Is leaving the service the right thing for me to do?
This question poses a dilemma for military service members when they reach a financial impasse in their military careers — typically at 20 years in the armed forces — to stay in the military or get a civilian job.
“It really is a case-by-case thing, but I think the thing that surprises most people is you can’t just look at the salary differences,” said Kim Lankford, Kiplinger Contributing Editor. “When you factor in the lost benefits, you have to earn a lot more.” A service member should base the outcome on criteria including taxes, benefits, life insurance and retirement savings, she said.
Costs to Consider Before Leaving the Military
There are pros and cons of staying in the service or transitioning to a civilian job, but a person’s decision comes down to their individual situation. Base your decision on long-term conditions of your particular situation rather than short-term ones. Short-term conditions, such as a bad boss, can change, but long-term financial goals should be considered more carefully.
One point to consider when choosing whether to stick it out in the military or head for civilian life is housing costs. Service members receive a tax-free housing allowance that goes toward their rent or mortgage and vanishes when they leave the military, according to Lankford. To determine the smartest move, you should compare the loss of the housing allowance to the increase in civilian salary.
Regardless of whether you leave or stay, there are mortgage options for qualified veterans and servicemembers. The VA loan, established in 1944, is loan backed by the Department of Veterans Affairs designed to help eligible veterans and servicemembers realize their dreams of homeownership with the option of $0 down financing.
Did you know you can still use your VA home loan benefit while enlisted?
Read more: Getting a VA Home Loan While Still Serving in the Military
Another issue is state taxes. If you hold residence in a state with no income tax even if you’re stationed elsewhere, you won’t have to pay income tax as long as you’re in the military. When you leave the service, you’ll have to pay that tax again, which can be quite costly.
Health and life insurance can also prove to be large areas for consideration. Military members can obtain life insurance inexpensively, but they might also be able to find a good deal in the civilian world. As for health insurance, staying more than 20 years in the military means receiving health insurance during retirement. If you leave before your 20 years, you’ll have to find other health coverage, which may or may not be detrimental to your finances.
If you have a family, you might want to consider education benefits provided by the military. Service members who stay in the military for a long time (at least 10 years) can have college tuition paid for their children as well as a housing stipend, according to Lankford. This factor could make a difference for those with children.
Retirement and Pension
Two final financial considerations when choosing to stay in the military or get a civilian job are retirement and pension. If you’re in the military, you can contribute to a Thrift Savings Plan, unlike civilians. However, a new job might provide similar accommodations and match part of your savings. You should compare military retirement plans to that of your potential job to see which is more beneficial. And if you stay in the military for more than 20 years, you can receive a pension up to 50% of your base salary, according to Lankford. This pension may or may not be worth staying in the service to you. It’s important to take into account all of what goes into your military retirement package and compare it to what you could get from potential civilian employers.
“People really underestimate how much they would have to pull out of their own pockets,” Lankford said. As with any major life decision, start thinking about your transition out of the military in the few years before make the decision. Give yourself time to discover out how your skills could translate to civilian jobs if need be. But be sure to consider all the financial facts before coming to a conclusion.
Should you decide to transition into civilian life, be sure you’ve weighed the best mortgage options for your home. You can talk with Veterans United loan specialist at 855-870-8845 about how your transition might affect your VA loan, or get started online today.
Photo courtesy of 4o1(K) 2012