As graduation time nears, a new group of men and women will be entering the armed forces. Whether enlisting after graduating high school or receiving a commission after college, there are many benefits that can serve you while you serve the country. While the two main benefits are for retirement and education, there are many more. Whether you plan to make a career of serving in the military or just plan to serve one enlistment, here are some tips to help you make the most from your service, and build a solid foundation for the rest of your life.
Retirement
20+ Years of Service
The most notable benefit of serving in the military is the retirement plan. Currently, if an individual serves on active duty for 20 years, the government offers between 40-50% of his pay for the rest of the veteran’s life. The actual percentage is based on the retired pay multiplier the individual selects. Additionally, veterans are offered healthcare benefits ranging from $0 out-of-pocket to 80/20 plans, based on plan selection by the individual. Service beyond 20 years increases the monthly benefit by a fixed amount per additional year of service, usually 2.5% per year. Imagine graduating high school at 18, enlisting in the military, serving 20 years, earning a college degree, a master’s degree, and retiring with half pay and medical and dental coverage for life by the time you are 38. Not only will you be very marketable, you will have time and plenty of opportunities to start a new career wherever you choose!
More on Military Healthcare Benefits
More on Military Retirement Pay
Thrift Savings Plan
The Thrift Savings Plan (TSP) is the government’s version of a 401(k) retirement plan. Service members can elect as much pay as desired to be taken from their monthly paycheck, including incentive pays, and deposited into a TSP account. The annual limit is the IRS limit on contributions, which is $16,500 for non-deployed personnel. Individuals deployed in a tax exclusion area are subject to different rules, and can elect up to $49,000 in contributions to their TSP account per year. The money contributed is tax deferred and reduces taxable income for the current tax year. Utilizing the TSP is important for many reasons. By setting an automatic contribution, the money is never deposited into your account and never missed. Since you contribute a percentage of your pay, as your pay increases so does the contribution up to the $16,500 limit. Another huge advantage of the TSP is the extremely low expense ratios. For 2010, it was 0.025%, meaning it cost $0.25 for every $1,000 invested in the plan. Additionally, if you have another type of retirement account after service, such as a 401(k) plan, upon separating from that company, you can roll the plan into your TSP account provided the money is pre-tax money and certain other conditions are met.
More information on Thrift Savings Plan
Allotments
Similar to having money taken from each pay check and deposited into a TSP account, the military will allow you to set up an automatic payment, called an allotment, that is subtracted from your monthly wages. An allotment is similar to a bank’s bill pay service. The difference is the allotment is paid at one time, but the money is evenly divided between your semimonthly paychecks. For example: A $600 allotment for your rent is paid May 1st, but your take-home pay will be reduced by $300 on the 1st and 15th. Since the money is not deposited into your account for you to spend, you never miss it. This is the perfect way to start saving for retirement early, and establish solid saving habits. Set up an allotment of $100 a month to a Roth IRA account. As salary grows, the allotment can be raised, so that you contribute more to your Roth IRA.
More information on Allotments
Education Benefits
Montgomery GI Bill
The military has recently placed a higher emphasis on recruiting people with higher education degrees. There has also been a push to continue the education of current and former armed forces personnel. With that in mind, Congress recently updated the Montgomery GI Bill. It now covers more educational expenses than in the past and is available to active duty, reserve, enlisted personnel and officers. In some cases, it can be transferred to a family member. The benefit covers tuition and books, and gives a stipend for living expenses each month the veteran is in school for up to 36 months. The tuition costs covered vary by state, but can go a long way toward earning a degree. Benefits vary by the length of service, but generally if you serve for more than 36 months on active duty, you will receive the full benefit. Even if you do not think you will ever use the benefit, it is wise not to opt out of it. The process to re-enroll in this program is extremely tedious. You can always apply this benefit toward qualified educational classes that interest you, such as, cooking or automotive classes. The benefits can also be used for professional licensing classes.
More information on the Montgomery GI Bill
College Credit for Military Experience
Some military training can count as college credit. For example: At some colleges, boot camp satisfies the Physical Education requirement. If you enter the medical field, you can earn your Registered Nurse certification. Certain occupations with extensive training may count as college credit. If you have no college credit when you enlist, certain occupations can earn you the equivalent credit of an associate degree, or two years of college.
More Information on College Credit for Military Experience
Tuition Reimbursement
College level classes are taught on most bases, and you are eligible for up to 100% tuition reimbursement for the courses. Online classes are also eligible for reimbursement provided they meet certain requirements. This is a great way to slowly chip away at college courses at no cost to you, before your contract with the military is completed.
Enlisted Commissioning Programs
This might be the best option, if you are planning to serve 20 years. In this program, you attend college using your GI Bill benefit, and that time in college counts toward your 20 years of service. While in college, you are paid—sometimes at a higher pay grade—and receive a housing allowance (varies by zip code). In some cases, you do not have to use your GI Bill benefit, which can later be used for graduate programs of study. To apply for the program, you must reach a certain rank, which varies by branch of service. You also must enroll in a college that is part of the program.
Service Academies
As long as you are younger than 23 years of age, you may be able to apply to a service academy, such as, the United States Naval Academy. You must meet the requirements for acceptance, but your education will be paid for with a period of service as a commissioned Officer following graduation.
Re-Enlistment Bonuses
If possible, re-enlist in a tax exclusion zone, such as Iraq or Afghanistan. Your entire bonus will be tax free. If you are going to serve 20 years or more, consider re-enlisting overseas, and then apply for a commissioning program. You could get the bonus, a degree, and a retirement package. Additionally, the time in school counts as active-duty time toward your 20 years, and you will have GI Bill benefits for a master’s degree, if you feel like pursuing one.
More information on Re-enlistment Bonuses
Henssler Financial salutes all who have served in the armed forces. If you or someone you know is enlisting and would like to speak with a financial adviser about how to take advantage of the benefits the military offers, call Henssler Financial at 770-429-9166, or e-mail us at experts@henssler.com.
Disclosures
This article is meant to provide valuable background information on particular investments, NOT a recommendation to buy. The investments referenced within this article may currently be traded by Henssler Financial. All material presented is compiled from sources believed to be reliable and current, but accuracy cannot be guaranteed. The contents are intended for general information purposes only. Information provided should not be the sole basis in making any decisions and is not intended to replace the advice of a qualified professional, such as a tax consultant, insurance adviser or attorney. Although this material is designed to provide accurate and authoritative information with respect to the subject matter, it may not apply in all situations. Readers are urged to consult with their adviser concerning specific situations and questions. This is not to be construed as an offer to buy or sell any financial instruments. It is not our intention to state, indicate or imply in any manner that current or past results are indicative of future profitability or expectations. As with all investments, there are associated inherent risks. Please obtain and review all financial material carefully before investing. Henssler is not licensed to offer or sell insurance products, and this overview is not to be construed as an offer to purchase any insurance products.
