Author – Joe Turkal, LtCol (Ret) USMC
When I enlisted in the Marine Corps in 1993, we still receive our pay via cash disbursement. The first pay I received; I was directed to the “pay line”. At the head of the line a Staff Sergeant, who had a lock box full of cash and a Marine escort with his issued pistol holstered on his “war belt”.
The only financial advice I was given in my first enlistment was first by a drill instructor, who advised the entire platoon to make a bank account with Navy Federal Credit Union. Then later, when I needed a plane ticket home to attend my father’s funeral, I was directed to the Navy/Marine Corps Relief Fund office, whereby I was given a no interest loan to purchase my ticket, after which the payment was withdrawn automatically from my paycheck.
Currently, service members have access to a wide range of financial services through non-appropriated fund (NAF) organizations such as Marine Corps Community Services (MCCS), Morale Welfare and Recreation (MWR). They likely will also have access to another senior military member who has been through financial training (command financial representative) and volunteers his/her time to counsel young service members.
Now that there are resources available to service members, I would like to address the question, “When is the right time for a military member to seek a financial professional?” The correct answer is shortly after basic training. There are fundamental steps to be taken even as a private (seaman, airman) or 2nd lieutenant (ensign).
In an era of the Blended Retirement System (BRS), there are a few immediate steps that a military member should take right away. First and foremost – – make sure he/she is contributing to the Thrift Saving Plan (TSP) at a minimum to receive the full 5% government match. The government automatically contributes 1% for the member and this government contribution increases to 5% if the member contributes 5%. Next, service members need to be informed on the investment options with in the TSP. Each fund should be explained (as well as Lifecycle Funds – -TSP investments and strategies will be covered in a future article). The point here is service members require interaction with a financial professional or trained volunteer very shortly after entering the service.
Most essential financial retirement investment actions are sufficiently covered for most new service members once he/she is taking full advantage of the government match, understands the investment options in the TSP, has selected a proper investment strategy and allocation in the TSP, and has a TSP.gov account to monitor and make any necessary changes. For most members this is sufficient until he/she begins to experience more income and more complexity in his/her life.
Likely, the most important interaction with a financial expert or trained volunteer for the new service member is a discussion regarding budgeting. Service members should be informed on following these principles; 1) Don’t spend at a rate greater than your income, 2) Do not carry revolving debt that is higher than approximately 7 percent, 3) Pay down highest interest debt first, 3) Follow the 60/20/20 rule (60% of income toward essential living costs, 20% toward saving, 20% toward discretionary spending) 4) Plan and track your budget.
More experienced service members should seek out a financial expert when complexity of life increases. Complexity includes getting married, having a child or children, taking on a mortgage. Once at least two of these events occur, it is now time to seek advice from a financial advisor. Ideally, the service member taps into the free service provided through the non-appropriated service resources (MWR/MCCS). Unless the member has built considerable assets outside TSP, I do not recommend paying for ongoing financial advice planning at this point. However, building a financial plan or roadmap is now essential. The main reason is to ensure adequate risk mitigation now that the member has loved ones who are dependent on his/her resources. What happens in the case of an unexpected death or disability? For active-duty military, disabilities (as long as they are deemed within the line of duty) do not pose a significant risk because of the entitlements afforded by the U.S. Government, however, it is quite possible that the $500,000 service group life insurance (SGLI) coverage is insufficient to provide for his/her dependents if tragedy strikes. Of great importance – seek advice from an impartial advisor regarding your life insurance needs by having a needs analysis completed. Beware of salespeople trying to upsell you on an expensive policy such as whole life that may not suit your current needs.
Finally, once a service member has life complexity, and has investible assets of greater that approximately $100,000, this is a good time to consider paying a quality fiduciary, fee-only financial advisor (types of “advisors” will be addressed in a future article) for on-going planning and investment management. The service member is likely within reach of transition out of the military and into the civilian sector. This is a very exciting but challenging time. I recommend seeking a financial professional at least two years before transition. Although the congressionally mandated transition course does provide beneficial information, it is inadequate for the level of financial planning needed to transition in the most advantageous manner. A fee-only, fiduciary financial advisor can bring great value to topics such as survivor benefit plan (SBP), Veterans Group Life Insurance (VGLI), having a proper emergency fund, questions about what to do with one’s TSP after transition, and what to prioritize in the next employer’s benefits offering.
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