 3: LINE UP TRANSPORTATION

In the military, you may not have needed your own car. But now that you’re leaving, you may want to join the ranks of the commuters and buy a new or used car. Your transportation requirements may change. For example:

• That beater that got you from the commissary to the PX and back to the barracks may no longer cut it for a 30-mile highway commute.
• Your spouse may be working, too, and need to commute.
• You may want a car that presents a more professional appearance.

STEP 4: SAVE ON AUTO INSURANCE BY SHOPPING AROUND

Military people have special auto insurance needs. They frequently move from state to state, they need insurance while driving overseas in places like Korea, Germany or Japan, and they occasionally need to put cars in storage while on deployment or sea duty.

The military auto insurance market is dominated by USAA, GEICO and Armed Forces Insurance. But once you’re out of the military, you may not require or qualify for the military benefits provided by these insurance companies anymore. There’s no reason to pay for benefits you no longer need.

You may be able to find a much better deal overall on your car insurance by shopping around. USAA and GEICO are usually very competitive, even for those who have left the military, but not for all drivers. Your rates depend on a variety of other factors.

STEP 5: ARRANGE FOR ADAPTIVE EQUIPMENT FOR DISABILITIES IF APPLICABLE

You may have already incorporated adaptive equipment into your life if you’re living with a disability, and the military is a great help in getting this set up.

Transportation

If you’re living with a disability, you may need a car with some adaptive technology so you can drive it. For example, you may need a vehicle fitted with special controls, a wheelchair lift and fastenings, power ramps or other features.

If you’re disabled, you may qualify for the automobile allowance and adaptive equipment benefit. This is a one-time grant of up to $21,488.29 in order to buy or equip a vehicle to accommodate your disability.

You may be able to receive this benefit if at least one of these conditions apply:

• Loss or permanent loss of use of at least one foot or hand.
• Permanent decreased vision in both eyes. The VA defines this as 20/200 vision or less in your better eye (with glasses) or greater than 20/200 vision but with peripheral vision reduced to 20 degrees or less in your better eye.
• A severe burn injury.
• Amyotrophic lateral sclerosis (ALS) (Lou Gehrig’s disease).
• Ankylosis in at least one knee or hip (adaptive equipment grant only).

Housing

If you are a service-disabled veteran and you own or will own your own home, you may qualify for a specially adapted housing grant of up to $85,645. This money can be used to remodel a home or install adaptive equipment such as elevators, lift chairs, special showers, toilets or kitchens, widen doorways to accommodate a wheelchair, install ramps, or other modifications as needed to accommodate your disability.

In the military, the government provides a substantial pension for those who make it a career.

Once you're out, chances are you'll need to save money for your retirement. Few private-sector employers still offer a traditional, guaranteed defined benefit pension, where you know exactly how much you're getting each month in advance regardless of what the financial markets do. You need to save that money yourself.

As a civilian, you’ll likely have a choice of several different tax-advantaged account types for saving for retirement. Most people who are successful in retirement use them in combination, contributing to them over many years. Let’s take a look at some of the most prominent:

As you probably know, the Thrift Savings Plan is a voluntarily-funded retirement plan for military members and federal employees. If you have any loans outstanding from your TSP, you need to pay them off within 90 days of separation. If you’ve been participating in the federal government’s Thrift Savings Plan (TSP), you need to decide what to do with that money once you leave the military. Here are your choices:

STAY IN THE PLAN

If your balance is $200 or more, you can keep your money in the plan and leave it there until you have to start taking withdrawals starting at age 72. This avoids taxes and preserves the tax-deferred benefit of the TSP. You don’t have to pay taxes on dividends, interest or capital gains within the TSP as long as the money remains in it.

The Thrift Savings Plan has some of the lowest administrative expenses available anywhere, so it can be a very good place to leave long-term money.

ROLL IT OVER

You can roll the money over to your own IRA, or once you’re employed, to a qualified employer retirement plan. When properly conducted, the rollover is tax-free. The best way to do this is via a trustee-to-trustee transfer, so that the money is wired directly from your TSP to your new retirement account. If you withdraw the money directly, planning to deposit it in your new retirement fund, and don’t handle things correctly, you could accidentally trigger taxes and penalties.

The advantage of rolling it over to an IRA or 401(k) is you get more investment options. This is especially true with an IRA.

The disadvantages include the higher expenses in mutual funds ordinarily available in the market. You also cannot take loans out of an IRA. However, if you roll over your TSP into a 401(k) and your plan allows, you may be able to take a loan out of your 401(k). Check with your new plan's administrator or sponsor to see whether your 401(k) allows for loans.

THE ROTH ADVANTAGE

The other advantage of rolling it over to an IRA is you can later convert your IRA to a Roth. You will pay income taxes on the amount you convert, except for any contributions you made on a non-deductible basis. But once it's in the Roth, that money will grow tax-free, under current law, for as long as you live, provided the money has been in the account for at least five years.

Furthermore, with a Roth IRA, you don't have to worry about required minimum distributions — money you have to take out and pay taxes on — once you turn age 72. There are no RMDs in Roth accounts, as long as the money meets the five-year rule.

Roth IRAs can be mighty, especially for younger people who are not yet in their peak earning years. If you expect to be in a higher tax bracket when you retire than you are today, you may wish to consider transferring your TSP to an IRA, then converting it to a Roth.

Some 401(k)s also offer a Roth option. Once you've been hired, check with your new employer for details.

WITHDRAW THE MONEY

You can take the money out as cash. However, you'll pay income tax on any amount withdrawn. The government will withhold an additional 20% with which to pay income taxes. This is on top of any early withdrawal penalties that would apply.

Most retirement planners recommend against unnecessarily taking early distributions from retirement plans. It generates an immediate tax liability, and you lose the benefit of years of tax-advantaged compounding interest — especially in the TSP, where expenses are so low.

The military provides for a generous retirement pension, though it’s not as generous as it used to be. Depending on when you joined, you may be eligible for one of four different retirement schemes:

LEGACY HIGH-3 (MILITARY RETIREMENT PAY)

Servicemembers who entered the military between September 8th, 1980, and December 31st, 2017, are eligible for the Legacy High-36 (High-3) system. This pay is:

• Received after 20 years of honorable service.
• Not matched with TSP contributions.
• Calculated based on 2.5 times the highest 36 months of basic pay.
• For service members who began service by December 31st, 2017, to qualify.

Calculating your own High-36 retirement benefits is the best way to know how much you’ll receive.

CSB/REDUX

If you took a $30,000 career status bonus after 15 years of service with an agreement to complete 20 years, then you fall under the CSB/Redux plan. In this plan, your retirement benefits are much less generous than they are under Legacy High-3.

CSB/Redux is calculated as follows:

• 40% of the High–36 average basic pay after 20 years of service.
• An additional 3.5% for each year served beyond 20 years.
• A cost-of-living adjustment that is one percentage point lower than the Consumer Price Index increase normally granted to those in the Legacy High–3 program.

The CSB/Redux pension has a reset feature, though. At age 62, the government recalculates your pension using the multiplier to the High-36 system. The government also recalculates the cost of living using the full CPI, not the reduced one, to calculate a new, higher base salary. However, the future cost-of-living increases will be at CPI, minus 1%.

BLENDED RETIREMENT SYSTEM

The Blended Retirement System (BRS) is the military’s newest pension plan, replacing the previous High-3 system. While High-3 was based on the servicemember’s highest-earning three years in the military, the BRS has three components:

• matching TSP contributions.
• retention bonuses earned mid-career.
• A monthly lifetime income based on your length of service.

While the legacy retirement pension was based on 2.5% per year served, the BRS calculation is based on a lower 2% calculation.

You can also calculate your pension under the BRS system.

FINAL PAY

To be eligible for the Final Pay system, you would have had to have joined the military prior to September 8th, 1980. It’s unlikely you can qualify for this plan. It was based on your final month’s base pay, rather than your final 36 month’s base pay. You got credited 2.5% for every year of service, which meant 50% of your final month’s base pay (with COLA) after 20 years, and 100% after 40 years of service.

PROVIDING FOR A SURVIVING SPOUSE

It’s important to note: When you die, your military pension dies with you. Payments will cease immediately on your death. This can have devastating financial consequences for a surviving spouse, who may depend on that pension for living expenses.

Unless the military spouse is entirely financially independent, you need to take steps to ensure your spouse is financially protected if you should die first. To address this, the military offers the Survivor Benefit Program. If you enroll, your pension benefit is slightly reduced. But in return, your pension will continue to pay out as long as your surviving spouse lives.

If you’re married, you are automatically enrolled in the Survivor Benefit Plan. You cannot decline it without your spouse’s written permission.

If you aren’t covering your current spouse, you may also choose to provide this benefit for your child or children, a former spouse, or even a parent. This might be a good idea if you have a parent who relies on you for financial support.

In the military, you were eligible for Servicemembers' Group Life Insurance, or SGLI. This term life insurance is available at very advantageous rates. Your next of kin would also receive a $100,000 death gratuity in the event you died while in service.

But when you leave the military, you lose both of those benefits. If you take no action, you will not have life insurance in place unless you've already bought it yourself. This could have catastrophic financial consequences for your family if something happened to you as a family breadwinner.

After you ETS, you are eligible for Veterans Group Life Insurance, or VGLI. You don't have to take a medical exam to enroll. You will pay a higher premium than you did in SGLI. But if you are in good health when you leave the service, VGLI may not be the best deal for you. Try to compare multiple life insurance plans and shop around for an affordable policy with the coverage you need. Carriers who require a medical exam before they will issue a policy will generally charge a lower premium than carriers that don't require one, says Castro.

And don’t wait. “Buy life insurance when you’re young, while it’s cheap.” Castro says. “And it’s cheaper when you’re young.”

The best way to go about being organized as you plan for your departure from the military is to keep a notebook, spreadsheet or some other method to keep all the tasks you need to complete in order. A checklist is a must. As you go through the steps of your transition, mark the following off your list, plus other tasks that may apply to your situation.

1. Develop your resume
2. Make an appointment with the transition counselor on your installation.
3. Attend your service’s transition assistance program (TAP).
4. Document all service-related injuries and illnesses.
5. Review your DD-2648 (Military Transition Checklist).
6. Begin networking.
7. Identify potential career paths.
8. Review your GI Bill and tuition assistance benefits.
9. Take CLEP exams to knock out prerequisites and course requirements.
10. Enroll in relevant coursework or certification programs.
11. Complete your DoD Form 2586 — Verification of Military Experience and Training.
12. Request permissive temporary duty orders for house hunting and/or job searching.
13. Get household goods (HHG) transportation counseling.
14. Research continuing health insurance benefits.
15. Apply for scholarships.
16. Verify retirement pay.
17. Enroll in the survivor benefit program.
18. Schedule a physical with your local installation or VA health care facility.
19. Schedule final check-ups for family members.
20. Attend career fairs.
21. Get appropriate civilian attire for job interviews.
22. Visit your JAG to update your will, beneficiaries and other important documents.
23. Decide whether to sell your leave or take terminal leave.
24. Save money.
25. Research the cost of living and career prospects in your new city.
26. Compare VGLI with other life insurance options.
27. Get copies of your health and dental records.
28. Verify your DD-214 is accurate.
29. Claim unemployment insurance, if applicable.
30. Change your car insurance to your new state (with new minimum liability coverage).
31. Sign up for career counseling/transitions services.