By Michael Vaughn, CFP®
When it comes to managing finances, if you’re in the military, a veteran, or a federal employee, you face a unique set of challenges and opportunities. While these groups often benefit from certain financial perks, they can also run into certain pitfalls that must be navigated with care.
Let’s explore the common financial mistakes veterans, federal employees, and military personnel should avoid so you can implement smart financial strategies and build a solid financial foundation to reach your long-term goals.
Not Maximizing Your Pension
For those approaching retirement, the decision on whether to choose a single-life annuity or a joint-and-survivor annuity can have a significant impact on retirement income. Pension maximization is a strategy that retirees may use to increase their pension benefits by choosing to forgo a survivor pension for their spouse. Instead, the retiree applies for and is approved for a life insurance policy with their spouse named as the sole beneficiary. Pension maximization aims to substitute the spousal pension payout with a death benefit that can offer a payment stream equal to or greater than the after-tax amount the survivor pension would have paid following the death of the partner. This approach can help optimize pension benefits. It’s important to weigh the pros and cons of each option, consider the needs of the spouse, and factor in any additional sources of retirement income.
Failing to Utilize the GI Bill for College Planning
One of the significant benefits for military personnel and veterans is the GI Bill, which provides educational assistance for college planning. Understanding the various GI Bill programs, eligibility requirements, and benefits is essential for maximizing this opportunity. We’re here to iron out the details and provide you the information needed to make the best decisions for you and your dependents. The two main GI Bills are the Montgomery GI Bill and the Post-9/11 GI Bill. The Post-9/11 GI Bill offers assistance with things like tuition, fees, a monthly housing allowance, and a stipend for books and supplies. The amount of support is determined by the length of active-duty service.
When college planning, the first step is to determine which of your college options are entitled to receive GI Bill funding. One thing to note: if your military service ended before January 1, 2013, your Post-9/11 GI Bill benefits expire 15 years after your last separation date from active service.
Not Addressing the Increasing Cost of FEGLI Supplemental Life Insurance Over Time
In the 1950s, the federal government created the Federal Employees’ Group Life Insurance (FEGLI) program. The program can assist with meeting life insurance needs and includes both basic and optional coverage options. However, the cost of this coverage increases significantly as employees age. The cost per thousand dollars of death benefit of optional FEGLI increases every five years starting at age 35. It is crucial to evaluate your personal insurance needs and explore alternatives to FEGLI, such as individual term life insurance policies. Comparing rates and coverage options from different providers can help you find a cost-effective solution.
Not Taking Advantage of the Federal Long-Term Care Insurance Program
The Federal Long Term Care Insurance program (FLTCIP) offers long-term care insurance to cover costs of care expenses when enrollees need help with daily activities or have a severe cognitive impairment, like Alzheimer’s. You can safeguard your assets and retirement plans from unforeseen medical expenses through the FLTCIP.
The plan is portable, which means you can take it with you after employment ends. The program offers insurance coverage to eligible individuals, including federal and U.S. Postal Service employees and annuitants, active and retired members of the uniformed services, and their qualified relatives. Research the available options, understand the coverage details, and consider the potential costs of long-term care. Together, we can decide if taking advantage of the FLTCIP is right for you.
Failing to Stay Informed
Benefits for federal employees can get complicated and they may change over your career. Because of this, many federal agencies offer multi-day seminars for mid-career employees and employees nearing retirement. To stay abreast and more informed, it’s a great idea to attend and actively participate in such seminars when possible. The earlier you start understanding the nuances that federal employees are faced with, the better off you will be to make decisions today that have a big impact on your financial future.
Make the Most of Your Plan
At Pinnacle Family Advisors, we work in close partnership with our clients to craft a financial plan that instills confidence and clarity, a plan designed to provide a stable future. Our mission is to empower our clients with the knowledge needed to make informed choices, enabling them to enjoy a rewarding retirement in line with their dreams and goals.
Whether you are in the midst of retirement planning, savoring your retirement years, or a government employee in pursuit of financial guidance, we are here and ready to support your journey. Feel free to get in touch with our team today. Schedule your complimentary introductory meeting by emailing me at [email protected], calling (417) 351-2942, or using my online calendar.
Michael Vaughn is a CERTIFIED FINANCIAL PLANNER™ professional and Vice President at Pinnacle Family Advisors (PFA) with 22 years of industry experience. Before joining the PFA family, he served clients with investment management and retirement planning at The Mutual Fund Store for 14 years. Michael graduated from Missouri State University with a bachelor’s degree in business administration and management and earned his CFP® certification in 2004. He also served 20 years in the Missouri National Guard, retiring in 2007 as a Major. He currently volunteers on the board of directors for Good Dads and Fellowship of Christian Athletes. Michael is married to Lori and they have two daughters. To learn more about Michael, connect with him on LinkedIn.