Serving in the United States Armed Forces is a career choice that often requires years of sacrifice, dangerous assignments with sometimes not a lot left over when it comes time to retire.
As Desert Storm veteran of the United States Marine Corps, I have experienced many benefits associated with the military. However, I have also witnessed many mistakes veterans (and civilians) make with their pensions and retirement plans.
The following are some of the most common financial mistakes veterans and civilians alike, often make.
1) Living Beyond Your Means
Many retired Americans emulate the lifestyle they had when they were working and end up in financial ruin.
Service members can retire with full benefits after 20 years of service, which is far earlier than most civilian jobs. That leaves a lot of time left to enjoy life at a younger age. Dining out, traveling and entertainment can quickly add up and start eating away at your savings.
It is imperative to know how much you will need to sustain yourself before you decide to retire. Generally, this is often in the region of eighty percent of your current yearly income.
Obviously, some expenses such as commuting, clothing and dry cleaning will decrease once you retire. However, certain expenses such as healthcare costs are likely to go up. Studies show the cost of providing healthcare for a retired couple is around 245,000 dollars. Such issues should be factored in the budget making process.
2) Failure to Make the Right Kind Investments
Once you have retired, it’s detrimental to make investments that eat into your savings. Long-term investment strategies need to be part of your financial plan. It’s probably time to let go of any risky investments at this stage of life.
Issues such as filing tax returns on income tend to be forgotten by some retirees. This is a costly mistake because the arrears might accrue, forcing you to pay fines. In line with this, retirees must come up with the most cost-effective way of paying taxes in easy installments, which won’t be burdensome.
It has also been noted that many individuals have several retirement accounts. While this might sound ideal, it is taxing because each account will be separately taxed.
Keep some of your savings outside of tax-deferred retirement accounts. There is generally more flexibility in products such as CD’s, mutual funds, and money markets. Of course, making sure you understand the investment, the risk attached, and the company’s history is an important part of making any financial decision.
3) Applying for Social Security Early
This is a common mistake many ex-servicemen and civilians alike make. Government regulations stipulate that military retirees can only start taking Social Security once they turn 62. Those who start taking it immediately may not benefit fully. This is because they often end up taking up to a quarter less that those who wait until they reach the mandatory retirement age of 66. Those who wait further till they get to age 70 are likely to benefit more. Their benefit increases by 32 percent. Retirees who apply for Social Security too soon do not have long-term goals in mind. This can be a quick source of income but once it runs out, they are likely to get into difficulty. Deferring Social Security is therefore of great significance.
Retirement is an opportunity to unwind after a long career. However, the mere thought of retirement makes many people anxious because it means that there will be no monetary security associated with employment.
Many who retire from the military often receive a lump sum sendoff package and unfortunately end up mishandling the money.
Whether you are retiring as a veteran or a civilian, having a solid plan and choosing a financial advisor vs. a broker will ensure your best years aren’t spent worrying about your finances.