Financial Planning for Veterans

It's a sad fact of life that men and women who have served their country in the military are often targeted by predatory lenders and unscrupulous salespeople who put them into bad investments, saddle them with needless debt, and destroy their credit—if not their financial lives. If you’re leaving the military, doing some financial planning, either on your own or with the aid of a professional advisor, is critical for protecting yourself and getting the most from the veterans benefits you've earned. Here are some tips that should help.

Using and Protecting Your Veterans Benefits

If you're a relatively young veteran, say in your 20s or 30s, or if you're an older vet, your financial planning needs will be different. Ditto for vets who are married or unmarried, or who have kids or don't.

One reason that veterans are attractive prey for scam artists is all the financial benefits to which they're entitled. These are some of the veteran's benefits you may be eligible for and how to get the most from them:

Your Education Benefits

Veterans are eligible for educational benefits under two current versions of the G.I. Bill: the Montgomery GI Bill–Active Duty or the Post-9/11 GI Bill

Montgomery GI Bill–Active Duty (MGIB-AD). To be eligible for education and training funding through the Montgomery GI Bill–Active Duty (MGIB-AD), you must have served at least two years of active duty during certain time periods and meet other criteria listed on the VA website. In most cases, you must also have paid a total of $1,200 into the education program while you were serving.

If you qualify, you can receive up to 36 months of financial assistance. As of October 2020, the maximum monthly benefit was $2,122 a month for full-time students, or a total of $76,392 over the three years.

The Post-9/11 GI Bill. This version of the GI Bill is exclusively for veterans who served after Sept. 10, 2001. Depending on how long you served, it will currently pay up to 100% of tuition and fees at public colleges and universities and up to $26,042.81 per academic year at private and foreign ones for a total of 36 months. In addition, you may be eligible for a housing allowance and a stipend for books and supplies.

If you plan to take advantage of your GI Bill benefits, you'll want to research potential schools using objective resources, such as the Department of Veterans Affairs' GI Bill Comparison Tool, and not rely on the sales pitches or slick advertising materials from the schools themselves. Some of the schools that market themselves most aggressively to veterans are not good choices. In particular, many for-profit colleges have been known to provide degrees and other credentials that are basically worthless in the job market. They have also been known to encourage vets to rack up additional debt by taking on student loans.

Your Medical Benefits

As a veteran, you are eligible for VA healthcare, but you must generally enroll in order to participate. The VA's Medical Benefits Package includes a wide array of services, from basic preventive care to specialty care, surgery, mental health services, and prescription drugs. This coverage is free if you meet the income requirements, although there can be copayments for certain services and medications.

Retired service members and their families are also eligible for coverage through the Defense Health Agency's TRICARE program. Several different plans are available, and costs vary according to the one you choose.

Your Loan Benefits

Veterans who want to buy, build, or repair a home to live in, or to refinance an existing mortgage can be eligible for the VA's Home Loan Guaranty program, subject to certain income, credit, and length of service requirements. This program helps veterans obtain VA loans from private lenders, such as banks, with more favorable terms than they might get elsewhere. That can include lower interest rates and closing costs, no down payment, and no requirement to purchase mortgage insurance. You can get more information on this program on the VA website.

The Consumer Financial Protection Bureau advises veterans to be wary of VA home loan scams, which often begin with an unsolicited phone call or email from someone purporting to be affiliated with the VA or another government agency. The VA says if you have any questions about the legitimacy of a call to hang up and contact the department directly at 1-800-827-1000.

Your Life Insurance Benefits

If you had Servicemembers' Group Life Insurance (SGLI) before leaving the military, you may be eligible for Veterans' Group Life Insurance coverage of $10,000 to $400,000, depending on the amount of your SGLI coverage. Until you reach the age of 60, you can also increase your coverage by $25,000 every five years—up to the maximum of $400,000. Premiums are based on your age and the amount of coverage.

Veterans' Group Life Insurance is term life insurance and can be renewed for as long as you live. That is a useful feature in case you have future health issues that would make you uninsurable.

To be eligible for VGLI, you must apply within one year and 120 days of leaving the military. Note that during the first 240 days of that period, you won't need to show that you're in good health, but after that you will.

Also bear in mind that while VGLI could be your most affordable insurance option, it may not be adequate to cover your family's insurance needs. So you might want to supplement it with another policy from a private insurance company at some point.

Your Retirement Benefits

Once you reach age 65 (or sooner if you have a disability), you could be eligible for a Veterans Pension from the VA. Eligibility depends on your income, net worth, and whether you meet the active service requirements. Surviving spouses and unmarried dependent children are also eligible for VA pension benefits in certain instances.

Depending on when you entered the service you may also be eligible for pension benefits under either the military's Blended Retirement System (for those who joined on or after Jan. 1, 2018) or the legacy High-3 system (for those who joined before Jan. 1, 2006, and didn't switch to the blended system before the 2018 deadline).

The blended system, or BRS, combines a traditional defined-benefit pension with a defined- contribution plan, similar to a 401(k), called a thrift savings plan (TSP). The traditional pension becomes available after 20 years of service, while the TSP, to which both you and the government contribute while you're serving, is fully vested after two years. You can begin to withdraw money from your TSP, without tax penalties, at age 59½.

The High-3 is a defined-benefit pension plan that provides a pension benefit after 20 years of service. The benefit equals 2.5% of your average basic pay for your three highest-paid years, multiplied by number of years you served. So, for example, if you served 20 years, you'd receive a benefit equal to half of your average highest pay (2.5% x 20 = 50%). The longer you serve, the larger your pension will be.

The Bottom Line

Many veterans who have served our country have spent their lives until retirement receiving financial and health benefits within a military setting. Life outside can be very different, with new opportunities and new rules. Getting help with the transition from DOD-funded programs such as Military OneSource can be beneficial.