Journal of Financial Planning: November 2024
Cherie Stueve, Ph.D., CFP®, AFC, FFC, FBS, is a senior content lead with Dalton Education (https://dalton-education.com), a CeriFi company. With 20 years’ experience as a Coast Guard military spouse, she understands the unique challenges faced by military individuals and families. Dr. Stueve navigated eight relocations while raising two children, experiencing firsthand the financial impact due to military spouse underemployment, lack of childcare, challenges with career development, and lower overall retirement savings. Today, she advocates for military spouses to consider financial planning and counseling careers through her mentorship and funding professional development scholarships.
As financial planners, we often encounter clients with unique needs, and military households present distinctive challenges and opportunities. This article is only a starting point to better understand key areas of military financial planning: retirement programs, healthcare, tax issues, and estate planning. With deeper understanding and awareness, financial planners can better align their services to support military clients and serve those who serve.
A caveat: This article focuses on active-duty members and an active-duty career. Military service takes many forms, each with its own similar and distinctive set of benefits and challenges. For the Reserve Components, the military benefits are even more complex to navigate.
The Few Who Serve
Remember the Marine Corps campaign? The few, the proud. Unfortunately, today, that slogan reflects the decreasing number of Americans choosing to serve. Challenges with recruitment and retention, high unemployment among military spouses, and the challenges from geographic instability are threatening our nation’s security.
Recent statistics paint a concerning picture. In 2023, the Army, Navy, and Air Force together fell 41,000 people short of their annual recruitment goals. This trend continues in 2024. Reasons include:
- Lower interest in military service
- Disqualification for service due to obesity, reliance on maintenance medications, and criminal records
- The appeal of careers with higher early-career income potential, more geographic stability or control of location, and higher perceived work–life balance
- Greater reliance on technology, requiring skills attractive to competing civilian employers
From a Pew Research article (Schaeffer 2023):
- Less than 1 percent of adults in the United States are in active-duty service.
- 18 million veterans represent 6 percent of the adult population in the United States.
- Women, Hispanic, and Black adults, and adults under 50 make up the largest shares of total veteran population of 18 million veterans.
- 78 percent of veterans served during wartime, and 22 percent served during peacetime (as of 2023).
- 28 percent of veterans are younger than 50 years old.
Retirement Benefits
A financial planning cornerstone with current or retired military clients is the retirement systems. Military clients may be eligible or already retired in the High-3 legacy system or the new Blended Retirement System (BRS) that was implemented in 2018, depending on their service start date. Both systems allow for contributions to the Thrift Savings Plan (TSP).
At the 20-year service mark, the High-3 legacy group is eligible for a retirement pension that is calculated as 50 percent of the highest three-year average base pay once they retire. This group is not eligible for any government contributions or matching contributions to TSP. This “cliff vesting” with a pension only after 20 years of service left many servicemembers with no retirement benefits if they separated earlier.
At the 20-year service mark, the BRS group is eligible for a retirement pension at 40 percent of the highest three-year average of base pay once they retire. This retirement group also benefits from any TSP government contributions or matching contributions. One attraction in recruitment and retention under BRS is the ability to serve for less than 20 years but still receive employer-provided assistance in building retirement savings.
Thrift Savings Plan (TSP)
Both retirement groups can contribute to the Thrift Savings Plan (TSP) when in service; only those under the BRS receive any employer contributions or matching funds. New servicemembers are automatically enrolled in TSP after 60 days at 3 percent of basic pay rate and invested in the appropriate lifecycle fund (similar to a target fund). The remaining separate TSP-sponsored funds have attractive low expense ratios. Servicemembers may adjust their contribution and investment elections, but this opt-out system supports retirement savings from the start. Explore www.tsp.gov to learn more, including the newer mutual fund window.
TSP Matching
Military members under the BRS and with 60 days of service receive an automatic government contribution of 1 percent of base pay to TSP and matching contributions up to an additional 4 percent of contributions, for a maximum of 5 percent. For a servicemember’s contribution of 5 percent, the first 3 percent is a 100 percent match dollar-for-dollar on contributions, with the remaining 2 percent contribution match at 50 cents on the dollar. TSP matching contributions vest after the two-year mark of service. If the member leaves before two years, they forfeit only the government contributions.
For financial planners, understanding the nuances of both retirement systems and both TSP forms of matching (eligible or not eligible) is critical. Many current servicemembers had the option to choose between the two systems in 2018, and the long-term implications of this choice are significant.
Retirement Decision: Survivor Benefit Plan
The Survivor Benefit Plan (SBP) decision at retirement may be a critical component of financial security for military families to better understand, offering protections for early death, surviving spouse, and inflation. Spouses and eligible children, separately or together, are eligible beneficiaries. In a divorce of a military couple, the SBP may be one area of negotiation. Otherwise, retirement pension payments stop at the retiree’s death.
The maximum spouse annuity is 55 percent of retired pay, with the election of a lower percentage for a lower premium. For the context of monthly premiums, on a $1,000 base amount, the premium is $45.63; on a $2,000 base amount, the premium is $130.00.
Eligible children may be designated as SBP beneficiaries for a 55 percent payment, separately or with a spouse. A disabled child incapable of self-support remains eligible as they age. The premiums are only a few dollars per $1,000 coverage, based on the youngest child’s age and retiree’s age at election. The premium payments stop when the youngest children become ineligible.
Each household will have different preferences and risks to consider with the SBP election and other risk management strategies such as life insurance. However, many do elect the inexpensive children’s coverage during the eligibility ages even if not covering a spouse. Review more at www.militarypay.defense.gov regarding time frames to make the decision, windows to opt out, adding beneficiaries later, premiums, decision considerations, etc.
Spousal Employment and Retirement Savings
Not only do frequent moves stunt a military spouse’s career development and possibly personal satisfaction, but also their financial contribution to the household goals. The timing of active-duty service frequently aligns with a spouse’s early career and, for couples with children, at a time when children are being raised with associated expenses, the higher need for childcare to be employed, and goals to save for higher education.
According to the Department of Labor’s Women’s Bureau, a majority of military spouses are female (more than 90 percent), and participate in the labor market at a lower percentage than the general population (53 percent versus 76 percent). Military spouses suffer unemployment at a rate of 22 percent and underemployment of 32 percent, much higher than the general population (Obis 2024). Yet, today’s military spouse is highly educated with 89 percent having some form of college education, 30 percent with a college degree, and 15 percent with advanced degrees (The Women’s Bureau n.d.).
A significant portion (34 percent) work in state-regulated licensed occupations, which creates challenges for career advancement and household income with frequent moves (The Women’s Bureau n.d.). Launching and growing a small business, except for those that thrive virtually, is likely impossible during active-duty years.
To support military spouses, initiatives such as the Military Spouse Licensing Reimbursement provide up to $1,000 for relicensing expenses in new states. Financial planners can also educate military spouses about the benefits of contributing to a spousal IRA, especially during periods of unemployment. The SECURE 2.0 Act offers tax credits to small employers to encourage them to include military spouses in their retirement plans, making it easier for spouses to save for retirement, as well as preferred contribution and vesting policies for retirement plans.
Healthcare
TRICARE
Healthcare is another crucial element of the military benefits package during service and at full retirement or eligible medical retirement earlier than 20 years of service. Depending upon assignment location, military members and potentially their dependents may be required to receive treatment at a military-operated healthcare facility versus a civilian healthcare facility. Care outside of the military facility may then require a referral or preauthorization. For retirees, continued access to the TRICARE healthcare program and/or VA healthcare is another major potential benefit. An alternative in some areas of the country, the Uniformed Services Family Health Plan (USFHP) is available within a network of private physicians.
However, healthcare and insurance decisions for military members and their families are not simple. TRICARE Prime and TRICARE Select are the primary options, but navigating the system can be complicated, especially with frequent relocations. If a spouse also has access to an employer-provided insurance plan, coordination of the military and civilian plans may be beneficial to increase coverage at minimal costs.
Flexible savings accounts (FSA) are also available; however, health savings accounts (HSA) are not offered as a high-deductible option is not available through TRICARE. Retirees covered by TRICARE are also not eligible for an HSA from a civilian employer, even if they pay the high-deductible premium.
Dental and Vision Coverage
Dental services for active-duty members are covered primarily through the Active Duty Dental Program (ADDP), which provides care at military dental treatment facilities or through civilian providers when needed. Dependents of active-duty members can opt into the TRICARE Dental Program (TDP) by paying additional premiums.
For vision care, TRICARE covers annual eye exams for active-duty members, who may also receive standard-issue glasses and sunglasses at no cost. For dependents, glasses and contacts are generally only covered under specific medical conditions. Families seeking broader dental and vision coverage may consider the Federal Employees Dental and Vision Insurance Program (FEDVIP) or any available employer-sponsored insurance through a military spouse.
TRICARE and Young Adults
TRICARE covers dependents until age 21 (or 23 for full-time students). TRICARE Young Adult (TYA) extends coverage until age 26, though it can be costly. Premiums in 2023 were around $291 per month for TYA Select and $570 per month for TYA Prime. This differs from civilian healthcare plans, which often allow children to remain covered under their parents’ plan until age 26.
Financial planners can assist families in exploring alternative, more affordable healthcare options such as university-sponsored health plans or those available through the Health Insurance Marketplace.
TRICARE at Age 65
Military retirees must enroll in Medicare Parts A and B at age 65 to continue receiving TRICARE For Life (TFL) benefits. TRICARE then acts as a secondary payer to Medicare for Part C and D.
Military retirees who live near VA medical centers may consider relying solely on VA healthcare and skipping Medicare and TFL. Consideration of this decision needs to include that local VA centers may change or the retiree may move to a location without convenient and adequate VA healthcare services. However, VA coverage is not considered credible by Medicare, meaning that if retirees later decide to enroll in Medicare, they could face lifelong late-enrollment penalties on Medicare premiums.
To learn more about all the healthcare treatment and insurance options available to military members and their eligible dependent beneficiaries, go to www.tricare.mil.
Military Retirement and Lifelong Affordable Insurance
With rising health insurance and out-of-pocket healthcare costs impacting the general population, lifelong access to TRICARE and VA healthcare programs offers military retirees and eligible dependents a unique advantage. This stability changes how new military retirees view post-military employment, as they may no longer need to rely on employer-provided health benefits. As a result, retirees can more easily explore part-time work, contract positions, self-employment, or business ownership without the financial burden of obtaining health insurance on the open market. This flexibility opens up a wider range of career opportunities and reduces the pressure to find full-time positions solely for health benefits.
Home Ownership and VA Loans
The frequent moves of military households can make homeownership and equity building challenging, due to frequent cycles of buying and selling, electing to rent, and/or being required to live in provided base housing. The VA Home Loan option provides valuable assistance, including no down payment and competitive interest rates.
Military members who do purchase homes may intentionally or unintentionally become long-distance landlords, which presents both risks and opportunities to build wealth and the benefits of professional guidance. Those who retire without any home ownership or equity need to prepare for a down payment and potentially shortened time frame to pay off a home.
Tax Planning
Tax planning for military families involves several key considerations, as military members and their spouses can choose their state of residency regardless of assignment location. This flexibility means that military pay is taxed based on their established residency, not the current duty station, allowing them to maintain ties to their home state or elect a new state of residency. To establish residency, members typically need to obtain a local driver’s license, register to vote, and maintain a physical address, which can benefit them in terms of local services and tax obligations. Understanding the nuances of each state’s laws is crucial for effective planning.
Military Spouse Income and State Taxes
Similarly, military spouses who earn income in a state where their servicemember is stationed, but outside of their legal state of residence, are not required to pay income taxes to that state. This flexibility is granted by the Military Spouses Residency Relief Act (MSRRA).
However, many military spouses encounter challenges when trying to apply this exemption, particularly in ensuring that their employer’s human resources or payroll departments understand and implement the law correctly. This often results in incorrect withholding of state income taxes, requiring spouses to educate their employers and provide documentation to avoid automatic deductions.
Tax Planning and Deployment Opportunities
The Combat Zone Tax Exclusion (CZTE) creates other unique planning opportunities and potential pitfalls.
The CZTE offers military personnel a significant tax benefit by exempting them from paying federal income tax on income earned while serving in designated combat zones. State laws may vary. These tax-free earnings provide an excellent opportunity to maximize contributions to tax-advantaged accounts like the Roth Thrift Savings Plan (TSP) or a Roth IRA.
In addition, military families can benefit from tools like the Savings Deposit Program (SDP), which allows deployed servicemembers in designated combat zones to earn 10 percent annual interest on deposits up to $10,000.
Military residency laws also create unique tax situations. The Servicemembers Civil Relief Act (SCRA) protects military members from having to pay state income taxes in the state where they are stationed if their legal residence is elsewhere.
Estate Planning
Estate planning for military families often involves balancing military-supported benefits and navigating the complexities of living away from extended family support systems.
Two important life insurance products available to servicemembers and their families are Servicemembers’ Group Life Insurance (SGLI) and Family Servicemembers’ Group Life Insurance (FSGLI). FSGLI extends life insurance coverage to the spouses and dependent children of servicemembers covered under SGLI. Spouses can receive up to $100,000 in coverage, while children are automatically covered for $10,000 at no additional cost. Upon leaving the military, servicemembers have the option to convert their SGLI policy to Veterans’ Group Life Insurance (VGLI), ensuring they can maintain life insurance coverage after service.
Financial planners can help military clients determine if this coverage is sufficient for the needs of the current household circumstances.
All adults need basic estate planning documents, and military families should establish robust powers of attorney and advance directives to manage financial and medical decisions during deployments. These legal documents are often available without charge through a Judge Advocate General’s (JAG) Corps office. Frequent relocations also require updating estate plans to ensure compliance with varying state laws, particularly for families with multi-state real estate holdings. Financial planners should inquire about the existence and details about basic estate planning documents to ensure beneficiaries are current.
Resources to Be the Servicemember’s Trusted Resource
The complex benefits and unique challenges of military households create significant opportunities for financial planners. By developing expertise in military benefits and taking a holistic approach, planners can greatly impact the financial well-being of servicemembers and their families. Here are six key resources for planners serving this niche:
- Professional development courses offer specialized knowledge in military benefits. Dalton Education’s Certified Military Financial Advisor (CMFA) program and AFCPE’s Military Essentials course are designed to address this specific knowledge gap.
- Military and family support centers provide financial counseling services on a wide range of concerns. Familiarity with these centers allows planners to refer clients who may not be ready for comprehensive planning but could benefit from these programs. At publication, the Veterans Benefits Banking Program (VBBP) provides veterans with one free financial counseling session with an AFC professional. Veterans can email for more information veterans@afcpe.org.
- JAG offices offer free legal advising benefits. These services cover basic estate planning, guidance on personal legal difficulties such as lease terminations, and general divorce education. Awareness of these resources helps planners guide clients to appropriate legal support.
- Industry events, such as conferences and workshops, address specific military financial issues. MilMoneyCon, hosting its third annual event in May 2025 in San Antonio, Texas, is an example of a valuable networking and learning opportunity.
- Official websites from the Department of Defense and Veterans Affairs provide crucial updates on benefits and policies. Regular review of these sources ensures financial planners stay current with changes affecting their military clients.
- Networking with other professionals serving military clients allows for sharing best practices and staying informed about emerging issues. This collaborative approach enhances expertise and provides valuable insights into serving this unique client base.
A Call to Serve Those Who Serve
Military servicemembers face distinct financial challenges due to frequent relocations and specialized benefits. Financial planners must navigate these complexities while assisting clients with decisions during active duty and preparing for retirement. While military pay and current assets may not meet typical financial thresholds, the long-term savings opportunities and future retirement pension benefits offer significant opportunities for professional guidance. By focusing on financial literacy and immediate goals with active-duty military clients, planners can build trust and position themselves for deeper engagement as military families transition to retirement. Are you ready to serve those who serve?
References
Obis, Anastasia. 2024, April 18. “Lawmakers Expanding Military Spouse Employment Programs.” Federal News Network. https://federalnewsnetwork.com/federal-report/2024/04/lawmakers-expanding-military-spouse-employment-programs/.
Schaeffer, Katherine. 2023, November 8. “The Changing Face of America’s Veteran Population.” Pew Research Center. www.pewresearch.org/short-reads/2023/11/08/the-changing-face-of-americas-veteran-population/.
The Women’s Bureau. n.d. “Military Spouses Fact Sheet.” Department of Labor. www.dol.gov/sites/dolgov/files/WB/mib/WB-MilSpouse-factsheet.pdf.
Sidebar: Veterans Affairs (VA) Benefits
Veterans Affairs (VA) benefits are an important aspect of financial planning for military families, providing long-term support and opportunities throughout a veteran’s life. Common benefits include disability compensation for service-related medical conditions, education benefits through the GI Bill, and VA home loans.
- Disability compensation. Veterans with service-connected disabilities receive monthly, tax-free payments based on their disability rating. Ratings can be updated over time as conditions worsen, potentially increasing benefits.
- 104 hours of sick leave for federal employees. Under the Wounded Warriors Federal Leave Act, veterans with a 30 percent or higher service-connected disability are entitled to 104 hours of paid sick leave in their first year of federal employment, allowing for medical appointments.
- Education benefits. The Post-9/11 GI Bill provides education benefits to veterans or their dependents. These benefits can be transferred to family members, and additional funding is available through the Yellow Ribbon Program for private or out-of-state public institutions.
- State-specific education waivers. Some states, like California, offer tuition waivers for dependents of disabled veterans, regardless of the veteran’s disability rating.
- VA home loans. Veterans can access VA-backed home loans, which often come with better terms and lower down payments than conventional mortgages.
These benefits, when effectively coordinated, provide significant financial relief and opportunities for veterans and their families, making them an essential part of a comprehensive financial plan. Proper guidance on using these resources, particularly in conjunction with other federal and state benefits, can help military families maximize their financial well-being.