Serving in the military is more than just a job. It is a way of life, complete with its own structure, hierarchy and terminology. That is why leaving the military can be a culture shock.
It can also cause a financial shock if you aren't prepared for it.
Here are five of the biggest financial challenges you can expect to face when you transition into the civilian world, and some top-level tips you can use to overcome these challenges.
1. Temporary Unemployment or Decreased Income
Leaving your job also means leaving your steady paycheck. Many military members will be eligible for unemployment benefits after leaving the military. This program, called Unemployment Compensation for Ex-service members (UCX), allows veterans to claim unemployment benefits, provided they separated under honorable conditions.
There are some exceptions, however. Veterans who received separation pay or are receiving retirement pay may not be eligible. Contact your state employment office for more information.
If you do land a job right away, you may find that your total income and benefits package differ from when you were serving in the military.
Solution: It's a good idea to have a transition fund in place prior to leaving the military. This can help you cover your expenses while finding civilian employment or paying for any unexpected costs associated with your transition.
2. Unexpected Expenses
Transitioning out of the military world and into the civilian sector may bring some unexpected expenses. You may find that you have the need to move off base or relocate to a new city. Even though the government will foot the bill for your final move, there are always unexpected expenses when you move.
You may also find yourself having to spend money for professional reasons, including courses or certifications, building your professional wardrobe, buying required equipment or tools, or increased commuting costs.
Solution: Try to anticipate what your civilian career will look like, and if you will be required to move. Anticipating these expenses allows you to build them into your budget before you separate from the military.
Healthcare is essential, especially if you have a family. It is also one of the most overlooked aspects of the military transition. Healthcare is covered while you are in the military and you don't need to put much thought into it. Civilian healthcare can be very expensive and it can take some time to understand how it works compared to the Tricare plans you are currently familiar with.
Solution: Military retirees will still have access to Tricare benefits, which makes this an easier transition. But those who are not retiring will need to find another solution. You may be eligible for one of the transitional military healthcare plans, such as TAMP or CHCBP.
If not, you will need to find healthcare through your employer or on the Affordable Care Act Exchanges, found at HealthCare.gov.
Another option is looking at joining the Reserves or National Guard, both of which offer Tricare Reserve Select, which is an affordable health insurance program.
4. Life Insurance
Life insurance is something most people need if they have dependents that rely upon them for support. Military members have access to the Servicemember's Group Life Insurance (SGLI) policy, which is very affordable. However, your policy will expire shortly after you leave the military, leaving you to find your own life insurance policy. You may be able to convert your SGLI policy to a Veterans' Group Life Insurance (VGLI), but VGLI rates are based on your age and will substantially increase over time. It may not be the best long-term option.
Solution: Apply for a new term life insurance policy before you separate from the military. This will ensure your life insurance coverage remains unbroken and your family will remain protected.
Military members enjoy many tax-free pay and benefits, including BAH, BAS, and certain special duty pays. It is easy to underestimate how much these benefits are worth as part of your total compensation package. As a result, you will need to earn significantly more money from your civilian paycheck to enjoy the same take-home pay you received while in the military. Some states also do not tax military income. Finally, your tax situation may change if you relocate after leaving the military.
Solution: Spend some time reviewing your military income and benefits, and understanding how it impacts your tax situation. Understand how much money you will need to earn in the civilian world to have the same spending power you had in the military. Finally, look at how leaving the military and possibly relocating will impact your taxes at a local, state, or federal level. Understanding your taxes now can help you avoid some unexpected tax surprises after you leave the military.
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