Author – Joe Turkal, LtCol (Ret) USMC
In December 2024, I wrote an article called “Top Five Issues for Transitioning Active-Duty Military Members”. The article focused on the intangibles of transition and leveraged the work of the noted psychologist Abraham Maslow published in the mid 1900’s, which laid out the hierarchy of human needs, specifically, psychological, safely, love/belonging, esteem, and self-actualization. I attempted to use Maslow’s framework to highlight mostly intangible needs to address in transition. https://sierrahotelfinancial.com/top-five-issues-for-transitioning-active-duty-military-members/
In a three-part series of articles, I will use the experience gained through my transition after 30 years in the Marine Corps along with my experience as a financial planner/advisor who predominately serves active military and veterans to address concrete financial issues that are not adequately covered in the congressionally mandated transition courses provided by the military services. The series will consist of three articles 1) Mitigating temporary loss of income, understanding equivalent salary compensation, and awareness of potential budget pitfalls. 2) Non-salary benefits to consider when evaluating your next potential employer (even if you plan to be self-employed). 3) Considerations to mitigate risk of unexpected death (i.e. how to evaluate private life insurance, Veteran’s Group Life Insurance (VGLI), and Survivor Benefit Program (SBP).
This is the first of our three-article series. This article focuses on financial issues to help you prepare for the time immediately following your end of your active duty (EAS). The first topic discussed is proper emergency savings, then the focus turns to understanding equivalent salary compensation, and lastly, budget planning for the loss of tax-free entitlements, military installation benefits and programs, and state and local tax exemptions and flexibility.
The most important risk mitigation when entering a transition period which almost certainly includes a medium-to-high level of financial uncertainty is building the proper emergency savings. It is crucially important to plan for a scenario where there is a gap between regular paychecks. The primary means to address this is through building savings.
Emergency Savings
When I separate from the military, how much liquid cash or emergency savings should I have? As with most financial planning, the answer is, it varies based on your specific situation. A good rule of thumb is between 3 and 12 months of your monthly bills. When I refer to monthly bills, I typically mean non-discretionary spending (i.e. mortgage, food, living expenses) which does not include discretionary spending (i.e. entertainment, impulse purchases, etc.) The wide range between 3-12 months depends on factors such as having or not having alternate income (i.e. retirement, spouse income, etc.) and a realistic time frame of replacing the necessary income. Meaning, if you leave the military with highly marketable employment skills and are confident that you can obtain employment relatively quickly, then three to six months is likely sufficient. If, however, you leave the military without specific marketable hard skills (all former military have intangible skills), you intend to start a business, or you are planning a sabbatical to figure out what you want to do next then you will likely require more than three months and up to twelve months to get through the transition. The idea is that you have enough savings to mitigate the span of lost income until you can replace that needed income. With any risk mitigation strategy, the more uncertainty there is, the more financial cushion needed to mitigate for the worst-case scenario.
Now let’s turn our attention to considering necessary income when seeking new employment (even if you will employ yourself). The first step is understanding your full active-duty compensation to include non-salary benefits. Since there are multitude of budget friendly programs available to active duty, another important planning consideration is accounting for the change in one’s family budget after transition. Non-salary considerations will be addressed in the next article in this series. This article will focus on salary and budget considerations.
Tax-free entitlements
The most significant entitlements provided tax free to military members are Basic Allowance for Housing (BAH), and Basic Allowance for Subsistence (BAS). A military member comes to rely on these benefits for income. In transition, it is critically important to replace this income, likely in the form of a higher salary. When networking, applying, and competing for that first employment outside the military, do not just list basic pay as a basis for your next salary. Use the calculator below to calculate the equivalent compensation after transitioning.
As far as tax-free entitlements are concerned, it is also worth mentioning the Overseas Cost-of-Living Allowance (OCOLA) and Combat Zone Tax Exclusion (CZTE) combined with imminent danger pay. A smaller percentage of military members, based on individual overseas assignments (OCOLA) and combat deployments (CZTE) receive free pay. These are temporary in nature, so most members do not become reliant on these and as such are usually not an issue for transition planning unless you are receiving these entitlements at or just before EAS. Although these offer a great opportunity for extra savings, I do not recommend using these to define equivalent compensation.
Now that we have determined a good equivalent compensation, let’s wrap up the first part of this series with financial benefits that you have come to enjoy while on active duty that may not be available to you now that you are joining the First Civilian Division (1st CIV DIV). This will give a clearer picture of the extra cost you may incur after leaving active duty.
Military Instillation Programs / Benefits
Do not overlook the benefits you have access to on your installation while on active duty. One of the most substantial is the commissary. You may be shocked at food prices at commercial grocery stores compared to your commissary. Also think about programs such as the child development center, which typically provides daily childcare at subsidized rates. You may also enjoy using bachelor quarters when vacationing or DOD lodging. You may also enjoy treating your family to free or low-cost movies at the base theater. There are a whole host of money saving programs that are available to active duty on military installations. You may lose access to these benefits or at best you will only have access to a portion of these benefits, so you should plan your post EAS budget accordingly.
State and local tax exemptions and flexibility
What is this. You may be used to local and state tax savings and flexibility provided to active-duty military, which will change once you reach your EAS.
Local vehicle tax exemption. Many local governments collect an annual vehicle tax, and some collect personal property tax. You have likely grown accustomed to having these taxes waived because you are on active-duty orders. Some localities also exempt your spouse when you are active. Depending on where you end up living after active duty, this benefit will go away, and you will have to account for these extra costs.
State tax filing flexibility for both you and your spouse in the state that is your home of record. This could be of great value if your home of record state does not tax or has lower state taxes for active-duty members. Technically you file taxes to your state of legal residence, which is considered to be your home of record, unless you take steps to change your state of residency. Once you transition, you must become a resident in the state you intend to live in and remain permanently
Home of record driver’s license and vehicle registration. You have also enjoyed the ability to keep the state of your home of record driver’s license and vehicle registration. Unless you relocate back to your home of record, you will have to give up this benefit. It may even feel strange at first having to take steps to become the resident of a new state, but after your EAS if you intend to reside in a state other than your home of record, you will have to take steps to get an updated drivers license, register your vehicle, and register to vote (don’t forget to inform your state of home or record to remove you from their voter registry). These steps can incur extra costs for which you must account.
Hopefully the article is not overwhelming. Transition from active duty often feels very overwhelming. Planning ahead and establishing a checklist and timeline will help to reduce the stress of transition. The next article in our three-part series will address non-salary benefits to consider when evaluating your next potential employer.
Joe is the co-founder of Sierra Hotel Financial (SHF) with his son Spencer. SHF is dedicated to serving active-duty military and veterans. As part of our commitment to value upfront for veterans and their families, we provide a complimentary three meeting comprehensive financial analysis with recommendations (i.e. Financial Plan). At the time of writing this article, we have produced 107 complimentary plans for active military and veterans. If you are active duty or a veteran and want to take advantage, use our calendar link to schedule your introductory meeting:
https://calendly.com/d/cmcj-65g-b4p/sierra-hotel-introduction-and-briefing
or send us an email for more info: