Stay or go: The decision to leave military service

| March 14, 2017

It’s the inevitable conclusion of all service members’ careers–leaving the service. The question, though, is how you will know when it’s the right time for you to make that transition. Many people decide after looking at factors like job prospects and their family’s quality of life. But it’s equally important to consider whether you’re financially prepared. Even if you leave service and find a comparable salary elsewhere, you might find that you have to use more of your salary to pay for expenses that used to be covered. So before you decide it’s time to leave, ask yourself these questions:

Will I have enough insurance coverage?

Since most military benefits are provided free of charge, undervaluing them–or overlooking them completely–is easy to do. Through programs like Veterans Group Life Insurance and Continued Health Care Benefit Program, you’ll be able to replace some of the benefits you had on active duty, at least short term. But these replacements can be pricey. And even if you are fortunate enough to quickly find a new job with an employer who offers life and health insurance, you might find that the coverage is insufficient or the costs are higher than you expected.

How will foregoing my military pension affect my retirement?

The crown jewel of military benefits is the lifetime pension those who serve 20 years or more receive. So before you walk away, think long and hard about how foregoing that pension may impact not just your immediate income, but your ultimate retirement. The best way to understand this issue is to work through some hypothetical numbers. Let’s say you’re a captain in the Air Force with 10 years of service grappling with the decision of whether to get out now or stick around for another 10 years. If you stick around, you would expect to retire as a lieutenant colonel, and begin receiving a monthly retirement check in the amount of $4,300. The question is: how much money would you have to save and invest to generate approximately that same amount of monthly income for the rest of your life. And the answer, based on the assumption that you can safely withdraw 4 percent of your principal each year, is that you would need $1,290,000. If nothing else, that should give you a fresh appreciation for the value of military retirement pay.

Do I have an adequate emergency savings?

Life changes often require some savings, and leaving military service is no different. Having some money set aside can help make the transition smoother, especially if you’re planning to relocate, return to school, start your own business or just take a few months off before embarking on your second career. But even if you decided to stay in the same location and already have a job lined up when you leave the service, it’s still a good idea to have an emergency savings account. While following the advice of many financial experts and saving six months’ worth of expenses might not be necessary for service members, civilian jobs present a higher chance of unexpected job loss–and the financial uncertainty that comes with it.

Perhaps you’ll leave military service for a more lucrative career in the private sector and find that you’re able to make up for these benefits. But remember: a civilian salary is not always a one–for–one trade for a military salary. So before you choose to leave, make sure you have a clear idea of how changing careers is likely to impact your finances in both the short and long term. If this is a decision that you’re facing now or expect to face in the next few years, talk to your financial advisor. He or she can help you better understand the impact of changing careers and provide you with some specific steps you can take to smooth your transition.

This article has appeared previously in First Command publications.

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