FINANCIAL
PLANNING FOR
TRANSITION
Version 3.0
2024 TAP CURR
ICULUM
Table of Contents
Disclaimer ................................................................................................... 2
Income........................................................................................................ 3
Expenses ................................................................................................... 21
Debt and Credit ......................................................................................... 38
Assets ....................................................................................................... 50
Action Plan ................................................................................................ 62
TAP Interagency Website Guide ................................................................ 72
Transition Assistance Participant Assessment (TAPA) .............................. 73
Financial Planning for Transition 2024 Page 2
Disclaimer
Th
e information provided herein does not constitute a formal endorsement of any
company, its products, or services by the Department of Defense (DoD).
Specifically, the appearance of external hyperlinks does not constitute endorsement
by the DoD of the linked websites, or the information, products, or services
contained therein. The DoD does not exercise any editorial control over the
information you may find at these locations. While this module provides
informational resource material to assist military personnel and their families in
identifying or exploring valuable resources and options, the resources provided are
not exhaustive.
Al
l websites and URLs in this guide were active at the date of publication. However,
web content is subject to change without notice. Users of this guide are advised to
confirm information is current.
TRANSITION OVERVIEW
DoD Transion Day
VA Benefits
and
Services
2-Day
Tracks
Employment
Voca�onal
Educa�on
Entrepreneurship
Con�nuum
of Service
Capstone
1
DOL
Employment
Fundamentals
of Career
Transi �on
Financial
Planning for
Trans i�on
N LT 365 days
N LT 90 Days
Pre-
Separa�on
Counseling
Managing
Your (MY)
Trans i�on
MOC
Crosswalk
You
are
here
Individualized
Ini�al
Counseling
(IC)
Financial Planning for Transition 2024 Page 3
Financial Planning for Transition
Module Competency
• Identify changes and plan for the impact that transitioning from the Service
will have on personal finances.
This Financial Planning for Transition module builds on what you have learned
from previous financial readiness courses that you attended throughout your
military life cycle. Knowledge from previous courses and the content covered in
this course will enable you to complete the Career Readiness Standard (CRS)
associated with this module, a post-transition spending plan.
Why a Spending Plan for Transition?
In previous financial courses, your spending plan focused on where you are now
and maybe how to improve your financial situation. Now it is time to re-examine
your spending plan with a focus on post-military life. If you have not previously
created a spending plan, now is the time. Either way, the intent of this courses
is to:
•
Understand your current financial situation.
•
Determine the financial changes which may occur due to transition.
•
Ways to plan for financial changes throughout transition.
During this course, you will learn how to develop a spending plan (also known as
a budget) or update the one you previously developed. This will provide you with
an understanding of how transition will affect your financial situation through
discussion of income, debt, expenses, and assets. Within each of these topics
are subtopics to encourage awareness of changes, which will affect your financial
situation during transition. During this course, you are encouraged to add the
pertinent information to the spending plan to create a complete financial picture
for now and for the future. At the end of this course, you should understand how
transition can affect your finances, what to expect financially as you transition,
and know the income required to maintain your current lifestyle.
Financial Planning for Transition 2024 Page 4
Income
Competency
Evaluate current military salary to determine salary requirements after transition.
Learning Objectives
• Determine current military income and compensation.
• Compare current military income and compensation to civilian equivalent to
predict future salary compensation requirements.
• Determine the difference in tax liability between current military
compensation and projected civilian salary.
Income
Review of the common terms used when discussing income:
•
Gross Income: Wages (pay and allowances) before any deductions (e.g.,
taxes, Social Security, insurance premiums, retirement plan contributions,
etc.)
•
Net Income: Wages after any federal/state tax deductions (e.g., taxes,
Social Security, retirement plan contributions, savings allotments,
insurance premiums, and other deductions, etc.)
For example, the Leave and Earning Statement (LES) or Payslip (for USCG)
shows an income of $2,000 per month (i.e., gross income), but the amount
deposited into your bank account is only $1,500 per month (i.e., net income).
Total pay +
allowances =
Gross Income
Gross Income –
tax/insurance/
Retirement and other
deductions =
Net Income
Net income is the
amount of money
you take home
from each
paycheck
Financial Planning for Transition 2024 Page 5
Total Compensation
Gross and Net income refer to your total salary, which includes Basic Allowance for
Housing (BAH) and Basic Allowance for Subsistence (BAS). There are other
benefits which need to be considered.
While in the military, you receive your salary and additional benefits. These
benefits may include health insurance (i.e., TRICARE), dental insurance,
Servicemembers' Group Life Insurance (SGLI), Family Servicemembers' Group Life
Insurance (FSGLI), death benefits, commissary, gym, base childcare facilities, etc.
Some of these require a small payment (e.g., SGLI, family dental, or FSGLI), while
others are completely free (e.g., commissary, gym).
The civilian sector also provides benefits in addition to your salary. This could
include scheduled bonuses, commissions, paid time off, profit sharing, insurance,
tuition assistance, childcare assistance, retirement plans, etc.
Total Compensation is the total of your salary and all benefits.
When accounting for these within the salary equivalent, whether in the military or
civilian sector, it is difficult to assign a cost or benefit amount, but it is important to
understand these lower cost or free benefits will affect your finances post-
transition.
Leave and Earning Statement (LES) or Payslip
Just as before, when developing your spending plan, you used the information
from your LES or Payslip. Now when updating your spending plan prior to
transition, the information on the LES or Payslip is even more important to
understand your current salary and compensation. For this section, focus on the
entitlements for LES and earnings for Payslip.
Entitlements: This includes the amounts of money you receive in your paycheck,
such as base pay, BAS, BAH, Basic Needs Allowance (BNA), Dive Pay, Jump Pay,
Cost of Living Allowance (COLA)—what is important to remember is that only
SOME of these entitlements are taxable.
Financial Planning for Transition 2024 Page 6
Leave and Earnings Statement
Financial Planning for Transition 2024 Page 7
Coast Guard Payslip
As you review your LES/Payslip, realize that income is any source that provides a
regular supply of money, such as employment, investments, pension, etc.
Additional Sources of Income
Consider the following additional income sources, not included on your LES or
Payslip:
•
Does your spouse have an income?
•
Do you have a second job?
•
Are you receiving income from investments or rental property?
•
Do you receive child support or alimony?
•
Do you receive financial support from Women, Infants and Children (WIC)
or Supplemental Nutrition Assistance Program (SNAP)?
Financial Planning for Transition 2024 Page 8
To have an accurate picture of your finances during transition, all sources of
income need to be included in the spending plan.
ACTIVITY: Update the Income section of your Spending Plan
Review the income section of the spending plan. Follow the directions provided by
your facilitator and fill in the appropriate areas of the spending plan. Remember to
include:
• Income from LES or Payslip to include all entitlements
• Spouse income if applicable
• Income from additional sources (e.g., investments, child support, second job,
etc.)
Civilian Salary Equivalent
Now that you know your current income, we can determine the approximate civilian
equivalent based on your current salary in the military.
One way to determine your approximate civilian equivalent is to use the Regular
Military Compensation (RMC) calculator.
Be aware the RMC calculator does NOT include special pays.
The RMC does not include special pay (COLA, flight, language, etc.). If you receive
special pay, it is necessary to add the total amount of special pay to the civilian
equivalent amount to provide a more accurate representation of your civilian
equivalent salary need.
http://militarypay.defense.gov/Calculators/RMC-Calculator/
Financial Planning for Transition 2024 Page 9
Two scenarios are included as examples for use of some of the websites.
Scenario 1
•
E-4
• Separating after 4 years
• Single
•
Washington, DC; 20002
• Base Pay: $34,977
• Total Compensation with
BAH/BAS: $65,895
Scenario 1: RMC Calculator
This Service member will need an approximate salary of $70, 112 to meet their
current financial obligations and maintain their current lifestyle in Washington, D.C.
Financial Planning for Transition 2024 Page 10
Scenario 2
• 0-5
• Retiring after 20 years
• Married with family
• San Antonio, TX; 78150
• Base Pay: $126,536
• Total Compensation with
BAH/BAS: $160,444
Scenario 2: RMC Calculator
This Service member will need an approximate salary of $170,008.40 to meet
their current financial obligations and maintain their current lifestyle in San Antonio
TX.
Financial Planning for Transition 2024 Page 11
ACTIVITY: Determine the Civilian Salary Equivalent
1. Use the RMC Calculator below to determine the approximate civilian salary
equivalent based on your current location:
http://militarypay.defense.gov/Calculators/RMC-Calculator/
2. Provide the information requested on the RMC Calculator
• Rate/rank (when transition occurs)
• Years of Service
• Tax filing status (single, married filing jointly, married filing separately,
head of household)
• Family size (type 1, if it is only you)
• Living OCONUS or Not Receiving BAH
• ZIP code of where you are currently living or where you plan to
relocate
3. Click Calculate
4. Write the amount in the box below
5. If applicable, determine amount of special pay (COLA, flight, language) and
write in the box provided
6. Provide additional notes as needed
Civilian Salary Equivalent (Yearly)
Location (zip code)
Civilian Salary Equivalent
Amount of Special Pay
NOTES:
Adding the basic pay, BAH, and BAS calculates the civilian equivalent. The
calculator then figures, based on the information you provided, the taxes owed if all
three were taxed (tax advantage). All four combined, base pay, BAH, BAS, and tax
advantage, determine the final civilian equivalent.
Financial Planning for Transition 2024 Page 12
Retiree Pay Gap
For those entering military retirement who anticipate receiving retirement pay,
there is an additional calculation that is needed. As a retiree, you will receive
retirement pay; this amount may partially meet the civilian salary equivalent.
However, there will most likely be a gap between the retirement pay and civilian
salary equivalent. To determine the pay gap or the actual amount needed to earn
in retirement to meet the civilian salary equivalent, use militarypay.defense.gov.
Civilian Salary Equivalent – Retirement Pay and Disability Pay
(if applicable)
= Retiree Pay Gap
Retirement pay calculations are further complicated by the possibility you may
receive Disability Pay. As this is not guaranteed and the amount is not known until
the disability rating is determined by the VA, it is recommended to view this pay as
a bonus and not guaranteed. It is added for knowledge. You may also choose to not
include any potential retirement pay when estimating future civilian salary.
Civilian Salary Equivalent
Retirement Pay
Retiree Pay
Gap
Disability Pay
(not guaranteed)
Financial Planning for Transition 2024 Page 13
ACTIVITY: Estimate Pre-Tax retirement Pay and Retiree Pay Gap
1. Use http://militarypay.defense.gov/Calculators/High-3-Calculator/
2. Follow the directions on the website
a. Active or Reserve
b. Personal information (must first add year to Pay Entry before month)
c. Retirement information
d. Career progression
e. Roll over the first full High-3 Pension bar to see the yearly amount
Retirement Pay Gap
Civilian Salary Equivalent
Retirement Pay
Pay Gap
(Civilian Salary Equivalent – Retirement Pay)
Notes:
The Pay Gap is the actual amount you will need to earn to keep your current
lifestyle using retirement pay as a paycheck.
Now that there is a clear understanding of the salary needed post-transition, let’s
look at the changes in taxes which occur due to transition.
Taxes After Transition
Service members often cite taxes as one of the most surprising changes
encountered after transition. To understand how your taxes may be affected, it is
necessary to utilize various websites.
IRS, Smart Asset, Nerd Wallet, and Turbo Tax are examples of websites that may
be helpful.
While these websites provide valuable information, they are for research purposes
only and do not provide tax advice or a tax bill.
Financial Planning for Transition 2024 Page 14
Salary Difference: Military vs Civilian Income
The RMC provided an amount for the civilian equivalent salary, which is higher than
your current salary. This is due to many military entitlements or allowances, which
are not taxable while you are in the military.
BAH, BAS, and special pays are examples of non-taxable income. In the civilian
sector, all your salary and some of your benefits could be taxable. Therefore, the
civilian equivalent calculation adds the BAH and BAS into your base pay and
determines the taxes based on this amount. The salary equivalent is higher due to
additional taxes paid on these previously non-taxable items.
The graphic below visually explains the difference between the taxes paid for a
military salary of $63,000 and a civilian of the same amount.
For this example, federal tax includes federal income tax and Federal Insurance
Contributions Act (FICA); it does not include state or local taxes. The amounts
were determined using SmartAsset (https://smartasset.com/taxes/income-taxes)
To sum it up, you will need to make MORE in the civilian sector than you
did in the military if you want to maintain your current lifestyle.
Financial Planning for Transition 2024 Page 15
Tax Considerations After Transition
The following are additional changes that you need to prepare for post-transition:
• Taxable Income: As previously discussed, not all military income is taxable.
When working in the civilian sector, ALL your civilian salary is taxable at the
federal level and possibly at the state levels depending on the state tax laws.
In addition, some areas will add county and city taxes based on your income.
Also, you may need to account for income tax payments on benefits, like
stock options if included in your compensation package.
• Federal Taxes: Federal taxes are progressive, meaning as your taxable
income increases so does the tax rate. Current marginal tax rates range from
10% to 37%. Your marginal tax rate is determined by your filing status and
your taxable income.
• State Income Tax: Depending on the state you listed as your state of
residency (e.g., Florida or Texas), you may not have been paying state
income tax while in the military. As a civilian, you may start paying state
income tax depending on your location and change in military status.
Location matters for income taxes because some states do not have state
income tax while others do not tax retiree pay.
• County and City Tax: Some counties, as well as cities, collect taxes to fund
local government services on top of federal and state taxes. Examples of
this type of tax are the sales tax on goods and services and personal
property tax for car or home. As military, you may have been exempt for
some of these or as a retiree, the state may waive these in certain
circumstances.
• No Automatic Extensions: You may no longer receive an automatic
extension on the April 15 tax filing deadline unless you specifically request it
directly from the IRS.
• Property Taxes: You may have been exempt from certain property taxes or
received a discounted rate for vehicle registration while you were serving.
Tax breaks, exemptions, and discounts offered to Veterans vary from state to
state.
NOTE: As a veteran, there are still a few income streams which are not taxable.
This may include such items as disability pay and/or housing funds received from
the GI Bill.
Financial Planning for Transition 2024 Page 16
To understand the tax for a location and salary amount, use the following website:
https://smartasset.com/taxes/income-taxes
Let’s determine the new tax liability using the previous scenarios.
Scenario 1
• E-4
• Separating after 4 years
• Single
• Washington, DC; 20002
• Salary CE: $70,112
Scenario 1: Tax Estimate After Separating
Financial Planning for Transition 2024 Page 17
ACTIVITY: Estimate Your Taxes After Transition
1. Use https://smartasset.com/taxes/income-taxes to determine your Federal,
State, and Local taxes
2. Enter your Civilian Salary Equivalent (with special pay, if applicable) as the
household income
3. Enter a location
4. Indicate filing status
5. Write the information in the space provided below
6. Provide additional notes as needed
Taxes for Civilian Salary Equivalent
Civilian Salary Equivalent
Location (city, state, zip)
Location - Taxes based on civilian salary equivalent
Notes:
Financial Planning for Transition 2024 Page 18
Scenario 2
• 0-5
• Retiring after 20 years
• Married with family
•
San Antonio, TX; 78150
• Salary CE: $170,008
• Retire Pay: $62,000
• Gap: $108,008
Scenario 2: Tax Estimate When Retiring
When retiring, there are other considerations, such as how tax friendly a state is for
retirement pay. Some states do not tax retirement pay, others offer a sliding scale,
while others fully tax, but provide alternate benefits. The following is a tax
estimate for a retiree in San Antonio, Texas.
Financial Planning for Transition 2024 Page 19
Resources for State Retirement Tax Information:
• https://smartasset.com/retirement/retirement-taxes
• https://www.military.com/money/personal-finance/state-tax-
information.html
ACTIVITY: Determine Your Taxes with Retirement Pay
1. Go to: https://smartasset.com/retirement/retirement-taxes
2. Choose the state where you wish to retire
3. Complete the following information:
a. Annual Social Security Income = $0 (if not drawing Social Security)
b. Annual Retirement Account Income = military retirement (DO NOT put in
Pension)
c. Annual Wages = pay gap or amount you expect to earn upon retirement
(estimate using your civilian salary equivalent)
d. Location = zip code
e. Year of Birth
f. Filing Status
4. Write the information in the space provided
5. Provide additional notes as needed
Taxes for Retirement
Retirement Pay
Pay Gap
Location for Retirement (city, state, zip)
Location Tax Amount
State Tax Benefits
NOTES:
Financial Planning for Transition 2024 Page 20
As you continue through your transition process, have a better sense of what
annual income you will earn and where you plan to live, return, and use this
information and activities to improve your knowledge and accurately plan for
your finances after transition.
Wrap Up Questions
• What is the difference between Gross and Net income?
• Why is the civilian equivalent salary higher than the military pay?
• What may change about the tax liability? Federal? State? Changes to Local?
Financial Planning for Transition 2024 Page 21
Expenses
Competency
Evaluate your current expenses and understand how your expenses might change
and affect your standard of living after transition.
Learning Objectives
• Create or update list of current expenses
• Compare cost of living at current and 2
nd
location
• Describe the basics of health insurance
• Specify the basics of life insurance
Living Expenses
Expenses are the daily, weekly, and monthly items you pay to live – groceries,
utilities, clothing, childcare, entertainment, etc. This includes ALL items where
cash, debit, credit, or any other method of payment are used to make a purchase
or pay a bill.
Some expenses, such as internet, cable, phone, and insurance are easy to know
because they tend not to change from month to month. There are also variable
expenses that change depending on the time of year. For example, your
electricity bill may be more expensive during the summer if you use an air
conditioner.
Living expenses generally account for most of your income, while a portion is
intended for leisure, also known as disposable income.
Included in the leisure category are items such as eating out, going to the
movies, making in-app purchases, stopping by the coffee shop, hobbies, and/or
using the vending machine.
Financial Planning for Transition 2024 Page 22
Take a minute to consider how you spend your money.
•
Do you stop for coffee every morning?
•
Do you use vending machines for something to drink or eat?
•
How often do you eat out for lunch or dinner?
•
How many streaming or gaming accounts do you have?
ACTIVITY: Update the Expenses section of your Spending Plan
Follow the directions provided by your facilitator and fill in the appropriate areas
of the spending plan. Note: Rent/Mortgage is under debt. Do your best to
accurately estimate the following:
• Utilities
•
Grocery expenses
•
Personal grooming
•
Other expenses
Tracking Spending
Monthly expenses are generally known and easily identified; however, the daily
spending where it is easy to lose track. Even if you have a good idea of where
you are spending your money, it is wise to track your expenses for a few weeks
or a month prior to transition. This will provide detailed knowledge of where you
are spending and, more importantly, provide where you can adjust, if needed.
There are many ways to track your expenses. Use what works best for you. The
following are a few suggestions:
•
Use a free app to track spending; many can be found in the app store on
your mobile device or tablet
•
Keep a small notebook with you to record every purchase (cash/credit/
debit)
•
Keep receipts from every purchase and total them up at the end of the
week
•
Create your own log using computer software such as Excel or Word.
How you track your expenses is not as important as the tracking itself. Just be
sure to include ALL purchases.
Financial Planning for Transition 2024 Page 23
Changes to Expenses After Transition
As you transition, many things will change including your current expenses. How
will transition affect your expenses?
• Will your expenses decrease?
• Will your expenses increase?
• Will there be new types of expenses?
Depending on where you live, expenses for groceries, gas, utilities, and housing
may decrease – especially if you are moving to an area with a lower cost of living or
moving in with family, friends, or roommates. However, the opposite can also be
true that these same expenses may increase if you are living in the barracks and
now must find a place to live or are moving to an area with a higher cost of living.
Take the time to think through what a new or unexpected expense may be; these
expenses can easily turn into debt. Keep in mind your income may decline for a
short period of time. It is important to consider the cost of living if you are seeking
to relocate after transition.
Expense of Relocation
As you transition, you may have one move provided by the military. Visit your
transportation office to ensure you are aware of all requirements pertaining to your
final move, such as deadlines or how to request an extension. Even if the military
pays for your final move, there are still expenses associated with relocation that
need to be considered.
Changes to Cost of Living
If you are seeking to relocate after transition, it is important to understand the
financial impact this may have on your salary needs and expectations if you
expect to retain your current lifestyle. Some factors to consider include:
• Housing (rent or mortgage)
• Utilities
• Taxes (including tax benefits for Veterans)
• Food, childcare, commuting costs, clothing, entertainment, school or college
costs, climate, insurance, home, or car repair
Financial Planning for Transition 2024 Page 24
To understand the extent of the differences in cost of living and the impact this will
have on your salary requirements, there are a few different websites you can use:
• https://www.bankrate.com/calculators/savings/moving-cost-of-living-
calculator.aspx
• http://www.bestplaces.net/cost-of-living
• https://money.cnn.com/calculator/pf/cost-of-living/index.html
• https://www.payscale.com/cost-of-living-calculator
• https://www.expatistan.com/cost-of-living
Determine the Cost of Living based on the previous scenarios.
Scenario 1
• E-4
• Separating after 4 years
• Single
• Stationed in Washington, DC
• Moving to Raleigh, NC
• Salary CE: $70,112
Salary requirements in Washington, D.C. compared to Raleigh, NC, to maintain
current lifestyle.
According to BankRate.com:
Many expenses would go down, along with salary requirements, which is what
would be expected when moving out of the Washington, D.C. area.
Financial Planning for Transition 2024 Page 25
Scenario 2: Cost of Living Comparison
Salary requirements in San Antonio, TX, compared to Nashville, TN, to maintain
current lifestyle.
According to BankRate.com:
Income requirements in Nashville are slightly higher than San Antonio due to the
higher cost of living in Nashville.
These are not the only considerations to be made when viewing cost-of-living
information. Information provided by different cost-of-living calculators may vary.
Take time to research the area before determining if a particular location will fit
your personal and financial needs after transition.
ACTIVITY: Determine the Cost of Living for a New Location After
Transition
1. Use the BankRate.com website
http://www.bankrate.com/calculators/savings/moving-cost-of-living-
calculator.aspx or a different cost-of-living calculator to find the location-
based salary equivalent
2. Write your new location in the box provided
Scenario 2
• 0-5
• Retiring after 20 years
• Married with family
• San Antonio, TX; 78150
• Moving to Nashville, TN
• Salary CE: $170,008
Financial Planning for Transition 2024 Page 26
3. Determine your new salary based on location using civilian salary
equivalent
4. Write the amount in the box below
5. Review housing adjustment.
6. Provide additional notes as needed
Cost of Living
Location (city, state)
Salary adjustment for location
Housing difference for location
Notes:
Healthcare After Transition
Healthcare and health insurance could be considered two of the best benefits
provided by the military. While in the Service, you most likely used TRICARE for
your healthcare needs. While using TRICARE, you may have become
accustomed to having your health/medical benefits completely covered, with
little to no out-of-pocket expenses. There was no need to worry about the cost
of medicines, co-pays, or if the doctor is in your network.
However, decisions about healthcare and health insurance are very important
and should be considered carefully. Even with insurance, you will still have
medical expenses. Be prepared, know your options, and make informed
decisions.
When preparing to transition your healthcare, be sure you have received a
complete copy of your medical records prior to transition, as well as those of
Financial Planning for Transition 2024 Page 27
your spouse and/or children. These records will be necessary for continuity of
care to a new medical provider or when applying for disability. The VA will
provide further information on obtaining your medical records during the VA
Benefits and Services brief.
Immediately After Transition
Health insurance is different for those separating from the military and retirees.
Retirees:
If you are retiring and you would like to enroll in TRICARE for RETIREES, it is
strongly recommended that you sign up for TRICARE and pay the premium as
soon as your orders are reflected in DEERS. For more information on enrollment
go to www.tricare.mil.
If you plan to use a Military Treatment Facility (MTF) after retirement for your
health care needs, it is important to note that not all MTFs have availability to
receive Retired Service members and eligible family members. Check directly
with TRICARE to find out what services are available in the area where you plan
to live.
Separatees:
Depending on your type of separation and if you meet eligibility requirements,
you may qualify for transitional healthcare insurance. Transitional Assistance
Management Program (TAMP) offers the same coverage available under
TRICARE, but it is only available for 180 days after your date of separation.
For those who do not qualify for TAMP, TRICARE offers Continued Health Care
Benefit Program (CHCBP), which can offer coverage for up to 18 months upon
separation from Service. There are up-front quarterly premiums, co-pays, and
deductibles associated with CHCBP. You must purchase the CHCBP within 60
days of loss of TRICARE eligibility.
A helpful website to determine the TRICARE plan you may be eligible for is
https://tricare.mil/Plans/PlanFinder.
For more information, to determine eligibility, or to apply for TAMP, CHCBP, or
TRICARE for Life, go to www.tricare.mil. VA Benefits and Services brief will
provide additional information.
Financial Planning for Transition 2024 Page 28
For members of the National Guard and Reserve, the TRICARE eligibility
requirements are different. For more information, to determine eligibility
requirements, and to apply for TRICARE programs, go to www.tricare.mil.
Civilian Healthcare Options
For those who are not eligible for other TRICARE plans or choose not to use
CHCBP, the alternate option is to use insurance from an employer or purchase
health insurance off the Marketplace (i.e., https://www.healthcare.gov/) through
an insurance company.
This next section will provide the basics of health insurance, terminology, and
options available to you.
Healthcare Plans and Considerations
When choosing a plan, it is good to know the basics.
•
Individual vs. Group Insurance
•
Basic healthcare terminology
•
Plan and network types – PPO, POS, EPO, and HMO
•
Estimating healthcare costs
Individual or Group Insurance
Healthcare is generally provided as either individual or group health insurance. For
individual coverage, there may be greater options available, but at a higher cost
premium. Group health insurance may provide fewer choices at a discount.
• Greater number of options
• Higher cost
• Limited options
• Less expensive
Financial Planning for Transition 2024 Page 29
Group insurance is generally the option used by employers. This type of insurance
is a financially feasible way for the company to provide health insurance for each
employee, possibly paying for some or all the premiums. Your future employer can
provide details on each of the coverage plans they offer and can answer any
questions you might have.
Individual plans are between you and the insurance company. These plans may
be more expensive, and there may be a questionnaire or physical exam involved
before you receive coverage. The results of the questionnaire or exam may be
used to determine costs. However, there may be more choices to individualize a
plan.
A growing trend is for companies to provide a healthcare stipend by adding a set
amount to the paycheck each pay period. The intent is for the employee to use
this stipend to purchase his or her own health insurance. You may also have the
choice of paying premiums through your employer from your pre-tax income.
Remember to ask your employer about your options.
Healthcare Terms
To better understand healthcare, it is important to understand the terminology.
Here are a few of the most common terms:
Premium
Amount you pay for health insurance, usually every month
(per paycheck, quarterly or yearly payments are also
possible)
Deductible
Amount you are responsible for paying before your
insurance starts cost sharing
o EX: if you have a $1500 deductible, you pay all costs
up to the $1,500
Co-Insurance
The percentage of medical costs that you are required to
pay after reaching your minimum deductible
o EX: After reaching your deductible, if a visit to the
doctor is $100 and your co-insurance is 20%, you
owe $20
Co-Payment
A flat fee service providers charge based on the health plan
o EX: a $20-$40 co-pay every time you visit your
primary care physician
Financial Planning for Transition 2024 Page 30
In-Network
Cost
Cost to see a doctor who is in your network and has an
agreement with the insurance company
Out-of-Network
Cost
Cost to see a doctor or receive services from a provider
who is not in your healthcare plan; cost is usually greater
than in-network and can be up to the full cost of the
service
Out-of-Pocket
Cost
Deductibles, co-payments, and co-insurance not covered
by the insurance provider; does not include premiums
Out of Pocket
Maximum/Limit
Most you will pay for covered services in one year; after
this amount is reached, insurance covers 100%; does
not include premiums
Flexible
Spending
Account (FSA)
An arrangement through your employer that lets you pay
for many out-of-pocket medical expenses with tax-free
dollars
Health Savings
Account (HSA)
Pre-tax savings account for those with high deductible
plans to pay for deductibles, co-payments, co-insurance,
and some other expenses
Qualifying Life
Event (QLE)
A significant change in your life (e.g., marriage, birth of
a child, or change in employment). A QLE may allow you
to make enrollment changes outside of the annual open
enrollment period.
Financial Planning for Transition 2024 Page 31
Types of Plans
Whether you enroll in a group or individual plan, there are generally only a few
types of plans. Below are the most common types:
Preferred Provider
Organizations (PPO)
Health plan where you pay less if you use providers
in the plan’s network. You can use doctors, hospitals,
and providers outside of the network without a
referral for an additional cost.
Point of Service
(POS)
Health plans where you pay less if you use doctors,
hospitals, and other health care providers that
belong to the plan’s network. POS plans require
you to get a referral from your primary care doctor
to see a specialist.
Exclusive Provider
Organization (EPO)
A managed care plan, like an HMO, where services
are covered only if you use doctors, specialists, or
hospitals in the plan’s network (except in an
emergency).
Health Maintenance
Organization (HMO)
Health plan that usually limits coverage to care
from doctors who work for or contract with the
HMO. Out-of-network care is generally not
covered except in an emergency. An HMO may
require you to live or work in its service area to be
eligible for coverage.
Catastrophic Plan
You must be under 30 years of age to qualify for a
Catastrophic Plan. This plan has lower premiums
and allows the greatest amount of flexibility on the
choice of provider. However, the deductible for
the catastrophic plan is very high, generally equal
to the out-of-pocket maximum.
Financial Planning for Transition 2024 Page 32
Considerations When Reviewing Health Care Plans
If you can choose a healthcare plan from your post-transition employment or
through another option, consider the following questions when choosing your
plan.
•
Estimate your yearly medical needs.
o How often do you visit the doctor? Is there a medical condition
requiring regular visits (e.g., young children needing well-baby checks,
pregnancy, and new baby)?
o
For reoccurring or existing medical conditions, consider the number
of doctor office visits, procedures, and/or hospitalizations in the past
year to determine total possible out-of-pocket expense as well as
the number of covered beneficiaries.
•
Decide which plan type best meets your needs.
o
Consider all types of plans — PPO, POS, EPO, or HMO — and
determine which will fit you and your family’s needs.
•
Size up the cost.
o
Compare the total cost, not just the monthly payment or deductible
– also consider the cost of hospitalization and prescriptions, and
balance this with your overall health and expected medical needs.
•
Don’t get lured in by freebies.
o
Do your research to be sure that what is being touted as free isn’t
something that is already covered by the plan.
•
Check the quality of the plan.
o
The National Committee for Quality Assurance ranks healthcare
plans across the country based on their clinical performance,
member satisfaction, and surveys.
•
Consider a flexible spending account.
o
If your employer offers a healthcare flexible spending account, save
money by setting aside pre-tax money into a healthcare flexible
spending account (FSA). These accounts can be used to pay for
prescriptions, contacts, and other out-of-pocket medical expenses,
but generally not the premium.
o
Review your yearly medical needs when considering this option,
since FSAs require that all funds be used in the current year, or a
Financial Planning for Transition 2024 Page 33
limited amount can be rolled over into the next year as some of
these accounts have annual spending requirements.
•
Check out the prescription coverage.
o
Not all prescription drugs are covered. If you have medications you
take on a regular basis, be sure your prescription is included in the
coverage or check with your physician or pharmacist for options that
are covered.
•
Ask about dental and eye coverage.
o
Not all plans include coverage for dental or eye exams; be sure to
ask, especially if you or a member of your family wears glasses and
will need yearly eye Exams.
•
Family coverage vs Individual coverage.
o
Some plans charge premiums based per persons covered versus a
family (multiple person coverage) plan. Premiums can add up
quickly. Be sure to understand who and what is covered and at
what cost.
o
Special consideration/additional research might be needed if you
have a young adult in college or an adult dependent with special
needs.
If you don’t know or aren’t sure, ASK! Healthcare is complicated. Call the
member services department of the health plan you are considering or the
Human Resources (HR) department at your future employer. You can also find
help with Marketplace healthcare plans by speaking with a Healthcare Navigator,
an individual or organization that's trained and able to help consumers, small
businesses, and their employees as they look for health coverage options
through the Marketplace, including completing eligibility and enrollment forms.
Navigators are required to be unbiased, and their services are free to consumers.
Estimating Healthcare Costs
When estimating the cost of healthcare, assume that you will be paying the
entire premium and associated costs, like deductibles, for you and your family.
If you obtain employment where your employer pays for a portion of your
insurance, your healthcare costs will be less than estimated. If you get
healthcare though the Healthcare Marketplace, you may qualify for tax credits
that help pay for part of the cost of coverage.
Financial Planning for Transition 2024 Page 34
There are many different websites available to assist in comparing plans and
estimating the cost of healthcare insurance. It is recommended to use two or
three different sites when attempting to estimate your health insurance costs.
One example is the Healthcare Marketplace (https://www.healthcare.gov/see-
plans/). This website will estimate the out-of-pocket expense of different plans
with varying levels of coverage. While this will not provide the exact cost, it will
provide a good estimation of the cost of individual health insurance.
ACTIVITY: Estimate the Cost of Health Insurance
1. Go to a healthcare website – such as https://www.healthcare.gov/see-plans/
2. Add your zip code; follow directions to add your specific information
3. Review plans – there is no obligation to purchase/enroll
4. Add your research to the box below
Cost of Healthcare Estimates
Website Used
Plan Name
Company
Monthly Premium
Annual Premium
Deductible
Co-pays
Co-insurance
NOTES:
Remember, the estimates shown on the healthcare cost calculators are for
purchasing healthcare on your own and not as part of a group through an
employer. A plan provided by an employer is likely to cost less, but you may
have fewer plan choices.
Financial Planning for Transition 2024 Page 35
Veteran Specific Site on Healthcare Marketplace
As a transitioning Service member, you will not be required to wait until the open
enrollment period to obtain health insurance through the Healthcare Marketplace.
Leaving the military qualifies as a life event and entitles you to a Special
Enrollment Period. For more information, visit the following websites:
• https://www.healthcare.gov
• www.tricare.mil
• http://www.tricare.mil/reserve/
NOTE: Plan coverage details and costs will vary; be sure to ask questions and get
thorough answers so you can make an informed decision about your healthcare
benefits.
Be aware that healthcare laws may change. You are responsible for knowing and
understanding how these changes affect you as a civilian.
Life Insurance
H
OW MUCH LIFE INSURANCE DO YOU ACTUALLY NEED
?
The purpose of life insurance is to replace the loss of income upon the death of
the insured and to be able to pay debts, funeral expenses, future expenses,
education costs, etc. How much is necessary? That fully depends on your
current life situation. A family with young children will have different life
insurance needs than a couple nearing retirement.
When considering life insurance, the first step is to evaluate your life insurance
needs. This is to ensure you have enough coverage, the right type of coverage,
and the correct beneficiaries.
To ensure you have enough coverage, use a simple acronym, LIFE, to calculate
your life insurance needs.
•
Liabilities – mortgage, debt, etc.
•
Income – annual salary X years to replace that income
•
Final Expenses – burial, estate, etc.
•
Education – college/certifications for survivors
From that total, subtract your current savings, existing college resources, and
current life insurance policies. The difference provides the amount of life
insurance coverage needed. In addition to this simple calculation, there are
Financial Planning for Transition 2024 Page 36
many online calculators to help you determine your insurance needs. The VA
provides one such calculator: https://insurance.va.gov/NeedsCalculator
Next is to determine the right type of coverage.
Types of Life Insurance
While in the Service, the Servicemembers’ Group Life Insurance (SGLI) provided
you low-cost life insurance. There was also an option to cover your family with
Family Servicemembers’ Group Life Insurance (FSGLI). After transition, SGLI
coverage continues for 120 days (or up to two years of coverage by applying for
the SGLI Disability Extension if a Service member is disabled and unable to
work). After that time, SGLI is no longer an option. The following are other
available options:
Veterans Group Life Insurance (VGLI)—allows Service members one year
plus 120 days, from the date of separation, to convert their SGLI coverage to
term life insurance https://www.va.gov/life-insurance/options-eligibility/vgli/
•
Once enrolled in VGLI, coverage remains if the premiums are paid.
•
Rates are determined using a sliding scale based on age.
Term Life Insurance: provides coverage at a fixed rate of payments for a
limited period of time or term.
•
Generally, coverage expires after the limited period of time.
•
Renewing the policy may result in a higher rate or have added conditions.
•
Often the least expensive way to purchase substantial death benefits.
Permanent Insurance: covers you until your death, while the payments are
made, and provides a cash value.
•
Under the Permanent Life Insurance umbrella, there are several types:
o
Whole Life, Variable Life, Universal Life, Variable Universal Life, and
Indexed Universal Life.
•
Payments are made until the coverage matures, generally around age 100
of the insured.
•
Payments are generally less expensive the earlier the insurance is
purchased and as long as the payments continue to be made.
•
Frequently more expensive than term life insurance.
•
Ensures a guaranteed financial support if premium payments continue to
be made.
Determining if you and your family need life insurance and the type of life
insurance is a decision you need to make. It is also a decision that should be
based on the research you have conducted.
Financial Planning for Transition 2024 Page 37
Finally, ensure you have identified a designated beneficiary. This is the only way
to ensure the life insurance is paid to whomever you choose. A beneficiary
designee will supersede any designations made in your will.
Final thoughts on Life Insurance:
•
Finding the right life insurance coverage takes time and there are
hundreds of companies competing for your business.
•
Shop around and get life insurance quotes from a few different companies.
However, realize that you may be required to provide them basic
information including your contact information to obtain a quote. This may
lead to phone calls or emails from the company.
•
By comparing quotes, you can discover the differences in cost and in
coverage, as well as how much premiums will increase as you age.
•
Depending on how long you wait to find life insurance coverage, and the
life insurance company you choose, you may be required to take a
physical. The results of the physical can affect the cost of the premium.
If you intend to purchase life insurance, it is recommended that you do so within
240 days after date of discharge. Within this window of time, proof of good
health may not be required for converting from SGLI to VGLI. Companies may
offer life insurance with similar policies, but with different time frames and
requirements.
Do your research and be an informed consumer before inquiring or purchasing
life insurance. Also, your new employer may offer life insurance options while you
are an employee. For any questions, the Personal Financial Manager on your
installation can provide additional information and guidance.
Disability Insurance
One other type of insurance to consider is disability insurance. When an Active-
duty Service member becomes ill or injured, he or she continues to receive pay
and benefits. This type of coverage is not automatic in the civilian sector.
Generally, an employee must elect to have disability insurance to receive some
or all their pay while in recovery. Many employers offer some type of disability
insurance as part of the compensation package, or it can be purchased
separately.
Wrap Up Questions
• Why would tracking your expenses for a period of time prior to transition
benefit you?
• What is a co-pay?
• What is a deductible?
Financial Planning for Transition 2024 Page 38
Debt and Credit
Competency
Evaluate current total debt and the effect this may have on transition.
Learning Objectives
• Understand debt and credit
• Analyze the impact of credit score on transition
• Identify ways to decrease debt prior to transition
What is your current Debt?
To calculate your debt, you will need to determine to whom you owe money and
the minimum payment due each month.
Items that fall into the debt category generally include:
•
Credit cards (e.g., bank, department store, gas, etc.)
•
Car loans
•
Personal loans
•
Consolidation loans
•
Student loans
•
Advanced payments/Pay day Loans
•
Overpayments
•
Indebtedness to military aid organizations, family, and friends
•
Home mortgage or Rent
•
Child support payments
•
Alimony payments
ACTIVITY: Update the Debt section of your Spending Plan
Follow the directions provided by your facilitator and fill in the appropriate areas.
Remember to include the following:
• Mortgage or Rent
• Car Payments
• Credit Cards – bank, department, Military Star Card
• Loans – personal, student, car, home
Financial Planning for Transition 2024 Page 39
NOTE: Mortgage or rent while in the military is sometimes categorized as an
expense due to housing allowance being provided to cover your mortgage or rent.
However, after transition, financial institutions categorize mortgage or rent as a
debt. As this course is about finances post transition, mortgage and rent are
included within debt.
Debt-to-Income Ratio (DTI)
As you transition, it is good to know the amount of debt you have in relation to
your income. This is your debt-to-income ratio (DTI). This ratio is one way to
measure how financially solvent you are. Lenders will determine your DTI and
use this, along with other factors, to decide your ability to repay. Any DTI
calculated is a snapshot of your current situation, so it needs to be recalculated
regularly as your income and/or debt change. The following are the steps needed
to calculate your debt-to-income ratio.
Calculating Your DTI Ratio
Step 1: Add up all your required minimum monthly
debt payments. This may include:
•
Rent/mortgage
•
Monthly minimum credit card payments
•
Loans: student, personal, auto, etc.
•
Child support or alimony
Step 2: Divide the amount from step one by your gross
monthly income (pre-tax income).
Step 3: The result is your DTI.
Example: Calculated total monthly MINIMUM debt payments (including rent,
car loan, credit card payments) as $2,050; gross monthly income (pre-taxes) is
$5,495.
The DTI calculation is:
• 2050 ÷ 5495 = 0.37
• 0.37 x 100 = 37%
DTI ratio is 37%.
Financial Planning for Transition 2024 Page 40
DTI Ratio – What Does This Mean? Why is this
important?
Since a lender will use your DTI to determine your credit worthiness, it is good
for you to know yours and understand what it says about your financial situation.
The generally accepted percentages are:
•
Less than 33%: Acceptable – debt is manageable.
•
34% - 49%: Work to lower your DTI – it would be better to be below 33%.
•
Over 50%: Seek financial assistance immediately. With over half your
income going to debt, any life event requiring additional funds could cause
serious financial hardships.
Generally, a DTI of 41-43% is typically the top end for approval for a mortgage.
This DTI limit is also true of VA loans.
Consumer Finance provides an explanation as to why this is important, located
within this link: https://www.consumerfinance.gov/ask-cfpb/what-is-a-debt-to-
income-ratio-why-is-the-43-debt-to-income-ratio-important-en-1791/
It is highly encouraged for you to seek assistance with developing a debt
management plan prior to transition, especially if your DTI is 49% or higher.
Having control of your debt as you enter transition will allow for more financial
flexibility during the transition period.
Managing Your Credit for Transition
Just as it is necessary to understand your debt prior to transition, it is just as
important to understand and manage your credit.
This section will be a review of information provided during previous financial
literacy courses on your credit report and score. The purpose of this section and
information are to ensure you are aware of how a credit score and report can
affect your transition—positively and negatively.
Financial Planning for Transition 2024 Page 41
What is a Credit Score?
Credit Scores are widely available to consumers from sources such as banks and
credit card companies. Credit scores generally range from 300 to 850; the national
average for a FICO score is 695 – 700, with most in between 660 and 720.
Remember, higher credit scores may result in better credit terms such as lower
annual percentage rates (APR).
Credit Scoring Factors
The biggest credit scoring company with over 90% of the market is—Fair Isaac
Corporation (FICO). Most creditors and credit bureaus either use FICO scores or
have a system based on the FICO system. More information is available online at
http://myfico.com.
According to FICO, the factors considered in determining FICO scores are:
• Payment history (about 35% of the score)
o Previous credit accounts paid on time.
• Amounts owed on credit accounts (about 30% of the score)
o Amount of credit used compared to your credit limits.
• Length of credit history (about 15% of the score)
o Length of time your credit accounts have been established and the
length of time it has been since you used certain accounts.
• New credit (about 10% of the score)
o The number of new accounts that have been recently opened (i.e.,
number of new requests for credit).
• Credit mix (about 10% of the score)
o FICO scores will consider the mix of credit cards, retail accounts,
installment loans, finance company accounts, and mortgage loans.
Financial Planning for Transition 2024 Page 42
Understanding what the creditors are evaluating helps you understand what
adjustments you can make to improve your score.
Do not let the “number of new requests for credit” factor stop you from shopping
around for the best loan, especially on large purchases such as a car or home.
Multiple credit checks for the same type of loan should not affect your credit score
as the most used scoring models will count them as a single inquiry if they occur
within a short period of time (14 – 45 days).
How Does the Credit Report and Score Affect Your
Transition?
During transition, your credit report may
be viewed for various reasons.
• Employers:
o To evaluate you for hiring,
promotions, and other
employment purposes
• Creditors:
o When you apply for a home
loan or credit
• Government agencies:
o When being considered for
assistance, such as
unemployment
o When trying to obtain a
security clearance
• Insurance companies:
o When applying for health, life, and auto insurance, companies may
look at your credit report to determine your ability to pay a premium
• Landlords:
o When deciding whether to rent you a place to live
Prior to transition, check your credit report so you know what it contains, and that
the information is correct and accurate. It is important to note that potential
employers or insurance companies are required to notify you if a credit report
• Influences on hiring,
home loans, insurance,
applying for government
assistance
• Higher score = favorable
ability to be hired, to be
approved to rent, to be
granted a loan, or to be
insured
Why Should
I Care?
Financial Planning for Transition 2024 Page 43
review is part of background screening. If you are denied credit, a job, or
insurance based on your credit report, you have the right to request a copy of the
report for FREE from the credit reporting agency that provided the
employer/company your credit report.
Analyze Your Credit Report and Score Before Transition
To check your credit report, request a report from each of the three crediting
agencies, Equifax, Experian, and TransUnion, which is located at
www.annualcreditreport.com.
Closely review the reports, and if married, review them with your spouse. Check
the following items:
1. Review all personal information
Review to ensure that all personal information is accurate. Closely check your
name, first, last, and middle to include spelling. Check to ensure the address is
correct, and spelled correctly, as well as previous addresses. Finally check to
see if the current employer is correct.
2. All open accounts are yours
Review every open account. Is this one you opened? Also look at closed
accounts. Should there be an account open that you did not open, take the
necessary steps to close it.
3. Inquiries for credit you applied for
Your credit report will also list all credit you have applied for such as a car,
home, or other credit such as a credit card. Review these applications for credit
to ensure you are the one who applied.
4. Account history listed for your accounts
Look at the account history for each account. Ensure payments were captured
and reflected accurately. On time payments are one of the largest determining
factors for a credit score.
Financial Planning for Transition 2024 Page 44
5. Negative information
Review any negative information listed. Is it accurate? Is this you? A credit
reporting company generally can report most negative information for seven
years; some negative items can stay on longer in certain circumstances.
Some negative information will be removed after a determined period of time;
other negative information will remain indefinitely.
6.
All debts discharged in bankruptcy are listed that way
Should you have any bankruptcy, ensure all debts that were cancelled due to
bankruptcy are listed accurately.
Most major creditors subscribe to one or more credit bureaus. Therefore, it is
important to request and analyze a report from each credit bureau. It is your
responsibility to review information on your credit report and to request corrections.
Use www.AnnualCreditReport.com to print your credit reports.
If you have already used the free credit report from one or all three agencies, an
installation personal financial manager or counselor (PFM or PFC) may be able to
assist you with obtaining a current report.
Correcting Credit Report
If you find incorrect or inaccurate information on your credit report, immediately
start the process to have it corrected. It is best to contact both the credit-reporting
agency and the creditor that provided the information. The fastest and easiest way
to resolve an inaccuracy on your credit report is through the online credit report
dispute process. Listed below are the dispute websites for the three credit agencies:
• TransUnion: https://www.transunion.com/credit-disputes/dispute-your-credit
• Experian: https://www.experian.com/disputes/main.html
• Equifax: https://www.equifax.com/personal/credit-report-services/credit-
dispute/
If the inaccurate information is more complicated, the Federal Trade Commission
(FTC) has detailed instructions and sample letters for both the credit company and
the information provider at www.consumer.ftc.gov. You can also visit your local
installation PFM to assist you in understanding your options.
Financial Planning for Transition 2024 Page 45
Additionally, you can submit a complaint to the Consumer Financial Protection
Bureau (CFPB), and they can assist you in resolving the errors. Use the following
website https://www.consumerfinance.gov/complaint/.
Clean Up Inaccurate Public Record Information
T
he most damaging information on your credit record is sometimes sourced from
public records, such as arrests, judgments, foreclosures, tax takings, and liens. The
best way to remove the inaccurate information from your file is to do so at the
source. This requires contacting the government agency supplying this information
to the credit bureau, and then ensuring the corrected information is updated in the
credit bureau’s files.
E
xplain Damaging Items
I
t can be helpful to send a statement to the credit bureau explaining damaging
items. Credit bureaus are required to accept these statements if they relate to why
information in the report is inaccurate.
Another approach, often more effective, is to explain the delinquency to the lender
from whom you are applying for credit, rather than to the credit bureau. Federal
law requires that creditors at least consider your explanation.
N
egative Information
W
hen negative information on your report is accurate, only the passage of time can
assure its removal.
Financial Planning for Transition 2024 Page 46
Ways to Improve Your Credit Score
The best way to improve your credit score (and keep your credit healthy) is to pay
your bills on time and keep balances on credit cards below 10% of the credit limit
(credit utilization).
Below are suggested ways to keep your credit healthy:
Although your life during transition may be hectic and in flux, it is critical that you
remember to pay your bills. The following are suggestions on ways to track your
bills:
• Create a spreadsheet in the months leading up to transition to ensure all bills
are being paid on time
• Utilize online bill pay
• Set up auto pay for bills through the biller’s website or your bank
• Set up an email account to use specifically for bills
• Forward your mail to a family member, who you trust to pay a bill for you
Financial Planning for Transition 2024 Page 47
Caution with Credit Repair Agencies and Debt Relief
Companies
C
redit Repair Agencies
o These companies promise to fix your credit record for a fee. They usually
call themselves credit repair, credit service, credit clinic, or similar names.
These agencies usually cannot deliver what they promise.
D
ebt Relief Companies (aka settlement)
o Debt settlement programs often involve a company negotiating with your
creditors to allow you to pay a "settlement" to resolve your debt. Typically,
this settlement is a lump sum that is less than the full amount you owe.
Settling a debt for less than the full amount owed can affect your credit and
security clearances. Debt settlement programs work to get monies owed;
they do not necessarily work in YOUR best interest.
o If you MUST use a debt settlement program, look for a non-profit agency o
r
o
ptions at your bank/credit union.
F
or more information on debt relief:
https://consumer.ftc.gov/articles/how-get-out-debt
Th
reats to damage your credit rating from Debt Collection Agencies
Debt collectors may threaten to report negative information to a credit bureau, but
the threat is meant only to pressure you to pay. Creditors automatically report that
your account was sent to a collection agency.
Practices that are abusive, unfair, or deceptive from collection agencies may be
illegal under the federal Fair Debt Collection Practices Act (FDCPA). You may have
other legal ways of challenging the debt collection agency’s conduct. Contact the
Consumer Financial Protection Bureau and file a complaint at Consumer Financial
Protection Bureau (consumerfinance.gov).
K
now your rights when it comes to debt collection agencies. For information
visit: https://files.consumerfinance.gov/f/CFPB-Servicemembers-Know-Your-Rights-
Handout-Debt-Collection.pdf.
T
he installation financial counselor is a free resource available to Service members,
their families, and retirees. After transition, you can also seek financial assistance
at the American Job Centers (AJCs). Many AJCs have certified financial counselors
to assist with financial issues and telephonic financial counseling is also available at
all sites.
Financial Planning for Transition 2024 Page 48
You can generally do a better job cleaning up your credit record on your own, at no
cost. While you are still in service, take advantage of the free credit monitoring
available to you: https://consumer.ftc.gov/consumer-alerts/2019/10/free-
electronic-credit-monitoring-coming-soon-military
Fair Credit Reporting Act
T
o ensure fairness when it comes to credit reports, the federal Fair Credit Reporting
Act (FCRA) was created to promote the accuracy, fairness, and privacy of
information in the files of consumer reporting agencies. There are many types of
consumer reporting agencies, including credit bureaus and specialty agencies (such
as agencies that sell information about check writing histories, medical records, and
rental history records). You must be told if information in your file has been used
against you.
•
You have the right to know what is in your file.
•
You have the right to dispute incomplete or inaccurate information.
•
Consumer reporting agencies must correct or delete inaccurate,
incomplete, or unverifiable information.
• Consumer reporting agencies may not report outdated negative information.
• Access to your file is limited.
• You must give your consent for reports to be provided to employers.
• You may limit the “prescreened” offers of credit and insurance you receive
based on information in your credit report.
• You may seek damages from violators.
•
Identity theft victims and active-duty military personnel have additional
rights.
For more information, including information about additional rights, go to
https://www.ftc.gov/about-ftc.
A
ssessing Your Financial Readiness
B
oth the debt-to-income ratio and credit scores are indicators of financial well-
being. However, when analyzing both scores, it is important to note that no single
score accurately reflects your current financial situation and that your situation
changes over time.
E
veryone has different expectations when it comes to finances. Some feel they can
never have enough in savings, while others are good with a small amount. Others
want their IRA and 401(k) to be extremely robust, while others are perfectly fine
Financial Planning for Transition 2024 Page 49
with a more modest amount. Some will drive a car that is older because they do
not want the car payment, while others buy or lease a new car every few years. A
financial situation is very personal and involves your personal financial choices.
Look at your entire financial situation and gain a good understanding as you enter
transition. Are there any numbers you would like to change? Start making those
changes now. However, it is important to remember that change may be slow.
During and after your transition, revisit this activity to ensure your financial
situation has remained steady.
W
rap Up Questions
• How important is the DTI for obtaining more credit? What other factors are
used in the decision-making process?
• What is the FCRA? Will this have an impact on your transition?
• What are the two most important factors which affect your credit score?
A
Financial Planning for Transition 2024 Page 50
Assets
Competency
Ev
aluate your assets and understand options available during and after transition.
Learning Objectives
• D
efine assets and calculate value of personal assets.
• Calculate net worth as it pertains to assets and evaluating current financial
situation.
• Illustrate the difference between a defined-benefit plan and a defined-
contribution plan.
• Analyze options available for the Thrift Savings Plan (TSP) whe
n
trans
itioning.
• Recognize the reasons a savings account is essential during transition.
Assets
A
n asset is anything of value that you own that can be converted into cash.
Examples include savings, real estate, personal property, and investments such as
IRAs, mutual funds, etc. Even a retirement pension can be considered an asset, as
can an annuity, such as a Survivor Benefit Plan (SBP). During transition, it is
important to know your assets and their current value.
Savings, Investments, and Retirement Plans
T
hree types of assets are savings, investments, and retirement plans. During
transition, you will need to make financial decisions concerning your existing
savings and retirement accounts. After transition, it becomes important to
understand the nuances of each type of retirement plan so that when you are
confronted with a decision as a new employee, you will have the basic underlying
knowledge to be able to ask specific questions and make informed decisions.
S
aving and Investments
S
avings and investments are an important part of the financial picture and can ease
the financial burden that might occur during transition to civilian life. Savings will
help to retain your financial stability should you have a gap in employment during
transition. It can also be used in a financial emergency, such as when the car
Financial Planning for Transition 2024 Page 51
breaks down or if the roof leaks. Savings (savings, emergency savings, and goal
savings) are generally used for short term, while investments are for longer-term
savings and when planning for retirement.
Consider setting goals for each of these areas:
•
Savings - equivalent two-weeks’ expenses or $1,000, whichever is greater
•
Emergency Savings - minimum three-to-six months of living expenses
,
rent/mortgage, and debt
•
Goal – funds specified for items you want
•
Investments - Mutual Funds, Stocks, TSP, 401(k), or other investments
S
avings should not be an afterthought, reserved for after the bills have been paid,
groceries are in the refrigerator, and rent is covered. Instead, savings should be
considered a part of a spending plan, just like any other recurring expenses.
Regular, consistent contributions (even if a small amount) go a long way toward
building your savings and investment portfolio.
Retirement Plans
No matter what your age or life situation, it is never too early or too late to begin
thinking and planning for retirement. To assist with this, employers may offer
some type of retirement plan to help you save, such as a 401(k) or other similar
plan. Many of these plans provide tax advantages, including a deferred tax liability
or lowering your taxable income. Some employers offer matching funds up to a
certain percentage. Employer provided retirement plans, mutual funds, investment
funds, and IRAs are popular options that may be used to grow and fund retirement.
To begin, it is important to understand the two basic categories of retirement plans,
which may be provided by an employer: defined-benefit and defined-contribution.
D
efined-Benefit Plan: A defined-benefit plan is the traditional company pension
plan. If you are under the legacy retirement system, this is your current retirement
pension plan. The legacy retirement system is a “defined-benefit” plan because the
ultimate retirement benefit is definite and determinable as a dollar amount or as a
percentage of wages. To determine these amounts, defined-benefit plans usually
base the benefit calculation on a combination of the employee’s salary and years of
employment. Characteristics of a defined-benefit plan include:
• F
unded mostly, if not entirely, by the employer
• Employer assumes all responsibility for the payment of the benefit and all the
risk on funds invested to pay out that benefi
t
Financial Planning for Transition 2024 Page 52
For specific information on this plan, visit Military Compensation:
ACTIVE-DUTY: http://militarypay.defense.gov/Pay/Retirement/
RESERVES: http://militarypay.defense.gov/Pay/Retirement/Reserve.aspx
Def
ined-Contribution Plan: A defined-contribution plan is a qualified retirement
plan in which the contribution is defined, but the ultimate benefit to be paid is not.
These plans take many forms and include 401(k), 403(b), Roth 401(k), TSP,
Savings Incentive Match Plan for Employees (SIMPLE) IRA, Simplified Employee
Pension (SEP) IRA, Employee Stock Ownership (ESOP), and profit sharing.
C
haracteristics of a defined-contribution plan include:
• Considered portable, as all contributions made by the employee
and
employer remain property of the employee (after vesting)
• Contributions come from the employee
• A portion may or may not be matched by the employer
• Each participant has an individual account
• The benefit at retirement depends on the amount contributed, the funds
selected, the investment performance of that account through the years,
and
any
applicable management fees
• Investment risk rests solely with the employee because of the opportunity to
choose from several investment options
Military Retirement Plans
From the military, there are two retirement plans currently in use, the Legacy and
Blended Retirement System (BRS). Which one you are eligible for is determined by
your initial date of entry. If you are unsure of which plan you fall under, check your
LES.
Legacy:
• Serve 20 or more qualifying years to earn a lifetime monthly payme
nt
• A
vailable for those with an initial entry date before January 1, 2018
• Defined-benefit plan – calculated at 2.5% times years of services times the
highest 36 months of basic pay.
• TSP account is available for Service member contribution, but with no
government matching contribution
• Additional Information: https://militarypay.defense.gov/Pay/Retirement/
Financial Planning for Transition 2024 Page 53
BRS:
• Combines elements of the legacy retirement system with benefits like thos
e
o
ffered in many private-sector 401(k) plans
o Defined-benefit plan – calculated at 2% times years of services times
the highest 36 months
o Defined-contribution plan – Service member contributes, and the
government matches funds up to 5%
A
dditional information:
https://militarypay.defense.gov/Portals/3/Documents/BlendedRetirementDocument
s/A%20Guide%20to%20the%20Uniformed%20Services%20BRS%20December%2
02017.pdf?ver=2017-12-18-140805-343
BR
S and TSP
S
ince BRS is a combination of a defined-benefit or pension plan and a defined-
contribution plan, TSP is an important part of your retirement planning, regardless
of how long you serve in the military.
A
s a defined-contribution plan, both you and the government contribute to your
TSP.
• Service member contributions to TSP taken directly from pay
• Government matches up to 5% of basic pay contributions
I
t is important that you access your TSP account prior to transition to prepare for
the options available for your TSP post-transition.
Access your account at https://www.tsp.gov/
Retirement Plans for Employers
M
any employers offer a 401(k) or other similar plans intended to help you save for
retirement. Employers may also offer matching contributions into your company
retirement plan to assist you with funding your retirement. However, many
companies require what is known as a vesting period. A vesting period is the
waiting period required before an employee can keep funds contributed into their
account by the employer. For example, any money you contribute to your
retirement fund from your paycheck is 100% yours. The company’s matching
funds may vest (or change ownership from the employer to you) over a period of
time.
Financial Planning for Transition 2024 Page 54
Vesting can occur in many forms, such as incremental vesting. For example, at
year one you will be vested at 25%, year two at 50%, year three at 75%, until full
vesting of 100% at 4 years. Some employers have a cliff vesting schedule that
includes full vesting after a specified period of employment. This means, if you
leave the company for any reason prior to the full vesting period, you forfeit the
matching company funds. The Blended Retirement System requires a period of 2
years before the Service 1% contribution is considered vested and wholly owned by
the Service member.
Thrift Saving Plan (TSP)
R
egardless of whether you are in the legacy retirement system or BRS,
participation in the TSP is a benefit of Service and enables you to help build
retirement wealth. When you retire or separate from the military, you have
multiple options for your TSP account.
• S
tay: if you have at least $200 in your TSP account, you can continue to
participate in the TSP by leaving your current money in TSP.
• R
oll over: you can transfer your funds from the TSP to an IRA or anothe
r
eligible employer retirement plan.
• D
istribution: withdrawal your funds as cash from TSP and not rollover into
another similar account; however, withdrawal or distribution could trigger
ne
gative tax consequences.
F
or more information on making TSP contributions go to:
https://www.tsp.gov/making-contributions/contribution-limits/
Financial Planning for Transition 2024 Page 55
Po
tential Benefits of Staying in TSP
• Low administrative expenses
• A
bility to rollover to a Traditional IRA, Roth IRA, or eligible employer plan
• Option to change your investment mix with reallocations and fund transfers
• Defer federal income taxes on any tax-deferred amounts remaining in the
TSP
After you separate or retire, you will still have access to your TSP and the ability to
review your TSP balance and prior contributions, and to rebalance your investment
mix.
I
n addition, you will be able to rollover contributions from an eligible employe
r
pl
an to your TSP. While you can rollover, you are not able to contribute directly
into TSP from your non-military paycheck, even as a federal employee. Federal
employees have a separate TSP account, separate from the military TSP account.
Make any adjustment or changes through the TSP Mobile App and TSP website,
www.tsp.gov.
R
ollover Options
• If you become a federal civilian employee, you have the option of combining
your two TSP accounts by rolling over the military TSP account with your
f
ederal civilian TSP account. Be sure to find out the options.
• Transfer some of your TSP account into an IRA or eligible employer plan,
allows you to remain with TSP.
R
olling over funds is an option for those who do not want to stay in TSP and do not
want the IRS early withdrawal penalty of a distribution. Done correctly, funds
rolled over directly to an IRA or eligible employer plan with no immediate tax or
early withdrawal penalties. Another option is to rollover your contributions from
eligible employer plans into your TSP account. To avoid an unintended taxable
event and IRS early withdrawal penalty, contact the financial institution you want to
move over to and have them start and process the paperwork for the rollover or
transfer. You can create unintended tax obligations and incur penalties by
withdrawing it and moving it yourself.
Distribution Options
• Take a full or partial distribution AND
• Choose one of the distribution options:
o Single payment
o Monthly, quarterly, or annual payments
Financial Planning for Transition 2024 Page 56
o Life annuity
o Combination of above options
T
SP recently updated their distribution options. For more on these options, visit:
https://www.tsp.gov/living-in-retirement/withdrawal-options/.
R
etirement funds are intended for retirement. However, withdraw is an option. If
you have determined you will withdraw your TSP balance, make sure you are aware
of the implications beforehand. There are IRS rules that govern taxes and penalties
for withdrawing retirement funds before certain ages and criteria are met.
Warning! Some types of TSP distribution payments are subject to federal income
taxes, fees, and potential IRS withdrawal penalties, which can amount to over 30%
of the distribution; different tax rules apply to the different distribution options, as
well as to the type of money (traditional, Roth, a combination of both, or tax-
exempt) that is included in your payment. In addition, you may also be subject to
state taxes.
TS
P Considerations Prior to Transition
• Beneficiaries – Before you transition, be sure to check that your TSP
beneficiaries are updated and are aware of the TSP death benefits, acco
unt
num
ber and how to access.
• Loans – outstanding loan, you’ll be able to continue making loan payments
by check, money order, or direct debit. You will not be able to apply fo
r a
ne
w loan after you leave the Service
o https://www.tsp.gov/new-tsp-features/summary-of-changes/#Loans
• Update address – update your address in “My Account” on TSP website and
T
SP mobile app.
o www.tsp.gov
F
or Guard and Reserve members – be sure to visit the TSP website listed below for
information on USERRA and TSP as you change status:
Career changes | Thrift Savings Plan (tsp.gov)
For more information on TSP options, withdrawal deadlines, taxes, and other details
concerning the TSP, call the TSP ThriftLine at 1-TSP-YOU-FRST (1-877-968-3778)
or visit www.tsp.gov.
Financial Planning for Transition 2024 Page 57
Tip: Seek a tax advisor or financial planner if you have questions about taxes and
the TSP. The installation personal financial counselor or personal financial manager
can provide you with basic information on the tax implications.
C
ontacting TSP
ThriftLine Service Center:
• 1-877-968-3778 (United States, toll-free)
• 1-404-233-4400 (Outside the United States, not toll free)
• 7 a.m. – 9 p.m. EST, Monday through Friday
D
ownload the official TSP Mobile App for on-the-go access to your TSP account 24/7
secure access to a virtual assistant AVA on tsp.gov and in the TSP Mobile App.
TSP Resources
• TSP Distributions Booklet
• TSP Tax Booklet
• USERRA Fact Sheet
• TSP YouTube Channel: TSP4Gov
• TSP Online Learning: https://www.tsp.gov/online-learning/
Su
rvivor Benefit Plan – SBP
The Survivor Benefit Plan (SBP) is an elected benefit, which provides designated,
eligible dependents of military retirees’ monthly payments for the lifetime of the
beneficiary. This benefit is an option available only by election and is generally
enacted at the time of retirement. Since the monthly payment continues after the
death of the retiree, there is a monthly payment in the form of a deduction taken
from the Veteran’s pre-tax retirement pay.
W
hen electing SBP, the amount of coverage is chosen by the military Service
member retiring; however, there is a minimum level of coverage. If you are
married and choosing to decline SBP or choose less than full SBP coverage, it is
required for your spouse to show concurrence with this decision. For those who are
not married, there are other eligible beneficiaries such as children, former spouse,
or a natural interest person.
Once enrolled, you do have the ability to cancel or terminate your SBP election
beginning on the 25th month and ending on the 36th month - or the third year - of
your retirement. During this time, you can only cancel, not enroll. As with
declining at retirement, spousal concurrence is required.
Financial Planning for Transition 2024 Page 58
For more detailed information, consult the websites listed below or make an
appointment with your PFM on the installation.
Defense Finance and Accounting Services (DFAS) – SBP:
https://www.dfas.mil/retiredmilitary/provide/sbp.html
DFAS – S
pouse Coverage: https://militarypay.defense.gov/Benefits/Survivor-
Benefit-Program/Costs-and-Benefits/Spouse-Coverage/
DFAS - E
ligible Beneficiaries:
https://www.dfas.mil/retiredmilitary/provide/sbp/coverage.html
F
inancial Readiness SBP: What is the Survivor Benefit Plan?
https://finred.usalearning.gov/planning/SurvivorBenefitPlan
M
ilitary Compensation SBP Overview:
https://militarypay.defense.gov/Benefits/Survivor-Benefit-Program/Overview/
Assets and Worth
Y
our net worth is the amount that your assets exceed your liabilities. In simple
terms, net worth is the difference between what you own and what you owe. If
your assets exceed your liabilities, you have a positive net worth. Conversely, if
your liabilities are greater than your assets, you have a negative net worth.
Calculating your net worth annually is a great way to track financial progress over
the years.
T
o determine your net worth, you first need to calculate the value of your assets. It
can be challenging to assign accurate values to each item. To avoid inflating your
net worth (i.e., having an unrealistic view of your wealth), it is important to make
realistic estimates when placing value on certain assets. You might need to work
with an appraiser or other professional.
A
s you prepare to make a list of your assets and the value of each, here are some
categories of assets to consider:
• Y
our home: there are various websites which help determine the curre
nt
value of your home
• Vehicles
• Checking and savings accounts
• Investments, TSP, IRA, mutual funds
• Annuities, life insurance policies
Financial Planning for Transition 2024 Page 59
• Personal property: high-value jewelry, electronics, artwork, rare coins,
collectibles
• Retirement pension: To determine value, use the current amount (
at
re
tirement) of the pension you will be receiving to add to your net worth. Fo
r
m
ilitary members, if you will not complete 20 years of Service, this numbe
r
wi
ll be $0.
AC
TIVITY: Determine Net Worth
1. D
etermine the value of all your assets that could have a cash value
2
. D
etermine the total of your liabilities (debt owed)
3
. S
ubtract liability from asset to find your Net Worth
N
et Worth
Assets*
Liabilities
Net Worth
NOTES:
*Be conservative in your estimates of worth.
You have arrived at a number. Now what? Your net worth can tell you many
things. If the figure is negative, it means you owe more than you own. If the
number is positive, you own more than you owe. A negative net worth does not
necessarily indicate that you are financially irresponsible; it just means that - right
now - you have more debt than assets.
While your net worth will fluctuate, it is the overall trend that is important. Ideally,
your net worth continues to grow as you age if you pay down debt and acquire
more assets. At some point, it is normal for your net worth to decrease (e.g., when
you tap into your investments for your retirement income).
Financial situations and goals are unique; it is difficult to establish a generic "ideal"
net worth that applies to everyone. If you have not calculated your net worth
before, it is best to create an honest evaluation of where you stand today and
create a reasonable goal to see it increase over time.
Financial Planning for Transition 2024 Page 60
How Do You Improve Your Net Worth?
If you want to see your net worth increase, you must increase your assets,
decrease your liabilities (debts), or both. The most effective way to increase net
worth is to reduce your debt. As your liabilities decrease, your net worth rises.
Estate Planning
No matter your net worth, it is important to have a plan for your estate to make
sure all your assets are transferred as you wish. An estate plan isn’t just a will, but
a few more documents which together fully present your wishes and preference,
not only in the event of your death, but should you become incapacitated in some
way.
Common documents included in an estate plan:
• Will or Trust: ensures all property is distributed according to your wishes
• Beneficiary Designations: designates who will receive certain items upon
your death, common for 401(k) or TSP; also include a contingent beneficiary
should the initial beneficiary no longer be available
• Durable Power of Attorney: assigns someone to act on your behalf when
you cannot do so prior to your death; ends upon death
• Healthcare Power of Attorney: assigns another individual to make
healthcare decisions on your behalf, should you become incapacitated
• Guardianship Designations: ensures any children under the age of 18 are
given into the care of your preferred guardian
• Letter of Intent: defines what you want done with a particular asset, may
also contain funeral details
It is important to have made arrangements for your estate, yourself (should you
become incapacitated), and any minor children, otherwise these decisions will be
made by the state. Remember, your legal office can provide you with more
information and/or assistance prior to your transition.
Financial Planning for Transition 2024 Page 61
Wrap Up Questions
• What are assets?
• What are liabilities?
• What is your net worth?
• What is the difference between the defined-contribution and defined-benefit
retirement plan?
• Why should you have a plan for your estate?
Financial Planning for Transition 2024 Page 62
Action Plan
Competency
Understand the entirety of the financial situation and create a financial plan
leveraging resources available during and after transition.
Learning Objectives
• Create a plan containing next steps in the financial journey to prepare for
transition
• Identify ways to manage credit and debt
• Identify reliable financial resources after transition
• Interpret information to discover possible scams
Financial Action Plan
There are some basic steps to take when working through and creating your
financial action plan. This presentation and the work you have done today will
provide most of the information you need to create your action plan for financial
success during your transition.
1.
Analyze current financial situation
During this course, you completed the following: reviewed your current income,
determined your civilian equivalent salary, created a list of your expenses and
debts, and determined your assets. Transfer the information from the previous
exercises into the boxes below or review the summary page on the spending
plan.
Current Financial Situation
Gross Income
Net Income
Monthly Expenses
Monthly Debt Payments
Total Assets
NOTES:
Financial Planning for Transition 2024 Page 63
2.
Determine ways to better your financial situation
To improve your financial situation, adjustment may need to be made on how
you spend your money or changes in your spending plan. Below are three ways
adjustments can be made:
•
Increase income
•
Decrease expenses
•
Decrease debt
If your financial situation is acceptable, why should you review ways to decrease
your expenses or decrease indebtedness?
As you transition, there is a good chance your finances will fluctuate.
Understanding how to decrease your expenses when this happens can increase
financial stability and success. In addition, building your savings while you have
a consistent paycheck can open you to more options and make your transition
easier, should the unexpected occur. While lower debt is ideal for transition,
increasing your savings can help you continue to make your payments on time
and protect your credit. If everything goes as expected during transition, you
can pay down debts or add to your savings with the extra money you saved.
During transition planning, extra income may be beneficial to ensure debts are
paid and more debt is not accrued.
While decreasing living expenses may produce the quickest results, it may not be
the best choice for your family. However, a well-managed spending plan which
accounts for the needs of the family situation can decrease financial stress.
The following table contains a few suggestions on ways to increase income,
decrease expenses, and decrease indebtedness.
Financial Planning for Transition 2024 Page 64
Ways to increase income:
Ways to decrease
expenses:
Ways to decrease debt:
•
Spouse gets job
•
Active-duty person gets
part-time job
•
Seek out temporary or
seasonal work
•
Review and change tax
filing status and
exemptions
•
Sell items you no longer
use
•
Use internet to research
the best prices for more
expensive purchases
•
Apply for unemployment
entitlement
•
Down grade or eliminate
the cable package
•
Bundle packages for
cable, Internet, and cell
phone
•
Re-shop for auto, home,
and life insurance
•
Eliminate your land line;
use cell phone
•
Review current cell phone
plan to determine if any
extras can be removed
•
Check
books/eBooks/movies out
from library
•
Use public transportation
or carpool
•
Turn off lights &
appliances when not
using. Check with your
utility company for more
tips
•
Ask for veteran and
military discounts
•
Find friends who can trade
services (e.g.,
babysitting, pet sitting,
etc.)
•
Cook at home and pack
your lunch, plan menus
around foods on sale
•
Use coupon/discounts for
shopping, dining out, and
recreational activities
•
Shop at thrift stores
•
Ask utility companies
about a budget plan for
consistent utility bills
•
Cancel underutilized
subscriptions such as
streaming and
gaming services
•
Stop using credit cards
•
Pay off debts by paying
the debts with the highest
interest first
•
Pay lowest balance first
and roll payment into next
debt
•
Pay down debt using a
power pay plan. Take
advantage of websites
that explain various
methods of power paying,
such as PowerPay.org
(Power Pay | USU)
•
Pay more than the
minimum payment
•
If you get a raise, use the
additional money to pay
down a debt
•
Shop for the lowest
interest rates, refinance
when possible
•
Consider consolidation
loans
•
Contact credit card
companies and negotiate
a lower interest rate
•
Seek help if you are in
serious debt
•
Ask if accrued interest
and late fees can be
waived by your creditors if
you enroll in a non-profit
debt management
program
Ask yourself which of the above changes can be made starting today. Small
changes in your day-to-day life can result in big changes for your financial
situation.
Financial Planning for Transition 2024 Page 65
ACTIVITY: Ways to Improve and Prepare Finances for Transition
Determine the next step and identify ways in which you could improve or prepare
your financial situation for transition by increasing income, decreasing expenses,
and decreasing debt. Use your Spending Plan for reference.
Action Plan
Increase
Income
Decrease
Expenses
Decrease
Debt
NOTES:
3. Create or Update your post-transition spending plan (Career
Readiness Standard for this module)
You have now researched all the information required to complete your spending
plan. Consider the following:
•
Civilian equivalent salary
•
Location after separation/retirement
•
Sources of income (spousal income, retirement, investment income,
alimony, child support)
•
Transition expenses/debts
•
Assets
Transition Resources
Take advantage of free services available on the installation while you are still in
the Service. The Personal Financial Management Program staff (i.e., PFM, CFS and
PFC) are available.
Military OneSource continues to be available to you one year after your transition.
It is a 24/7 connection to an accredited financial counselor. You can also get
support evaluating savings programs, learn how to talk to creditors and get help
weighing your financial options through this resource.
Financial Planning for Transition 2024 Page 66
Legal services are free while you are in the military, so take advantage of these
resources to create/update your wills, power of attorneys, etc., before you leave
active duty. You can save hundreds of dollars by not having to pay the costs of
these services in the civilian sector. These items will save you and your family a lot
of work and money to protect your assets and your family.
After you retire or separate, there are certain programs, which provide protections,
or advantages, which will no longer apply. Understand the implications of losing
the following protections:
• Servicemembers Civil Relief Act (SCRA): While on active duty, you were
entitled to protection under this law for areas of financial management,
rental agreements, security deposits, evictions, installment contracts, credit
card interest rates, mortgages, civil judicial proceedings, income tax
payments, and more. Once you are no longer on active duty, certain
protections may no longer apply.
• Military Lending Act (MLA): Ensures Service members aren’t charged more
than 36% Military Annual Percentage Rate, does not allow mandatory
waivers of consumer protection laws, or mandatory allotments from Service
member’s paycheck. A creditor cannot charge a penalty for prepayment of
loans in certain circumstances.
• Internal Revenue Service (IRS): While on active duty, there are special tax
breaks and incentives for which you were entitled. After transition, these
benefits may no longer apply. One of the most important is the automatic
deadline extensions for filing your taxes. In addition, the uniform
deduction, reservist travel deduction, and the moving expenses deduction
may no longer be applicable.
Fraud and Scams
As you transition, you become more enticing to those trying to commit fraud or
scams. Frauds and scams change over time to become more effective in separating
you from your money, but you can learn to protect yourself by identifying the red
flags that signal a scam.
Financial Planning for Transition 2024 Page 67
• Sounds too good to be true
• Pressures you to act “right away”
• Guarantees success
• Promises unusually high returns
• Requires upfront investment – even for a “free prize”
• Requests overpayment for an item and asks you to send the
difference
Protect yourself by being alert to the fact that scams and scammers exist.
Understand that even though someone claims to be part of a Veteran Service
Organization or a Military Service Organization, still conduct due diligence. Take
the time to thoroughly research and vet any product, idea, or organization.
Especially if it sounds too good to be true!
The Consumer Financial Protection Bureau (CFPB) has provided more information
on Spotting Frauds and Scams (https://www.consumerfinance.gov/consumer-
tools/fraud/
Accessing and Applying for Retirement Pay
As you prepare for retirement, visit the DFAS website
(www.dfas.mil/retiredmilitary.html) for information on retirement pay.
For information on the steps to applying for retirement pay, go to
https://www.dfas.mil/retiredmilitary/apply/how-to-apply.html.
Accessing Pay Information After Transition
As you prepare to leave Service, it is important to update your personal information
in myPay and payroll accounts or in Direct Access for the Coast Guard. This will
allow you to easily access your pay and tax information without your Common
Access Card (CAC).
To ensure access, 30 days prior to transition, log
on to myPay using your personal device. Follow
the steps listed below to review your personal information for accuracy for AFTER
transition. If any information is incorrect, it can cause delays in access to your W2
or retirement payments.
Financial Planning for Transition 2024 Page 68
1. Update your email address
• Select “Email Address” on the main screen
• Under “Personal Email Address,” enter and then re-enter your personal email
address
• Select the “Primary” bubble to the right of your newly entered email address
• Select “Accept/Submit” to save the change
2. Update your mailing address
Active-duty Army and Navy members contact your respective Personnel or
Finance Office to update your correspondence (mailing) address.
All others:
• Select “Correspondence Address” on the main menu
• Enter and Save your new correspondence address
• Click “Save”
NOTE: Address changes will take 3-7 days to become effective.
3. Update your “Security Questions for Password Resets”
Select “Security Questions for Password Resets.” Keep in mind that your eight
questions and answers will be used should you ever need a new myPay
Password.
4. Review your “Personal Settings Page” for accuracy and outdated
information
Select “Personal Settings Page.” Remember, you will not have your CAC after
you separate so establish or update your passwords NOW because this is how
you will access your account after you leave Service.
5. Save/Print a copy of all your W2s and LES statements within 13
months of separation.
Retirees will receive all future tax statements in your account.
6. Review and update your direct deposit information.
The account you enter will be used to send any outstanding pay due to you at
separation.
Financial Planning for Transition 2024 Page 69
myPay After Transition
• If you are separating from active-duty or the Reserves, you will maintain
access to your myPay account for 13 months.
• If you are retiring from active duty, you will have continued access with the
Login ID and Password you established on active-duty Service; however,
your active component pay statements will only be available for 13 months.
Once your retired pay account is established, the options to manage your pay
and your retiree account statements will become available
• If you are a retiring reservist, you will not have continued, uninterrupted
myPay access. You will be mailed a new myPay password once you reach
retirement age and your retired pay account is established
For assistance with myPay contact:
DFAS: http://www.dfas.mil/militaryseparations.html
myPay: https://mypay.dfas.mil/mypay.aspx
Customer Service: 1-888-DFAS411 or 1-888-332-7411
Travel Voucher Status: 1-888-332-7366 (option 1)
Online Customer Service askDFAS: https://www.dfas.mil/dfas/AskDFAS/
NOTE: Military Retirees that are in a non-pay status due to a VA Waiver or Combat
Pay can still access myPay but will have limited options available.
Direct Access for Coast Guard After Transition:
• Visit U.S. Coast Guard Pay & Personnel Center (PPCs) webpage or
https://www.dcms.uscg.mil/ppc/ras/
• Enter your 7-digit Employee ID (Emplid) in the User ID field
• If you have never logged into Direct Access (DA), your default password will
be set up for you initially.
o The formula default password is: THeUSCG + last four digits of your
SSN + @ + four-digit birth year
o For example, if the last 4 of your SSN is 1234 and you were born in
1966, your default password will be THeUSCG1234@1966.
o The password is case sensitive, so be sure to capitalize where
appropriate when you enter it.
• You will be prompted to change your password upon your initial login.
Financial Planning for Transition 2024 Page 70
Trouble accessing your account:
• Call PPC at 1-866-772-8724 to speak to a Customer Service Representative.
• E-mail to ppc-dg-customerc[email protected]
Prior to Transition:
• Visit the Self-Service page review and update if necessary:
o Mailing address
o Phone number (should be a personal number)
o Email address (to a personal email)
o Delivery options
o Password
o Federal and State Tax
Financial Planning for Transition 2024 Page 71
Pre- and Post- Transition Resources
If you need assistance creating a spending plan or financial strategy for transition,
or if you are having financial difficulties, ASK FOR HELP. If you are retiring, you will
have access to financial assistance on the installation. However, if you are
separating, you will need to understand the resources available off the installation
for after your transition. In addition to the installation financial professionals, there
are other resources for assistance:
• American Job Centers (AJC)
• Non-profit, financial education organizations
• Military OneSource
• Resources by State
This does not constitute a formal DoD endorsement of any company, its
products, or services.
Action Plan Wrap Up Questions
• Name one way to increase income, decrease expenses, and decrease debt.
Why is this important during/after transition?
• Do you have an alternative plan if the current plan is not effective for a
successful transition?
• Where can you seek financial assistance while still in the military? After you
transition?
Summary
You now have additional tools and resources to facilitate your successful financial
transition to civilian life. As you get closer to your transition, you may find you
have more questions and concerns about your specific spending plan. Be sure to
make an appointment to see your installation personal financial counselor for
assistance.
One of your Career Readiness Standards (CRS) is the completion of the post-
transition spending plan. You have already begun the process of creating or
updating a spending plan, and you have a strong foundation of knowledge to
complete this CRS requirement.
Financial Planning for Transition 2024 Page 72
TAP Interagency Website Guide
Financial Planning for Transition 2024 Page 73
Transition Assistance Participant Assessment
(TAPA)
