Life After Retirement: Will You Have Enough?

This month we are highlighting a partner resource. MyArmyBenefits is the U.S. Army’s official benefits website and is geared toward all components: Active, Guard, and Reserve.

Whether you’re active, transitioning, or retired, this site allows you to forecast your retirement benefits, calculate estimates of your survivor and survivor education benefits, and browse over 150 fact sheets. There is also live phone help from benefits experts from 9 am-5 pm Monday through Friday.

By MyArmyBenefits Team

The dedicated team at MyArmyBenefits and their comprehensive research can stimulate some thoughts as you prepare for military retirement and make a significant financial transition in your life. Very few military retirees truly retire when they leave the service. In many cases, a second career will provide you with a significant increase in discretionary income and an excellent opportunity to continue saving for your eventual, full retirement.

Your Pension is Just One Element of Your Financial Plan

The income needed to sustain a lifestyle is different for each Service Member and will come from three sources: a pension (retirement pay), Social Security, and private savings. The good news is that as a military retiree, the first two already provide you with a solid foundation.  Your pension is the first element of your financial plan.

Consider using the MyArmyBenefits Retirement Calculator feature to run “what-if” scenarios and get the most accurate information to plan your financial future.

The Thrift Savings Plan in Retirement

Hopefully you were able to take advantage of this 401(k)-like plan. The TSP is a good, solid, qualified retirement plan. It is comprised of five funds with different focuses that provide good diversification and it has an incredibly low fee of only six basis points.

However, once you retire you can no longer contribute to the TSP. What are your options? You can keep it and continue to manage the funds inside the plan as your assets continue to grow. In many cases, you may be able to roll it over into your new employer's qualified plan. In some cases, you may be able to roll it over into your personal IRA.

Your Tax Picture Will Change

Most military retirees are shocked by their tax burden following retirement, as they often jump into a higher tax bracket. Active duty military compensation includes federal and state tax benefits that will no longer exist in your civilian career. Many retirees will receive various types of salary from their civilian employer (i.e. stock options, bonuses, etc.) instead of the more familiar system of military pay and allowances.

Maybe you didn’t contribute to state income tax during your military career and that may factor into where you choose to live in retirement. Using the MyArmyBenefits Resource Locator and Benefits Library you will be able to find all the tax information for any state or territory.  Note that a state that does not have a state income tax does not mean it has a low-tax burden.

Things May Get Complicated

One thing to remember is that there is no FICA tax taken from your military retired paycheck. Be prepared for your first tax return to be a little more complicated than it was in the past and expect to see a larger tax bill. You may get into the business of paying estimated taxes for the first time in your life. You may also get caught up in Alternative Minimum Tax (AMT) provisions.

There are a few things that you may be able to take advantage of in the tax area. First, you may be able to defer tax on some income by contributing to a qualified retirement plan with your employer. Also, your employer may offer a Flexible Spending Account (FSA) that allows you to use some of your salary on a pre-tax basis for qualified medical expenses and dependent care.

There may be some other areas where tax breaks are available, such as real estate or property tax. Be prepared to do some tax planning, and you may choose to seek out a certified financial planner and/or a qualified tax professional to assist with this transition.

Want to build wealth, not debt? Take the Pledge today and then visit Militarysaves.org for valuable resources that can help you achieve financial success.

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