On the other hand, civilian attorneys, tax advisors, financial advisors, and estate planners are often unfamiliar with the unique and irreversible choices members of the military must make as they approach retirement. If you are planning on retiring and are a veteran, we suggest these four helpful tips:
1. Military retired pay is guaranteed income.
Your military retirement income considered a low-risk bond portfolio and the rest of your investment portfolio assets should be allocated accordingly. With today's low-interest rates, a civilian would possibly need a $2-3 million dollar bond portfolio to produce a risk-free income stream equal to military retired pay.
2. On retirement, a military member can elect the Survivor Benefit Plan (SBP).
An SBP provides a surviving spouse continued income that is up to 55 percent of retirement pay. The veteran pays a pre-tax premium for that future benefit, which is based on the percentage he chooses.
Furthermore, if the veteran has an eligible dependent, such as a disabled child, he can elect for the child to receive a percentage of the benefit when the veteran and his spouse die. However, be extremely careful when making these elections. Electing to have the benefits pass to a disabled child could later disqualify the child from receiving important public benefits. A smarter choice may be to draft a special needs trust for the benefit of the child as the SBP beneficiary, rather than naming the child as the beneficiary.
3. A veteran might have better life insurance options other than VGLI.
Another important decision when a member of the military retires is whether to replace Serviceman's Group Life Insurance (SGLI) with Veterans Group Life Insurance (VGLI). If a veteran is in relatively good health, there are often better options for life insurance than VGLI. It's crucial to consider the specific life insurance needs of the veteran after retirement when making this decision. Additionally, look at the bigger picture of the overall health and insurability of the veteran, which can greatly affect costs of different life insurance policies. Because VGLI is not an automatic election, you should research and explore options that are available.
4. Veterans should consider their VA benefits and disability ratings.
Upon retirement, members of the military should take a close look at their VA benefits and disability ratings to determine if they reflect their current physical condition. VA benefits are tax-free. Up to a specific disability rating, they can offset a veteran's military retired pay.
Furthermore, there are circumstances in which a veteran's surviving spouse may receive a portion of his VA pay upon death. A good example of this is if a veteran has a 100 percent disability rating for 10 years or more. In this case, the veteran's spouse will be entitled to Dependent Indemnity Coverage (DIC). The DIC is currently $1,254 per month and adjusted annually for inflation. If the DIC offsets the entire SBP, an SBP premium cost refund is paid to the veteran's surviving spouse.
These helpful tips are just a handful of the considerations a veteran should make when approaching retirement. If you are a veteran and soon retiring, you must first attend your branch's transition assistance programs.
To learn more about other common estate planning issues, check out our free guide, Estate Planning Pitfalls: The 12 Most Common Threats to Your Estate & Your Family's Future, or to discuss your estate planning concerns, please call our office at 919-443-3035 or use our contact form.