Financial Preparation For Deployment

By Mark P. Cussen, CFP®, CMFC, AFC | June 11, 2012 AAA

Members of the U.S. military who receive deployment orders can face substantial upheaval and disruption in their personal lives. In order to ensure a smooth transition from civilian life or domestic duty, they must take appropriate action to ensure that their families and possessions are taken care of before they leave. We will look at some of the things that should generally be addressed by most service members.

Getting Your Estate Plan in Order
Service members should know exactly what will happen to their assets, debts, possessions and families before they ship out. Your wills, living wills and medical powers of attorney should all be reviewed to make certain that they are current. Service members who do not have these documents drawn up need to visit their local JAG office for assistance. This is vitally important, as it can spare your loved ones from having to make agonizing decisions about your treatment in the event you are injured in the line of duty.

Beneficiary Designations
Make sure that all of your beneficiary designations on your insurance policies, retirement plans and financial accounts are correct and up to date. Add a transfer-on-death (TOD) beneficiary to any account that does not have one now.

Care of Possessions
A durable power of attorney can allow a friend, family member or attorney to perform tasks on your behalf such as pay bills from your accounts and file your tax return if necessary. Revocable living trusts can ensure that any assets you own that do not have a specific beneficiary designation will be handled in the manner that you specify if something happens to you. Many JAG offices will also draw these documents up for you at no charge.

Sign up for the Savings Deposit Program (SDP)
Many service members fail to take advantage of this simple program despite the fact that it probably pays the highest guaranteed rate of interest (10%) to anyone anywhere on earth under any circumstances. A service member who deploys is eligible to participate by allocating up to 100% of his or her basic pay (up to a total of $10,000) into the plan for the first year that he or she is deployed in designated combat or a hazardous duty zone. The interest is taxable and compounds on a quarterly basis, and all proceeds from the plan must be withdrawn within 90 days of returning.

Financial Planning
Many lower-ranking service members will see their incomes effectively double once they deploy, particularly if they are sent into combat or a hazardous duty zone. Their pay will increase in three ways: they will receive extra allowances for their combat duty, their incomes will become tax-free and yet still count towards the Earned Income Credit for them. This extra money should be used to pay off bills and credit cards or to accomplish other long-term financial goals, such as saving for retirement or paying education expenses.

Service Members' Civil Relief Act (SCRA)
Use this act to reduce the interest on any debts you have to 6%. Although lenders and creditors aren't legally required to do this for any debt that was incurred after you went on active duty, many will do so anyway if you send the lender or creditor a request along with a copy of your deployment orders. This Act also legally requires the stay of any legal proceedings that you are involved in, such as rental leases, lawsuits, foreclosures or bankruptcy.

Identity Protection
Notify each of the three credit rating agencies when you deploy so that a credit freeze can be placed on your accounts. This will effectively deter any thieves from using your ID to make illicit purchases while you're gone.

Life and Disability Insurance
U.S. service members have access to the cheapest life insurance available anywhere. Anyone deploying into a combat zone should sign up for the maximum $400,000 of term coverage before he or she ships out. It only costs $27 per month. If you need additional coverage through a private carrier, make sure that it will pay out if you are killed in the line of duty. A large percentage of carriers list combat-related death as one of their primary exclusions.

The Bottom Line
These measures should be taken as soon as possible to provide for a smooth transition overseas. A few hours of simple preparation now can save you a world of headaches after you deploy.

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