Departing the military can be a challenging process. Whether you’re getting out after a four-year enlistment, or retiring after a 30-year career, there’s always an uncertainty about life after the military. Here are ten questions you should ask yourself about your financial situation to ensure that you’re prepared for your transition.
1. Where do I see myself in 5 years?
This question is really the scene-setter for the other questions, because it demands a more strategic answer. The rest of the questions are more tactical, but you’ll never be able to answer them properly if you can’t define this one. Why five years? Two reasons:
- In the military, many of us have been trained to think ‘two tours in advance,’ which ends up being around 4-6 years. This thought process shouldn’t go away because we take off our uniform. It becomes more important because now you have to incorporate more variables that you used to take for granted.
- When you transition, you’ll encounter a lot of unexpected changes. If you only think about what you’re doing immediately after leaving the military, you really don’t have an anchor point to focus on. Conversely, retirement is too distant a goal for most people to visualize. Five years is a realistic time frame for you to focus on what you’d like your life to look like (in broad terms). If you can focus on the next five years, you’ll be able to make adjustments as you encounter opportunities and challenges.
You should take more time thinking about this question than anything else.
2. What goals do I want to set for myself (and my family) over the next 5 years?
These goals should directly support your desired end state. For example, if you say, “I want to be my own boss and own my own business,” then you might establish goals to have a side business up and running by year 2 of your retirement and be able to quit your post-military job by year 4 or 5.
3. How much money do I need to support these goals?
Most people I meet naturally assume that they’ll get a second job after their retirement. However, this question forces you to think of what your expenses will be (or should be) to support you during your first five years. If you’d like to think of it in terms of annual cash flow, feel free to do so. However, you might find that some goals require an investment (such as a business or education), or they might require you to take on temporary work that will keep you solvent until they pay for themselves.
4. How much time & effort do I need to put in to support these goals?
One thing that people take for granted is opportunity cost. Even if you plan to do everything on a shoestring budget, you will end up trading money for your time. You need to figure out a way to account for the time that you put into these goals, and to determine whether it is feasible. If you have a family, you need to consider that you don’t have an unlimited amount of time to spend on new ventures AND your family.
5. What is my plan to meet those financial needs?
Do I take a job? Do I plan to live on my savings while I go to school? If you’d like to think past the problem of generating income (such as living from your pension & savings to put yourself through school, or take some time off) and focus on the relationship between your financial situation and your goals, you might avoid limiting your options. When you stop limiting your options, you’re more likely to find a way to reach your goal.
6. What are the biggest financial risks that will prevent me (us) from reaching my (our) goals?
The best plans acknowledge the different risks that might prevent you from reaching your goal. For example, having to take care of a sick relative (like an elderly parent) might keep you from being able to work the additional 20 hours a week you need to get your business off the ground. That’s a financial risk, because you might not be profitable as soon as you need to be. Think about all the different ways that money impacts your plan.
7. How do I ensure myself against those risks?
For each risk you identify, you should also identify a risk mitigation plan. In some cases, the answer is straightforward (i.e. secure a life insurance policy to protect against lost income, consider survivor benefit plan to secure military pension, etc.). For others, it might be more difficult. For example, what happens if you’re two years into a four year business plan and a major financial hit occurs? The focus is to have a plan for each risk, even if you don’t know all the answers right now.
8. If things don’t work out, and I have to start over, what is my ‘Plan B’?
If you land your dream job, what happens if your company lays you off six months later? If you go to start a business that ultimately fails, what would be your alternative? Instead of just focusing on how to protect yourself against risks, you should also think through ‘next steps’ in case something unavoidable happens.
9. What can I do while I’m still active duty? Can I go into the Reserves, if I need a part-time check?
Can I pull a year’s worth of college into my last tour? Can I start my business on the side, so I’m not starting from scratch during my terminal leave? Think really hard about what you could do while you’re still getting a paycheck to minimize your financial risk after you transition.
10. What military resources can I leverage to help me?
Transition GPS (formerly known as TAP) gives you a starting point for all of the resources the military has to offer. However, you need to spend a LOT more time thinking about which resources will actually help you, and how YOU will take advantage of them. None of these resources will work without your thoughtful planning regarding how they will benefit your particular situation.
You might be surprised that this was more of a ‘top-level’ approach to personal finance, as opposed to digging more deeply into your personal situation. As financial planner Rick Edelman likes to say, “Personal finance is more personal than finance.” If you don’t have good answers to the ten questions listed above, it probably doesn’t matter how good your financial situation currently is – you’ll never get to where you want to be. One last point: if you have specific personal finance questions about your transition, you should talk with the financial counselors at your local installation. They can help you get a snapshot of your current financial situation and develop a game plan for your financial future.
Meet Your Contributor:
Forrest Baumhover, EA
Westchase Financial Planning