5 Important Tips Veterans Can Use To Be More Financially Secure as Over 1/3 Report Difficulty Paying Bills
A recent report by the Federal Reserve found that financial literacy levels concerning veterans and service members is a significant problem, according to Annuity.org.
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Indeed, the report found that more than a third of service members reported difficulties in paying their bills — and only half had an emergency fund, according to a joint study by the U.S. Treasury Department and the President’s Commission on Financial Literacy.
“The study found that even though military members save money at similar rates to non-military folks, more than a third of them still face difficulties paying their monthly bills and expenses,” said Terry Turner, financial wellness facilitator and writer for Annuity.org.
Turner explained that this is concerning because for instance, military families are more likely to end up with credit card debt.
“People go into the military right out of high school or college. They’re young, and most haven’t developed any money skills,” said Turner. “So if they develop bad money habits, they might still have them when they get out of the service. There’s a real disconnect between the military and civilian worlds. People who spend time in one may have a really difficult time moving into the other, and that’s really tough for veterans.”
As Veterans Day approaches on Nov. 11, financial experts with Annuity.org shared some benefits and resources available to them for a financially healthy retirement.
VA Disability Payments
As Turner noted, VA disability payments are a form of financial aid provided to veterans with service-related injuries or illnesses.
“They’re crucial for veterans, offering financial support for daily needs. But the application process for these payments can be confusing and difficult to navigate,” said Turner.
Turner added that, sometimes, veterans may not receive enough financial support through disability payments to cover all the costs associated with their injuries or illnesses.
“If the application process is simplified and veterans are provided with adequate compensation, it could greatly improve their financial situation,” he added.
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Veterans Pension
The Department of Veterans Affairs (VA) offers a needs-based, tax-free paid benefit, known as the Veterans Pension, to qualifying applicants. This is considered supplemental income for wartime veterans, said Turner.
“Retirement pensions offer financial security after 20 years of service in the military. But only about 17% of service members stick around long enough to collect a pension. And, again, retirement plans can be complicated,” he said.
High-36 and the Blended Retirement System (BRS) are the two main plans. The High-36 plan provides a pension of 50% of your base salary at the 20-year mark and increases with each additional year.
The BRS offers a reduced pension but adds government contributions to the Thrift Savings Plan (TSP) — it’s kind of like a 401(k) plan for service members.
Veterans’ Savings Plans
“This ties in with pensions. Veterans’ savings plans are crucial for financial security. These plans, like the Thrift Savings Plan (TSP), allow veterans to save for retirement beyond military pensions. TSP operates similarly to a 401(k), offering tax advantages,” explained Turner.
He noted that the Department of Defense will contribute 1% of your base pay to your TSP after you’ve been in the service for 60 days. Once you start your third year in the service, DoD will match your contributions — up to 4% when you start contributing at least 5% of your base pay.
“And you don’t have to stay in 20 years to tap your TSP savings. You can opt for a partial withdrawal, lump-sum payment, monthly payments or purchase a life annuity when you separate from the service,” he added.
Veterans and Social Security
Turner underscored the importance for veterans to know that they can combine their Social Security benefits with their military pensions for financial stability.
“Active duty military service has been covered by Social Security since 1957,” he said.
In turn, he explained that if you’re a veteran, you can receive both Social Security and military retirement benefits without having to reduce your Social Security payments.
“Plus, if you served in the military between 1957 and 2001, you may be eligible for extra money to increase your Social Security benefits,” he said. “Knowing these benefits is crucial for retirees who want to ensure they have financial support in their retirement years. If you’re a veteran, it’s definitely worth exploring these options to optimize your retirement income and improve your overall financial well-being.”
Pairing Pensions With Annuities
Another important fact to know is that when you die, your military pension payments stop. However, military retirees can convert their pension into an annuity through the Survivor Benefit Plan (SBP).
“That way, when you pass away, SBP ensures a continuous lifetime annuity for your dependents, providing an inflation-adjusted monthly income,” noted Turner.
He further explained that you pay premiums for SBP coverage, deducted from your gross retired pay and providing tax advantages.
“The government also contributes to the premiums, making SBP a cost-effective option. Your spouse can receive up to 55% of your retirement pay, and eligible children may also be beneficiaries. SBP is a valuable option to consider to secure financial support for your loved ones,” he added.
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This article originally appeared on GOBankingRates.com: 5 Important Tips Veterans Can Use To Be More Financially Secure as Over 1/3 Report Difficulty Paying Bills