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Here at Military Personnel Wealth Advisors, we believe that no military veteran should ever have to be homeless or live on the fringes of society. We believe that if you have laid your life on the line for your country, you should have every opportunity to be successful in your private life. In ancient Rome, retired soldiers were afforded many benefits, ensuring a stable and comfortable retirement.
With that being said, we can’t wave a magic wand and make it all happen. But, what we can do is make sure that veterans are made aware of the special benefits that they have been awarded …and, how to take full advantage of them.
Our goal is to help veterans make the most out of their military retirement benefits. We do that by working with you, one on one, and evaluate your personal situation. Once we know where you stand, we can then make specific recommendations to help you move forward into the next phase of your life with confidence.
Under the military’s Blended Retirement System, about 85% of all active-duty and reserve service members will receive a retirement benefit, even if they don’t qualify for full retirement.
For service members with both active duty and reserve time under the Blended Retirement System (BRS), the retirement is calculated by combining your active-duty service with reserve points, and members receive a defined benefit (pension) and a defined contribution (TSP).
If you serve less than 20 years in the military, you may still receive a payout, typically in the form of a severance payment or disability severance pay, depending on the circumstances of your separation.
Here’s a breakdown of a potential payout for those with less than 20 years of service.
Severance Pay (Involuntary Separation Pay – ISP):
you are involuntarily separated (denial of reenlistment or continuation on active duty) after completing at least 6 years but fewer than 20 years of active duty/active service, you may be eligible for a one-time severance payment.
Military Service Buy Back: If you’re currently a civilian employee who was previously enlisted in the military and were honorably discharged, you may be eligible to buy back your military service time to be added to your years of civil service with the government. Military Buy Back, also known as a Military Service Deposit, is a benefit of Federal Civil Service that gives you the ability to receive retirement benefits based on your military service.
Military life insurance, primarily through Servicemembers’ Group Life Insurance (SGLI), provides low-cost term coverage to eligible service members, with automatic enrollment and a maximum coverage of $500,000. After leaving the military, you may be eligible to convert to Veterans’ Group Life Insurance (VGLI). ere’s a more detailed breakdown.
Service members’ Group Life Insurance (SGLI):
VGLI stands for Veterans’ Group Life Insurance, a life insurance program that allows veterans to convert their Servicemembers’ Group Life Insurance (SGLI) coverage to renewable term life insurance after leaving military service, providing continuous coverage as long as premiums are paid.
For service members with both active duty and reserve time under the Blended Retirement System (BRS), your retirement is calculated by combining your active duty service with reserve points, and you’ll receive a defined benefit (pension) and a defined contribution (TSP).
The lump sum option within the Military’s Blended Retirement System (BRS) is part of a non-qualified plan, and the lump sum payment it is treated as earned income and taxed accordingly consider discussing with a Tax Professional.
If you take the lump sum option, it will reduce your current pension payment. However, if you do not need the money (already have another job), you can reinvest these dollars towards a tax free retirement income. At age 67 (normal retirement age where you can take full Social Security), your military pension reverts back to the FULL amount……and you’ll have access to the tax free dollars that you invested with the lump sum.
Here’s a more detailed explanation:
Military retirement is a defined benefit plan, a government program, and not a “qualified plan” under the Employee Retirement Income Security Act (ERISA).
The BRS allows service members to elect a lump sum payment of either 25% or 50% of their future retirement payments, in exchange for a reduced monthly retired pay.
The lump sum payment is considered earned income and is taxed as such.
You should consult with a tax professional to understand the tax implications of receiving a lump sum payment, as it could potentially push you into a higher tax bracket.
Retirees who elect the lump sum option will receive reduced monthly retired pay until they reach the full Social Security retirement age (typically 67), at which point their monthly payments will return to the full amount.
The Survivor Benefit Plan (SBP) is an annuity program created in 1972 to provide a degree of financial security for survivors of retired (as well as some active duty) members of the Armed Forces, the Commissioned Corps of the Public Health Service and National Oceanic and Atmospheric Administration, and Reserve and National Guard members when they complete 20 years of qualifying military service. The retirement pay of these public servants stops when they die. In general, SBP allows them to provide an annuity that will pay their survivors, when the retiree dies, up to 55% of their retirement income.
Active duty members with 20 or more years of service are automatically covered at the maximum (55%) amount, based on whatever retired pay would be if the deceased member had elected to retire on the date of death. SBP is a free benefit for an active duty member. Decisions concerning continued participation in SBP must be made prior to retirement and will involve a cost to the retiree in the form of reduced retirement benefits.
However, by investing the lump sum option, You could provide a better benefit to your beneficiaries, and have more flexibility for you financially.
TSP is a savings and investment program designed to supplement military retirement benefits. It is the same plan available to Federal Civil Service employees.
Whereas military retirement benefits are fixed according to a formula based on years of military service and pay, TSP benefits to supplement retirement benefits will be determined according the amount of TSP contributions made over the servicemember's working years and contribution eamings based on investment performance. The servicemember chooses to invest their TSP account balance under a combination of investment options.
Participating servicemembers can invest any portion of their TSP account balance in five different funds. The Government Securities "G" Fund, the Common Stock Index "C" Fund, the Fixed Income "F" Fund, the Small Capitalization Stock Index "S" Fund and the International Stock Index "I" Fund. In addition, the Lifecycle "L" Funds provide servicemembers a convenient way to diversify their accounts among the G, F, C, S and I Funds using professionally determined investment mixes that are tailored to different time horizons.
If all of this sounds confusing, we can help you with this as well. Our sister company Nautica Asset Management LLC is a full service RIA (Registered Investment Advisor) firm and we have been working with TSP accounts for over ten years. After meeting with you, we can look at what options you have and what will best fit your needs.
To learn more about your retirement benefits, the options that you have and setting yourself up for a BIG WIN financially later in life, please reach out to us, set up some time to meet with us one on one (video conference) and learn how we can help you
