Military Retirement Planning – 7 Ways to Mitigate Your Cash Flow Risk

This article is a follow up to my last one about your job risk mindset after your military career ends. In it, I mentioned that a lot of people settle for jobs they wouldn’t otherwise pursue because their financial position doesn’t allow them to go back to school, start their own business, or some other…
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This article is a follow up to my last one about your job risk mindset after your military career ends. In it, I mentioned that a lot of people settle for jobs they wouldn’t otherwise pursue because their financial position doesn’t allow them to go back to school, start their own business, or some other activity which doesn’t provide immediate income.

Let’s consider for a moment a scenario in which you can set the conditions to get through that initial one or two years of income uncertainty. Once you do, you are able to spend the next 30 years doing something that you really like to do and can do it profitably. Doesn’t this strike you as much more appealing than just settling for whatever opportunity happens to be available?

If you really want to take the time to make it happen, below are several things you can consider doing to increase your chances of succeeding.

1. Start Your Military Transition Early

Don’t wait until you’re starting your Transition GPS class (formerly known as TAP) six months before retirement to decide you’re going to take the plunge. If you wait, you likely won’t have enough time to do the due diligence and take the right steps to succeed. Instead, you should start thinking about what you want to do at the 15-year mark…right around the time when you’ll be turning down the Career Status Bonus (or you should be since it’s a huge rip-off).

2. Budget for Your Military Transition

You should have 6 months to two years of living expenses in an emergency savings account by the time you retire. You want to have enough money set aside to get you through the next two years as you adjust to post-military life. While you will have your pension, you should be very careful when considering how much pension you will actually receive. You probably will want to start saving for this at 5 years out, as well. Use the guidance below:

Six months: If your spouse works, or if you’re moving into an available job opening that pays your current salary (or higher), you are in a fairly stable position. However, you’ll still want to have six months’ living expenses saved to account for higher taxes and all of the unanticipated adjustments (such as paying more for medical care and life insurance) that you’ll discover in your first two years.

1 year: If your spouse does not work, or if you anticipate moving into an available job that does not start at your current salary, you should set aside 1 year of living expenses.

18 months: If you’re not immediately going back to work, or anticipate having a tough time finding the job that you want, you may want to budget 18 months’ living expenses.

2 years: If you plan to go back to school, you’ll want enough money set aside to get you through school. If you plan to open your own business, you should at least have 2 years’ living expenses AND 2 years’ anticipated business costs set aside. If you’re looking to borrow money in the form of a business loan, you should at least have 2 years’ loan payments set aside. This might require some research into how much money you need for your business & doing the homework to find out what two years of loan payments would look like.

Living expenses: Take a look at your spending, and develop a good estimate of what your monthly needs are: mortgage, insurance, taxes, groceries, car payment, college savings plans, etc. Take this time to eliminate any unnecessary spending, but you should have a good estimate of how much you spend on a monthly basis. Multiply this number by the number of months to come to your estimated savings goal.

3. Invest in Yourself

There is a lot that you can do to make sure you’re adequately prepared for post-military life. Going to school, whether it’s for a degree or a specific credential, is probably the most obvious thing that you can do. You should plan to spend 2 years for each year of education you need. If your curriculum requires 1 year of education, you should budget 2 years to complete it on time. If you have a certification exam, you should investigate that separately, and budget the appropriate amount of time & money to that as well.

However, investing your time is just as important as the money you put into it. For example, you may want to have a career in a field that involves public speaking (like a teacher), but you’ve always been terrified to get in front of people. A Toastmasters membership is a very low-cost way to develop or enhance your public speaking skills. However, you probably need to commit to one day per week for a year to really see results from that investment. Investing your time is just as important as investing your money.

4. Get a Side Hustle

If you plan to start your own business or go into a completely new field, this is something you might want to consider as a way to get a head start. If you think of this as getting an actual paying job, this might not be practical, or even legal at your command. However, you can probably find a way to do side-jobs that are related to your career or your intended future career, especially on a volunteer basis.

For example, if your goal is to be a teacher, you can probably guest-teach a class for any number of volunteer programs. While you might not always get paid to do this work, being able to add any additional experience to your resume is always a good opportunity. An additional benefit is being able to ‘ramp up’ this effort as you retire and possibly offset some of your income needs while building your business or looking for a permanent job.

5. Network Where You Plan to Retire.

I’ve always advised my Sailors that unless you have a really compelling reason to move, you should plan to retire at or near your last permanent duty station. A huge reason for this is your ability to get involved in your local community. You can volunteer locally, you can join any number of networking meetings, become involved with your school’s PTA or with your church, or any number of activities that help broaden your relationships within the community. While it may not be directly related to your next job, you never know when having a friend or colleague in the right place can help you out.

6. Have a Backup Plan & be Prepared to Pivot

For some people, things just don’t work out as planned. Perhaps the job opportunities aren’t lining up as they used to (for people who want GS or DoD contractor positions, this is a huge risk given the current budget environment), or your business isn’t taking off the way you wanted to. However, you should always have a primary plan, with target dates, then be prepared for contingencies at certain milestones.

For example, let’s imagine you’re looking for jobs within the local area, but no desirable jobs are available in your career field. If, after 3 months of working with a headhunter or recruiter firm, you have no results, you might want to open yourself to moving outside of the area or to broaden your job search to other career fields. If you’re operating your own business, you should adhere to the timelines that are in your business plan (and budgeted for appropriately). However, you also need to know when to pull the plug and execute a backup plan.

7. Talk About it with Your Family & Make Sure they Support Your Plan

This is the most important part of your post-retirement planning. No amount of planning, preparation, or hard work is worth it if it means hurting your relationship with your family. However, with your family’s support, you may find that you can do a lot more than you initially thought. Finding a way to cut expenses by $500 per month is a much easier process when your family is part of the plan than when you arbitrarily tell everyone your plan. The same with job-related moves, long work hours, etc. All of these things count towards a successful transition.

As always, this blog serves to answer your questions and address concerns.  If you like this blog, please forward it on to other people who may benefit.  If you have issues or concerns, or if you have a question you’d like me to answer, please feel free to contact me.  In the meanwhile, take charge of your life!

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About Forrest Baumhover

Forrest Baumhover is a Certified Financial Planner™ and financial planner with Lawrence Financial Planning, a fee-only financial services firm. As a retired naval officer, Forrest helps veterans, transitioning servicemembers and their families address the financial challenges of post-military life so they can achieve financial independence and spend more time doing the things they love.

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