Transition from Military to Civilian
Do not be fooled by the title, service members at all stages of their careers should have an idea of what their civilian life will look like. Most of us don’t think about the end of our careers until we are….at the end of our careers. The earlier we start preparing for civilian life the better off we will be. Further, in the end, we will all return to civilian life.
The biggest misconception about retirement is a service member will serve 20 years and retire. When this idea is first introduced to us from a recruiter, it sounds as good as a midnight infomercial. “Oh yeah, that’s sounds cool!” Never really putting much thought into what actual retirement means. By definition, “the action or fact of leaving one’s job and ceasing to work.” Do you feel more informed now?
What recruiters don’t tell you or many other leaders throughout your military career is the aforementioned retirement is, your eligibility to discontinue employment with the department of defense. At which point, they will pay you roughly half your base salary (or more based on how many years you serve past 20). If you joined the military between the years of 18-20 like most civilians, you will be preparing for retirement around the time your kids are ages 13-22; the costliest volatile times of their lives. Does that sound like a good time to quit your primary job and find another job? That base salary does not include most of the uplifts that you are accustomed too such as housing allowance, rations pay, special duty, or aviator pay; just to name a few. Most people realize this after their last enlistment contract and try desperately to get promoted as quickly as possible. There are only so many slots available at higher ranks and it’s just only a game of musical chairs from there; eventually there will be no seat for you when the music stops. Here are some options to build wealth throughout your 20 or more-year career that will help you transition smoothly into your civilian life.
- Develop a financial plan
I’m not going to delve too far into this because there are already tons of information out there for forming a budget. This is a simple, painstaking step that must be taken. No business can succeed, long-term (except Tesla) and the federal government, if they don’t track money spent and money earned. I understand that there is a definite fear of learning how much money you wasted at the bar, but you are a member of the fiercest fighting force on the planet. You can endure some “truth in finances”.
- Do Not Get Comfortable
This is specifically for service members because we have a built-in stimulus or situations that occur to bail us out of tough financial spots. For example, our annual clothing allowance. If you’re behind on your car payment “BOOM!” clothing allowance; catch up on a payment or two and still have money left over. If you are low on funds, depending on your situation, you can volunteer or be volun-TOLD you’re going on a deployment. Those things are money savers. For the next 3-6 or even 12 months you are deployed away from everyday expenses like groceries, gas, light bills, etc. I have seen these many times, when my peers are depending on a deployment to bail them out of a tough situation.
Contrastingly, let deployments and TDY assignments propel you to a stable financial position. No, I get it, everyone is buying a new Dodge Charger and your battle buddies spend an exorbitant amount of money on hook-ups and booze! Well, guess what? You put on your big boy pants and turn down for WHAT!!! Your financial future is what. There is a group mentality that is pervasive in the service when you’re young and have a stable paycheck. You don’t really think of all the opportunities passing by. Live like no other now, so you can live like no other!!! This is not an admonishment to tell you not to enjoy your life because we will show you how to enjoy your life to the fullest and still make incredible gains in your wealth building.
- Invest in TSP
Also, a no-brainer. The military Thrift Savings Plan is a traditional retirement savings account that service members can contribute to while enlisted. As of 2018, TSP will match your contribution up to 5%. The TSP is just like everything else that’s been introduced in the past 30 years, it’s “life changing”. There was no TSP before 1987, it has added different funds over the years and wasn’t widely popular in the military until about 2001. The 5% matching is even newer, that wasn’t available until 2018. Any retirement account offered by your employer that matches your contributions is a MUST!!! It’s free money. Furthermore, you never know where your post military life will take you. Once you separate from the military, whether you retire or leave after your first contract, your retirement account can be rolled over to your new employer’s retirement account plan. Keep in mind if you are hired by another entity in the Department of Defense, you will maintain the exact same account and can seamlessly continue your contributions.
- Own property/House-hack
There are three major advantages you have when acquiring real-estate that most non-service do not have; a steady pay-check, VA home mortgage loan, and no private mortgage insurance. Owning property is most Americans’ biggest investment and service members have a fast track in obtaining this asset. If your credit is good enough, you are eligible for a VA home mortgage loan with no money down to purchase a primary residence up to 4 units (duplex, triplex, 4-plex included). That may not seem important but the average home owner, has to put down 3.5 percent or more for a mortgage loan. These loans are insured by the VA, therefore you don’t have to pay the normal private mortgage insurance fee; when less than 20% of the loan amount is not secured through down payment.
Furthermore, owning a home is forced savings. Since your home is an asset that appreciates, most of the time, each month’s payment pays down the principal balance which builds equity in the home. It’s like buying a car except when you drive it off the lot the value increases.
Lastly, if you’re in a position to house hack I strongly recommend it. House-hacking is subleasing your property to another tenant. This is a life changing hack that can exponentially change your life; especially if you buy a multi-family home with your VA loan and rent out the other units and or rooms. In a multi-family property, you can avoid living within the same four walls as your tenants. Charge each tenant a reasonable rent that will off-set your over head cost. Pay your mortgage as you would normally and save the additional rental income for future investing. Here is an example: If you have a duplex that sells for 160k, 3-bedroom 2 bath on each side with garage. Your mortgage, depending on state, will be around 1k; if interests remain low as they are at the time of this article. Charge $800 in rent, that’s $9600 in revenue annually. That’s better than two promotions!! That may seem unreasonable example, but housing markets vary greatly state to state, rural to city. Keep in mind many Army bases are literally in the middle of nowhere a home prices are a quarter of the price of city like San Diego.
Most of this information is probably not new to you and if it is, I’m glad it was informative. More importantly, applying what we learn is the most difficult part of our journey. We all know how to get six-pack abs but how many of us actually have bulging abs! Be, Know, Do, now that I’ve told you, it’s up to you.