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Being a Military Veteran and Retiring Abroad

I think one of the largest groups of Americans who decide to retire overseas are military veterans. It makes perfect sense on many levels. Many military veterans have spent considerable parts of their career living abroad, they may speak two or more languages, and have grown accustomed to life overseas, particularly in the developing world. Living back home in America may seem boring and slow, or you may just decide you want to try something new.

Regardless of your reasons for considering overseas retirement, you should take some time to make the decision before jumping in with both feet. Here are some pros and cons. Keep in mind this is just a top level overview – just enough to get your thinking about it. If you think overseas retirement might be for you, then I recommend doing further research.

Benefits of overseas retirement for military members

Retiring abroad is a great option for military veterans. Unlike most Americans they will have usually have a guaranteed pension on top of their social security benefits. This can mean a retired military veteran faces a retirement in relative wealth compared to most Americans, and extraordinary wealth compared to other people if the veteran decides to live in a poorer, developing country.

Benefits of formal visa programs. Many countries, particularly poorer ones in Southeast Asia and Latin America have formal retirement visa programs under various names and guises. These visa programs have reduced or no taxation for retirees on a pension, allowing you to save considerable money over many parts of the United States. The requirements of these can vary substantially from country to country, but in general you must not have a criminal record, you must show signed proof of your pension, you must show proof that you have private healthcare, and you must be over a certain age. You will typically apply for the visa stateside and apply through the nearest consulate or embassy of the country you wish to move to.

Expat communities. Many countries have entire communities populated by retired ex-patriots. No, we’re not calling you unpatriotic, that’s just a term for someone who chooses to live in another country! The benefit of these communities is a greater sense of home and a shared experience. It is much easier to make the transition to living overseas if you are around people who are in a similar situation – you can share experiences and help each other when needed.

Service and Benefits for Veterans Living Abroad: The Department of Veterans Affairs has a portal dedicated to providing information for military retirees who choose to live overseas during retirement. Visit the VA site for more info.

Downfalls and risks of retiring overseas

Drawbacks to retiring overseas. As any experienced expat knows, while there are many benefits to living overseas, there are drawbacks. You cannot export an American lifestyle overseas without substantial expenses. You will deal with inefficient businesses and bureaucracies, far worse than in America. You may deal with a lot of crime. You may see a lot of poverty. Healthcare may be cheap, but it might not be as high of quality. You may be far away from your loved ones and friends.

Risks of retiring abroad. While retiring abroad is being portrayed in the media as a way to garner a wealthy lifestyle for pennies on the dollar, it is still fraught with risk. The cheaper the country you move to, the poorer and potentially dangerous the country. A poor country is at best financially unstable, and at worst politically unstable. Do research on the history and the government of the country you decide to move to before moving.

Advice for those consider overseas retirement

My advice to any veteran considering moving overseas to retirement is to make use of the skills and instincts that allowed you to prosper in previous foreign residences. Be cautious, and keep a low profile. Americans are hated in some parts of the world, and in others mildly disliked. Don’t make waves.

From a financial perspective my most general advice is to maintain some kind of address or contact back home for bills and banking relationships. Keep the bulk of your money in America rather than investing locally. And always have a plan for quickly leaving the country if trouble seems to be stirring.

About the author. Rick Todd writes at Expat Investing, where he writes on living working and retiring overseas from a financial perspective.

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Veterans Advantage Card Benefits Program

The Veterans Advantage Card Benefits Program is a nationwide benefits program developed in 2001 to provide rewards to the members of those who have served in the United States Military including active military members, retired veterans, members of the National Guard and Reserves, as well as the family members of eligible service personnel.

Veterans Advantage Card - Military and Veteran DiscountsThe companies which have partnered up with the program provide preferred pricing on products and services to show their appreciation of military members. Companies that participate in the program range from a wide spectrum of categories including travel, entertainment, home, office, health, business, and financial. There are also benefits offered by both the federal government and participating state governments.

Veterans Advantage Card Benefits Program Review

Eligibility. There are no limitations on the time period of service, the branch of the military, or the rank of the individual to participate in the program. The Veterans Advantage Program offers benefits nationwide to active members and Veterans based on a membership plan. There are three option available for membership and pricing ranges from a one-year membership at $59.95 to a five-year membership at $199.95. Interested individuals can also start a 30-day free trial membership. Trial memberships can be canceled at any time. Family members interested in participating can be enrolled for half the price of a regular membership. Gift memberships are also available for purchase.

Plan Benefits

VA Travel CardIn addition to the many discounts and preferred pricing options for members, each plan also includes:

  • Act now and get your 30-day FREE trial
  • Save thousands: Enjoy everyday savings nationwide
  • Special Insurance coverage: Up to $55,000 insurance coverage at no extra charge
  • Prescription Drug Discounts: up to 65% off medication at no extra charge
  • Free $25 Gift Card with your full membership
  • Personal Attention: Toll-free member support number plus online help

Members will receive a Veterans Advantage ID card in the mail accompanied by a benefits booklet that outlines the programs benefits and lists the many US corporations that participate. Just some of the national companies include:

  • Thrifty Car Rental
  • 1-800-PetMeds
  • T-Mobile
  • AT&T
  • Dunkin Donuts
  • Dell
  • Apple
  • Continental Airlines
  • Overstock.com
  • Barnes & Noble
  • Greyhound
  • Target

State and Federal Benefits

Every state and even some municipalities offer a variety of benefits for program members. There are also federal benefits provided through the card and Veterans Advantage members will receive a compilation of State, Local and Federal Benefits online and sent by e-mail so they can remain informed and up to date.

The program’s website (http://www.veteransadvantage.com/) offers extensive information about the rewards program and provides 24/7 member support services online or by phone. Each month, a new partnership company is put in the spotlight that showcases the discounts being offered by the many participating retailers and businesses. Additionally, there are various resources, articles, and news topics to benefit Veterans, active members, and family members available on the website. Enrollment in the annual membership or 30-day trial program can be completed online and activated instantaneously.

Is Veterans Advantage Worth It?

There is a large variety of participating partners that can make this plan worthwhile, especially since family members can participate. For a few dollars a month, the annual membership can save members on services they normally use and on brand name products they buy. The Veterans Advantage website also features testimonials from other members and a toll free phone number for customer service questions. The 30 day free trial membership may be the best resource for determining whether the program is worth the annual fee.

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Thrift Savings Plan Begins Automatic Contributions for New Employees

The Thrift Savings Plan (TSP) recently announced it will begin automatic contributions for new employees. Federal employees who are part of the Federal Employees’ Retirement System (FERS) and were hired after July 31, 2010 will be automatically enrolled in the TSP with an automatic contribution of 3% of their basic pay, which will be automatically deducted from the employee’s pay each period and deposited into the Thrift Savings Plan. This is in addition to the Agency Automatic Contributions of 1% of total base pay and will make employees eligible for Agency Matching Contributions.

Employees have the option of opting out of automatic plan participation by simply opting out when they are hired. In addition, TSP members can start, stop, or change contributions at any time by using their agency’s or service’s electronic system, or by filling out form TSP-1 (civilian TSP) or TSP-U-1 (uniformed services).

Civilian employees under FERS also have the opportunity to earn make additional Thrift Savings Plan contributions from their base pay to receive Agency Matching Contributions. Civilian TSP members who contribute at least at least 5% of their basic pay to their TSP account can receive the full amount of agency matching contributions.

TSP aautomatic contribution chart

Benefits of automatic Thrift Savings Plan contributions

Many employers in both the public and private sector have discovered many people believe that retirement plans are a great idea, but the employees often don’t take the time to sign up for the benefits. Companies that offer an automatic enrollment have seen a surge in plan participation, as most people opt to leave the contributions in place. In most cases, this is a great idea because automatic contributions make it easy to start saving money.

If you have the opportunity to start investing in a the TSP or a similar plan such as the 401k, then go for it. You would be surprised at how easily you can adapt to the slightly lower paychecks. Since the contributions are made before taxes, your paycheck actually decreases by a lower amount than you are contributing. For example, if you are contributing $100 per month, you might only see a difference of $65 in your paycheck because federal and state taxes haven’t been withheld from your contributions. Your TSP contributions will then grow without the drag of taxes holding them back until you make withdrawals in retirement age. Overall, this is a simple way to save money for retirement.

Other Thrift Savings Plan changes

The Thrift Savings Plan recently announced plans to add the TSP Roth 401k option, which is similar to a Roth 401k plan commonly found in many public sector jobs. The benefits are similar to a Roth IRA when it comes to how the contributions and withdrawals are taxed (contributions have already been taxed, and withdrawals are made tax free). The difference however, is that Roth IRA eligibility is based on income, and Roth IRA contribution limits are lower for IRAs that the 401k or TSP plans. The Thrift Savings Plan Roth 401k option will be a great investment opportunity for both civilian and military members alike.

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Roth 401K for Thrift Savings Plan (TSP)

Good news for Thrift Savings Plan (TSP) participants – the Thrift Savings Plan will begin to offering a Roth 401(k) option in 2012. In June 2009, President Obama signed the the Thrift Savings Plan Enhancement Act 2009, Public Law 111-31 which gives the Thrift Savings Plan the authority to offer a Roth 401k option. It will take the agency some time to set up the infrastructure and bookkeeping capability, so the launch is not expected until 2012.

Update: the TSP Roth 401k option has been delayed and is now expected to be offered in the first calendar quarter of 2012 (the original date was 2011).

If you think that a Roth 401K TSP sounds like some sort of hybrid retirement plan then your guess would be absolutely right! The Thrift Savings Plan Roth 401K is actually a merger of two of the popular retirement plans currently available; the Roth 401K, and the Thrift Savings Plan.

The Roth 401K is typically used by individuals in the private sector and the Thrift Savings Plan is reserved for government employees, including those working for the government under civilian programs and the DoD, and for those in the armed forces. The Roth 401k Thrift Savings Plan puts the best part of both plans in one new retirement option.

What is the Roth 401k feature for the Thrift Savings Plan?

A Roth 401(k) feature for the Thrift Savings Plan combines the benefits of a Roth savings plan with the TSP retirement savings plan. Instead of making contributions before paying taxes like you currently do with the TSP (and paying taxes when you withdraw the money), you will pay taxes now and make tax free withdrawals in retirement. This means your Roth savings will grow without the drag of taxes because your contributions have already been taxed. You will not pay any federal income taxes on your withdrawals so long as you meet Roth withdrawal eligibility guidelines – typically age 59½ and have been making Roth contributions for a minimum of 5 years.

TSP Roth 401k eligibility

Another benefit adopted from the Roth 401K plan is an absence of income limitations for plan participation. Anyone can contribute towards this retirement plan regardless of how much money they make. This differs from Roth IRA contribution limits which are tied to income. The TSP Roth 401k contribution limits will be the same as all TSP contribution limits, regardless of whether you invest in the Roth option or the traditional option. Contribution limits can be found here.

Benefits Associated with the Roth 401K

Here are some benefits you should expect to see with the Roth 401k plan:

  • Contributions are made after taxes have been withdrawn.
  • There are no taxes on withdrawals from a Roth 401K so long as you meet withdrawal eligibility requirements.
  • There are no income restrictions on regarding who can contribute to a Roth 401K, so you can contribute regardless of income level.

Deployed contributions to Roth 401k for TSP could be huge

I’m a big fan of investing in the TSP while deployed because of the tax benefits – you don’t pay income tax on the money you contribute and the portion you contribute while deployed can be withdrawn tax free, giving traditional TSP contributions similar rules to Roth 401k contributions. The difference is the tax free portion of your withdrawals will be prorated across all regular TSP withdrawals, and there are minimum distribution requirements. A Roth 401k feature will eliminate the necessity to track which portions of contributions and withdrawals are tax free, and there are no minimum distribution age requirements. This makes the Roth 401k TSP feature much more flexible. You don’t get taxed on income and you can make tax free withdrawals in retirement. It doesn’t get any better than that!

Should you invest in the Thrift Savings Plan 401k option when it is available?

This could be a great opportunity to save some money with great tax benefits,though it may not be the ideal situation for everyone. You should look at your investment goals, tax obligations and other factors before making the decision to switch from the traditional TSP plan to the Roth 401k, or consider contributing to a hybrid approach and making a portion of your contributions to each plan so you can diversify your tax liability in retirement. Generally, if you are in a low tax bracket, or you have tax free deployment income, then you might want to consider the Roth 401k TSP feature. If you are in a higher tax bracket and don’t have tax free income, then the tax situation should be similar to deciding whether or not you should invest in a 401(k) or IRA. The previous link should be helpful in making the decision. You might also consider doing a Roth in-plan Rollover, which will allow you to transfer some or all of your current TSP assets from a Traditional TSP investment to a Roth for tax purposes. There may be tax consequences of this, so be sure to look into it before you make the move when it becomes available to you.

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Unemployment Benefits After Separating from the Military

Did you know that many military veterans are eligible to receive unemployment benefits when they separate from the military?

Transitioning from a military career to a civilian career is a big step. Not all jobs transfer over from the military and it can be difficult for civilians to understand how much military members bring to the table in terms of experience, leadership and many other attributes. It is not uncommon for military members to struggle when seeking civilian employment.

Thankfully, there are benefits that can help you bridge the gap between military and civilian careers. Service members who are no longer active in the military have the same unemployment benefit options available to them as other Americans. I applied for unemployment benefits when I separated from the military, and I encourage you to do the same if you are eligible.

Unemployment benefits for military veterans

Unemployment compensation may be available to ex-military personnel.  If eligible, military members will receive compensation from the Unemployment Compensation for Ex-service members (UCX).  This program is run by the federal government, but each state has their own agents representing the UCX.  Whether or not  you are eligible and how much compensation you will receive depends on several factors.  If you receive other compensation (separation pay, retirement pay) the amount of compensation for which you may be eligible will be reduced.  Here we look at how you can go about signing up for unemployment compensation and what you can do before separation to get your finances in order.

Signing up for unemployment benefits

Since each state is in charge of unemployment benefits paid out to residents of the state, this is the starting point for signing up for compensation.  The state unemployment office will be able to determine if you are eligible to receive benefits, how long you can receive benefits and how much compensation you will receive.  You must apply through the state employment office which will also help you in your search for new employment.  When visiting the state employment office to inquire about benefits be sure to have the following documents on hand; job history or resume, Social Security Card and DD Form 214 (Certificate of Release or Discharge from Active Duty).

A couple quick notes about military unemployment benefits:

  • Federal law requires that you are physically in the state in which you file your first claim based on military wages. You can file in the state in which you separate from the military, but you may need to transfer your unemployment benefits if you move to another state (be sure to check with the employment bureau in the state where you move).
  • Unemployment benefits for former military members is usually based on military service wages, however, separation pay or military retirement pay may affect your benefits.
  • In most cases, you must have been separated under honorable conditions to be eligible for unemployment benefits.
  • Each state may have unique rules or provisions. Check with your state employment office for specific information.

New GI Bill Program for Unemployed Military Veterans

If you are an unemployed veteran, you may be eligible for a new GI Bill program specifically designed for unemployed veterans age 35-60.  The good news is this program is open to eligible veterans regardless of whether or not they still have remaining GI Bill eligibility (MGIB benefits typically expire 10 years after a veteran’s separation date).

The VOW to Hire Heroes Act of 2011 was recently passed, which offers up to 12 months of education and training at the full-time active duty Montgomery GI Bill rate. Training is available to eligible veterans for VA Approved education and training programs at a community college or technical school. Benefits must be used toward an Associate’s Degree, qualified certification, or a non-college degree in a high demand field (examples include, information technology, trucking, certain medical occupations, and more).

Visit the GI Bill for unemployed veterans page on our site to learn more about eligibility, and how to apply.

Prepare your finances before separation from the military

A well padded emergency fund can provide the financial security necessary during a time of transition from one job to another.  Service members who are planning to transition from military to civilian status should plan on saving as much money as they can to help bridge any gaps in employment. It took me about 4 months to find a job when I made the transition from the military to civilian workforce, but your results may vary depending on the economy where you separate, your skills, and other factors. Unemployment benefits helped, but I was also single and had few expenses. If you have a family and more expenses, then you will need a larger nest egg to help you through this transition.

Having enough money to cover several months worth of living expenses will offer some peace of mind until you are able to secure your next job. Consider saving your money in a high interest savings account which will offer a decent interest rate while still providing access to your money.

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GM Military Discount Program

General Motors offers eligible military members a military discount program for GM vehicles. The GM military discount program allows eligible military members to purchase vehicles at prices lower than MSRP. It’s important to note that GM dealers are not required to participate in the GM military discount program, but in this economic environment, my guess is that most dealers will be willing to work with you and offer discounts for your military service.

General Motors (GM) Military Discount Program

GM Vehicles eligible for GM Military Discount

GM dealers are working hard to clear inventory from their lots. As a result, most 2010 and 2011 GM cars, SUVs, crossovers and light-duty trucks are eligible for the GM Military Discount Program except the Chevrolet Volt and all Cadillacs.

GM Military Discount Eligibility

People eligible for the GM Military Discount include active duty members and Reserves of  the U.S. Air Force, Army, Navy, Marines, National Guard, and Coast Guard.

How to get your military discount from GM

Visit gmmilitarydiscount.com to request your “Go Code” and bring it and your military ID to your salesperson at your GM Dealer to receive your vehicle discount.

How good is the GM military discount program?

I ran a few vehicles through the military discount price list to compare the regular MSRP to the military price. There were a few deals better than others. I don’t think it’s a bad idea to try and get additional discounts with this program – but right now you should be able to do much better than the listed prices from their price list. Many dealerships are hurting to move inventory and are willing to make deals.

Save more money with USAA, AutoCircle, and GM

USAA GM Discount

You can save even more money if you are a USAA member. GM and USAA have teamed to offer an additional $750 discount (this offer is subject to change, but it is worth investigating!). In addition, you can try USAA’s new car buying service, USAA Auto Circle. Auto Circle is an iPhone app that is basically a one stop shop for your car buying needs. You can research the best value in cars, find a no hassle “buy it now” price, and even insure your car right from your iPhone. Android and Blackberry apps are currently in work.

More information about the GM military discount program: Please see the GM Military Discount Rules and Guidelines or the FAQ section for complete details .

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How to Make Savings Deposit Program (SDP) Withdrawals

The military Savings Deposit Program (SDP) is one of the best places to invest money while deployed. It offers military members a guaranteed 10% return on investment, which is virtually unheard of in our current economy!

The Savings Deposit Program (SDP) has some unique rules. For example, it is only available to military members who are in a designated combat zone for a specified period of time, and except under limited circumstances, you cannot make withdrawals until you redeploy and are no longer eligible for the program. Here are some more pros and cons of the Savings Deposit Program (SDP).

How to Make Savings Deposit Program (SDP) Withdrawals

Savings Deposit Program withdrawalGuaranteed 10% interest is almost too good to pass up, but before signing up for the Savings Deposit Program (SDP), you should understand how to make contributions and withdrawals. Contributions are easy, simply visit your finance office, sign a few forms (or it may be done electronically, depending on your location), and you are good to go. You can contribute up to your base pay in $5 increments, until you reach the maximum contribution limit of $10,000. At that point you can no longer make contributions.

Making withdrawals, however, is a different story. Except in emergency situations, contributions must remain in the SDP until you are no longer eligible to participate (typically until you redeploy to your home station or out of the combat zone).

How and When You Can Close Your Savings Deposit Program (SDP) Account

Participants are only eligible to close their SPD account and make withdrawals after they leave the combat zone. There are some exceptions for emergency withdrawals, and withdrawals of amounts above the $10,000 max. Emergency withdrawals are allowed when the health or welfare of the the participant or his/her dependent(s) necessitates withdrawal. Emergency withdrawals must be approved by the participant’s commanding officer. Members can also withdraw amounts over the $10,000 principal while they are in the deployed zone. This can only be done on a quarterly basis, as interest is assessed quarterly.

Interest accrues for 90 days after you leave the combat zone. Interest will continue to accrue for 90 days after you redeploy, so unless you need the money right away, it might not be a bad idea to leave your contributions in your SDP account to continue earning interest. You can leave your funds in the account indefeinitely, but you will only earn additional interest income for 90 days. So there is no point in leaving in there long term.

Savings Deposit Program (SDP) Withdrawal Procedures:

There are four methods for requesting an SPD withdrawal: Online via MyPay, or by e-mail, fax, or mail.

  • E-mail (SDP mailbox): CCL-SDP@dfas.mil
  • Faxed (“Attention: SDP”): (216) 522-5060
  • Mail: see address below

DFAS- Cleveland Center (DFAS-CL)
ATTN: SDP
Special Claims
1240 East 9th St .
Cleveland , OH 44199-2055

Information required for SDP withdrawal:

You must include your name, social security number, and the date you left the combat zone to prove your identity and verify you are eligible to withdraw your contributions. You must also provide information for the bank account you wish to send the money to. Unless you opt for a paper check, your funds will be transferred electronically via an Electronic Funds Transfer (EFT). You will need to provide the bank name, routing number, account number, and the type of account (savings or checking). If you request a paper check you will need to provide a complete mailing address.

Tips for SDP withdrawals:

  • Close your account and make sure that your allotment has stopped before requesting withdrawal. You don’t want to continue sending money to the program after you make a withdrawal.
  • MyPay is probably the fastest and most secure way to make your withdrawal. MyPay is on a secure internet connection and it limits the possibilities for manual errors made by requesting withdrawals manually fax, e-mail, or traditional mail.
  • MyPay also limits who sees your personal information. Faxes, traditional mail and e-mail may be handled by several individuals and/or misplaced or routed to the wrong desk.
  • Verify contact information before sending your SSN or other identifying information anywhere. Allowing your SSN into the wrong hands is poor OPSEC and opens you to potential identity theft.
  • Opt for EFT transfer for withdrawals. Electronic funds transfers are faster and more secure than paper checks.

Additional resources:

Based on how the military finance system operates, the information in this article is subject to change. For more information, contact the SDP Help Line before sending your personal information anywhere:

Toll Free (US Only): 1-888-332-7411
Commercial: 216-522-5096
DSN: 580-5096
Fax: (Attention SDP): 216-522-5060
E-mail: CCL-SDP@dfas.mil

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Best Investment Options for Deployed Military Members

One of the biggest benefits to going on a deployment is the extra income. Tax free pay, hazard pay, imminent danger pay, family separation pay, and other financial benefits abound. Of course, they don’t make up for the danger of being in a hostile environment or being separated from your family, but the dollars are real and you should use them wisely while you are receiving those benefits.

I highly recommend saving money while deployed, but if you are already doing well in that department, then it is time to start investing your money for growth. The Thrift Savings Plan and military retirement pay are both great benefits, but not everyone reaches the service requirements to earn the military pension and the TSP may not be enough. Here are some places to start investing while you are deployed.

Best investment options for deployed military members

Open a Roth IRA

Roth IRAs are among the best investment options available to military and civilian members alike. Roth IRAs are retirement accounts with a great tax advantage – you make contributions with income that has already been taxed, and you are able to make tax free withdrawals in retirement. But, being deployed has it’s advantages – your income is already tax free, meaning you don’t pay taxes on your contributions or withdrawals! Once upon a time this prohibited you from making Roth IRA contributions, but the Heroes Earned Retirement Opportunities (HERO) Act was enacted several years ago to allow military members to open IRAs even if 100% of their income was non-taxable due to deployments. Looking to get started? Here are some of the best Roth IRA companies.

Benefit of Roth IRA contributions in a tax free zone: Tax free contributions with tax free withdrawals.

Contribute to your Thrift Savings Plan

The Thrift Savings Plan is a great benefit available to military members. It functions the same way as a traditional 401k plan: you take pre-tax dollars and invest them without the drag of taxes until you make a qualified withdrawal in retirement years. This is the opposite of a Roth IRA, you don’t pay taxes now, but pay taxes later.

But there is a big difference if yo invest in the TSP while deployed. Your contributions are already tax free, but since your income is tax exempt, you will not pay taxes on the contributions made while in a tax free zone. This in effect gives you some tax benefits similar to a Roth IRA. Your withdrawals in retirement will be less flexible than a Roth IRA, however, and you will still be required to make minimm withdrawals when you reach the required age. Your taxable and tax free withdrawals will be made in proportion to the contribution amount, meaning you can’t determine how and when you withdraw the tax free funds (keep in mind these rules are subject to change in the future).

Benefit of TSP contributions in a tax free zone: Tax free contributions with tax free withdrawals.

Participate in the Military Savings Deposit Program (SDP)

The Savings Deposit Program (SDP) is a military investment benefit available only to those currently serving in a designated combat zone. It offers a guaranteed return of 10% interest for deposits up to $10,000. You can start it as soon as you are in country for 30 days and you can continue earning 10% interest for up to 90 days after you return home from the combat zone. There are some limitations and inconveniences with the SDP (you can only contribute the amount of your paycheck each month until you reach $10k and you can only leave it in there 90 days after you redeploy), but it is probably the only place in the world right now where you can earn a guaranteed 10% return on investment. See your finance department for more information.

Benefit of Savings Deposit Program: Guaranteed 10% interest on deposits.

Self-Directed Investments

If you are more concerned with short term investing and having access to your investments in the near future, then you probably want to avoid investing with a Roth IRA or the Thrift Savings Plan because both are retirement accounts which limits availability to your contributions. The Savings Deposit Program also locks you money away without access until you return from your deployment. If you are looking for a non-retirement investment option and don’t want to lock your money away for the duration of your deployment, then consider investing in stocks or mutual funds. Here is a list of the best brokerage accounts for cheap stock trades, if you are interest in going that route.

Where should military members start investing when deployed?

In my opinion, the first 3 investment opportunities are the best places to start, and I would work toward maxing those out if you can. Of course, that is a lot to ask if you are  a junior enlisted member, but I have seen people do it.

The reason Roth IRAs and the TSP are great opportunities is due to their long term tax benefits. You won’t find another opportunity like this ever – civilians aren’t able to contribute to Roth IRAs or 401k plans with tax free contributions and make tax free withdrawals. This is an opportunity you can’t match or beat anywhere! The same goes for the Savings Deposit Program (SDP). A guaranteed return on investment of 10% is unheard of.

Finally, you always have the option of self-directed investments, investing how and where you want, without worrying about the contribution and withdrawal rules of IRAs or the TSP. These investment accounts don’t share the same tax benefits, but they offer more flexibility and are better for short term investing.

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Military Savings Deposit Program (SDP)

The Military’s Savings Deposit Program (SDP) is one the military’s best kept investing secrets. But don’t confuse the Savings Deposit Program (SDP) with the Thrift Savings Plan (TSP). TSP is available to everyone in the military. However, the Savings Deposit Program is available only to those serving in designated combat zones.

Military Savings Deposit Program (SDP)

The Military Savings Deposit Program (SDP) is a DoD sponsored savings account that offers deployed military members a guaranteed return on investment of 10% interest, compounded quarterly. The SDP was originally started during the Vietnam War as an investment opportunity for veterans serving in Southeast Asia. The program eventually went away, but it was resurrected during Desert Storm in 1991, then offered to troops in Bosnia in 1996. The program was expanded again in 1997, 2001, and 2003.

This is a great opportunity for those who put their life on the line every day, and one of the best ways to save money while deployed. There are several pros and cons to this program, so let’s take a look at how it works, then you can decide if this is a good investment opportunity for you.

How the Savings Deposit Program Works

Establishing eligibility. The DOD Savings Deposit Program (SDP) is only available to military members receiving Hostile Fire Pay for at least 30 consecutive days, or at least 1 day in 3 consecutive months. Once you have established eligibility for the SDP, you may begin making contributions, electing to with hold all or part of your paycheck (in $5 increments) to be be deposited in the SDP.

Contribution limits. You may contribute up to $10,000 total, but you are limited to monthly contributions up to the amount of your base pay (officers are limited to contributions equal to the highest enlisted pay rate). Depending on how much you earn each month, it may take you several months to max out your SDP contributions. Once your contributions are in place, they will begin earning 10% annual interest, which compounds quarterly. You can start and stop contributions at any time while eligible for the program, but it may take several days for the allotment request to take effect, so be careful with timing in regard to pay days.

Making Savings Deposit Program withdrawals. You contributions must remain in your SDP account until you return home from your deployment, except in certain cases due to hardships or limited other reasons. You can leave your contributions and earnings in the SDP account indefinitely, but your funds will stop accruing interest 90 days after you redeploy from the combat zone. Withdrawals can only be made once your eligibility for the program has ended (usually redeploying or leaving the combat zone).

Pros and cons of DoD Savings Deposit Program (SDP)

Advantages of the Savings Deposit Program:

  • 10% interest… Need I say more? It’s nearly impossible to find a guaranteed return on investment of 10%.
  • 90 days additional growth. You can earn interest on your SDP deposits for up to 90 days after you redeploy. An extra quarter of interest could be worth over $100.

Disadvantages of the Savings Deposit Program:

  • Income is taxable. Interest earned in your Savings Deposit Program is taxable, even though your income while deployed is not taxable.
  • Paperwork. You have to fill out forms to start the program and make withdrawals. The forms aren’t a big deal, but you have to take the time to go to your military finance office and find someone familiar with the program (many military members, including many in the finance office, are not aware this program exists).
  • Messing with your military paycheck is never advisable. You must start and stop allotments each time you alter your contribution amount, and your military pay must be coordinated with the Savings Deposit Program. I know several people who experienced problems with this process and ended up waiting a pay check or two before their situation was resolved.
  • It can take awhile to max out your contributions. Junior enlisted members may not be able to max out the SDP plan because it would take several month’s worth of paychecks.
  • Your contributions are tied up until you return home. You cannot make withdrawals until you return from the deployed combat zone.

It’s not all gloom and doom, however. Even though there are several listed disadvantages, the guaranteed 10% return on interest is tough to beat.

Should you invest in the Savings Deposit Program?

I won’t make the call for you, but I will let you know the both my wife and I took advantage of the Savings Deposit Program while we were deployed. Based on some situations I have seen with the military pay system and the uniqueness of this program, I only recommend it if you have a well-established emergency fund in place, just in case anything goes awry and your pay is messed up for one or two checks. This program also works best if you will be in the region long enough to max out your contributions or at least come close. Otherwise you don’t gain much benefit. Finally, leave your deposits in for the full 90 days after you redeploy to take advantage of an additional quarter of compound growth.

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How to Save Money While Deployed

I deployed 5 times when I was in the USAF, and one thing I always loved about the deployments was coming home to a bank account than was fatter than when I left. It was relatively easy for me to bank my paycheck while I was deployed because I was single and didn’t have many bills. But even if you are married and have bills you can take advantage of tax free deployment pay and other benefits to save money while deployed.

How to Save Money While Deployed

Most of the time your basic needs are taken care of while you are deployed – your food and shelter are provided, and you often receive tax free pay, a token Per Diem (yeah $3.50 a day!), and sometimes other benefits such as hostile fire pay, hazardous duty pay, family separation, etc. You earn and deserve each penny that you receive while deployed and I want to show you how you can put that extra money to work so you will be in a better financial position when you return home. Some of these money saving tips will take some advance planning, while others can be done while you are deployed.

Put your items in storage. If you are single you may be able to pack up your belongings and put them in storage while you deploy, saving you rent money each month, minus the cost of storage. This takes a little work, but can easily net you a couple grand over the course of a deployment. Note: The DoD probably frowns upon receiving BAH and only paying for a storage unit; I haven’t read the actual regs on this. I never did this because most of my deployments were short notice, but I knew several people did this each time they deployed.

Turn off the gas, electricity, or other utilities. This is another tip that only works if you are single and live in a moderate climate. But the savings can be fairly substantial. For example, our gas company charges a $20 monthly service charge, regardless of whether or not you use gas. Turning off your gas service for 6 months can save a substantial amount of money (they charge a $50 hook up fee, so you don’t pocket 100% of your savings). When I deployed, I didn’t turn off my electricity completely because the laws required a fire alarm have power at all times. So I pulled the breakers for everything but the fire alarm and paid about $4 per month while deployed. Phantom power to keep your electronics in standby mode can easily eat over $20 per month. Flipping a few switches can save you over $100 while deployed. Just a couple quick notes:

  • Be careful if you live in extreme temperatures as you don’t want your apartment or house to get too hot or cold. Burst pipes or damaged goods don’t save money!
  • Be sure to empty your fridge and prop the door open to prevent a musty odor.

Contact your insurance agent. Most auto insurance companies will allow you to put your vehicle on a vacation policy, allowing you to save money on your premiums each month. You will likely need to keep some coverage, but it is usually much lower than if you were driving your car everyday. Keep in mind these policy changes only work if you are planning on parking your vehicle(s) and no one else will be driving them while you are deployed. You may also be able to save money on your homeowner’s or renter’s insurance. Again, it never hurts to ask!

Look into the Servicemembers Civil Relief Act. The Servicemembers Civil Relief Act may help you reduce the amount of interest you pay on loans while you are deployed, as well as provide other protections or benefits such as stopping legal actions against you while you are deployed and possibly allowing you to break a lease or rental agreement (such as a car lease or an apartment rental). Familiarize yourself with these benefits because they could save you thousands!

Save money on credit card interest. You can transfer your high interest credit card balance to a 0% Balance Transfer Credit Card and save hundreds or even thousand of dollars in interest payments. This is actually available to anyone with good credit, but now is a great time to take advantage of it. You can save more money if you are dedicated toward paying extra on your loan each month.

Prepay debt. If you have extra income (which you probably will due to tax free pay and other benefits) you can save a lot of money by prepaying loans such as credit card debt, auto loans, or even prepaying your mortgage. The savings can be substantial!

Saving money on deployments is easy

Almost anyone can save money while deployed, even those with spouses and children back home. All it takes is a little planning and some diligence. And it’s well worth the effort – you’ll love coming home to a fatter bank account, and/or less debt!

Stay tuned for some of the best places to invest while deployed!

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