Are You Really Ready for Retirement (I mean REALLY)?

AVIANO AIR BASE, Italy -- In March of 2007, I wrote a column for the base paper in which I addressed some important financial decisions that one should take early in their career in regards to planning for retirement. That column can be viewed at the following web site: http://www.aviano.af.mil/news/story.asp?id=123044868.

In this column I will address some of the important financial decisions that need to be made as one approaches their military retirement. First of all, who am I to talk about this topic? I have two credentials which allow me to speak with some authority on this issue. The first is that I was in charge of retirement planning and retirement benefits for the entire Air Force while at the Pentagon and was the Air Force's liaison to the Veterans Administration and the Social Security Administration. The second most important credential I have is that when I came into the military I knew next to nothing about retirement planning. Piece by piece I studied, Googled, and read my way to a firm understanding of the issues, and most importantly, I took the actions required to set my retirement plan into motion. Bottom line is, if I can do it, anyone can do it.

Protecting your retired pay is extremely important. The Survivor Benefit Plan (SBP) allows a portion of your retired pay to continue going to your family after you die. You've worked hard for your retired pay, and your family likely depends on it. In the year prior to your retirement you will be contacted by an Air Force SBP Counselor to inform you of the details and costs of the program and counsel you on your SBP election. To prepare for this choice, I recommend you consider what your family's expenses will be, then consider what sources of income they may have in the event of your death. This government subsidized program is an economically sound way of ensuring the needs of your family continue to be met.

Life Insurance can also be a key component of retirement planning. On active duty, we have been provided a very affordable comprehensive insurance package for ourselves and our families. As a retiree however, we lose our SGLI and FSGLI, and may have to make choices on replacing it. While the VA offers life insurance for veterans (called VGLI), each individual's situation will determine if exploring commercial alternatives is a better value and is best explored at least a year from retirement. Being accepted for a commercial policy (called "underwriting") may take a few months. One advantage of VGLI is that there is no break between SGLI and VGLI and they will accept you without proof of good health within the first 120 days of retirement.

Speaking of insurance, we have also benefited from practically no-cost healthcare while on Active Duty. Your healthcare insurance costs and expenses as a retiree under TRICARE will depend on where you live, your family size, what plan you choose to participate in and what other insurance you have. 

As a retiree your healthcare costs will be increasing, so plan accordingly. You may also need to obtain commercial health care insurance to supplement your TRICARE coverage. Do you understand what your benefit "Tricare for Life" (TFL) means? Ninety-nine percent of people think that it must mean that Tricare will cover you for life. Since that answer would be way too easy, it's obviously wrong. The short version is that TFL is available to Medicare-eligible TRICARE beneficiaries, provided they have Medicare Parts A and B. When Medicare is your primary insurance, TRICARE acts as your secondary payer thus minimizing your out-of-pocket expenses. Remember when we were all too young to have to worry about things like Medicare? And what is this Part A and Part B stuff? Well, guess what: If you approaching retirement, it's time to go to http://www.tricare.mil/ and http://www.medicare.gov/ to try to make sense of it all.

Another health care/financial issue not often considered by active duty members is "Long Term Care." Military members and retirees can purchase policies under the Federal Long-Term Care Insurance Program (FLTCIP) that provide payment of costs associated with providing extended care (at home, in a nursing home, etc) for situations not covered by TRICARE. Premiums vary based on policy selection and age, and further information can be obtained at: http://www.ltcfeds.com. Insurance of this type can relieve both you and your family from an unanticipated drain on your retirement savings in the event of long term health issue.

Do you understand your Social Security benefit? Many military people mistakenly believe they aren't entitled to Social Security. You've paid into it your entire career so you've earned it. Others believe the hype that it won't be available for them. This is also false. You'll be able to collect from it between the ages of 65 and 67 depending on your year of birth. You could even start drawing from it as early as age 62 but at a reduced amount. Here's one most people don't have a handle on: Do you understand your spouses entitlement? The answers to these and many other questions are at http://www.ssa.gov/.
I'm a HUGE advocate of the Thrift Savings Plan (TSP) and putting money into it is fairly simple. But few people have thought about what's the best way to take money out of it in retirement. I subscribe to the conventional wisdom that it's best to withdraw from taxable accounts first and leave tax advantaged accounts, like TSP and IRAs, until later. When you are ready to withdraw all of your money from your TSP account, there are a number of ways you can do so: You can withdraw your entire TSP account balance in a single payment, a series of monthly payments, you can withdraw your entire account as a life annuity, or you can combine any or all of these options. The rules are generally that you should not start withdrawing from TSP before you reach age 59 ½ and that you will be required to start withdrawing from TSP no later than April 1 of the year following the year you become age 70 ½ (How about that for complicated?). Of course there are exceptions that include variables like IRS life expectancy tables and annuity purchases. If it all sounds complicated that's because it is. Go to http://www.tsp.gov/ for more detail.

In addition to the above, the Veterans Administration (VA) has a variety of programs to ensure your success as a military retiree. These include home loans, compensation and pension programs (including for service connected disabilities), education and training, health care, etc. The best way to be a prepared and informed consumer of these is to attend the transition seminars offered by the Airman and Family Readiness Center and also explore the VA's offerings at http://www.va.gov

Another decision to make is whether to take terminal leave or sell your leave back. The conventional wisdom is that taking terminal leave is more financially advantageous and this is true in most cases. However, it's not true in every case. The following factors all come into play: do you have another job waiting for you, are you going to need to look for a job, or are you going to go fishing with your grandkids; what's your tax rate; what's your OHA or BAH rate; what retirement system are you under (final pay, High-3, or Redux); are you facing a mandatory retirement date or are you choosing the date; how does your current base pay rate versus the base pay you were receiving 36 months ago? So the bottom line is: it depends (don't you just hate that?). No two cases are the same and you'll simply need to arm yourself with a calculator and a sheet of paper to figure it out. The wrong decision can cost you thousands.

I threw a lot of information at you and I know a lot of it is confusing and complicated. Unfortunately it's critical to understand it all and there is no shortcut. Additionally, it's no one's responsibility but yours to figure it out. The difference between informed choices and uninformed choice can drastically affect your future and that of your family. 

Fortunately for all of us, we have a lot of really smart folks who are happy to help you with all things financial: The Airman and Family Readiness Flight, The Career Assistance Advisor, and the Survivor Benefit Plan Counselor are all available to help you.