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Getting Started
Your spouse has reached the end of his or her military service and is moving on. And they're not the only one — Congratulations! While this is certainly an exciting time, the transition from the military to the civilian community can also be a challenging time, for your spouse, you and your entire family.
There are many things you can do as a military spouse to prepare for this new phase of life. Your service member is required to submit documentation and attend training throughout the transition process. Did you know that many of these trainings are open to spouses? Take advantage of the tools and resources that are available to help smooth the transition process and help you gain the skills and confidence to tackle the next chapter in the civilian sector alongside your spouse.
The transition from active duty to civilian is complex and can include a job search, relocation and a major shift in lifestyle and community. Every family’s situation is unique and your experience during transition depends on your situation. We have compiled suggestions and guidelines to help you get your financial picture in focus and be prepared for this new phase.
Let’s first hear from Kristin, an Army spouse, about how transitioning out of the military is a family affair. Watch this video to learn tips to tackle this change with your spouse.
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Financial Planning Considerations
Many aspects of your financial life will require your attention as your spouse separates from active duty to civilian status, including insurance, retirement and estate planning.
Know your health insurance options and have a plan in place before your spouse’s separation. Please note, most of these programs have windows of eligibility, so make sure your family has a plan to prevent any gaps in coverage. Make sure to acquire a copy of health care records for all members of your family before separation. Here are options to consider for health care coverage for life after the military:
- Review and sign up for any civilian health insurance if provided by a new employer. Ideally a new employer plan will serve as primary coverage for your family, similar to the TRICARE coverage you’ve had with the military.
- Continued Health Care Benefit Program (CHCBP) — This program is like a premium-based civilian sponsored plan. Coverage is limited to 18-36 months and must be purchased within 60 days of separating from service. Click here for more information.
- Transitional Assistance Management Program (TAMP) — This program is available to some members transitioning from active duty. Visit this resource for more information.
- Veterans Administration Health Care – VA health care may be an option for coverage for your spouse as he or she transitions out of the military. However, the VA does not provide coverage for family members. Click here to find information on eligibility requirements.
- Healthcare Marketplace: Another option for your family to obtain health care coverage is through the Affordable Care Act. Visit healthcare.gov for more information.
Life insurance is another important area to cover. Your spouse was likely covered under Servicemembers’ Group Life Insurance (SGLI) while on active duty. SGLI coverage typically ends 120 days after separation from service, so, assuming you still need coverage, make sure you have new life insurance in place before it expires. Assess what your life insurance needs are with the help of our videos.
One option for coverage is through the Veterans' Group Life Insurance (VGLI) program, which is administered by the VA.
VGLI is a program that allows service members who were covered under SGLI to continue their life insurance coverage. Veterans can apply for coverage within 1 year and 120 days after separation from service. If your spouse applies for coverage within 240 days of separation, he or she will not be required to submit health-related information. VGLI provides coverage as long as you pay the premiums, which are based on the veteran’s age. Please note, the amount of coverage your service member may enroll for under VGLI is based on the amount of SGLI coverage he or she had when they left the military.
VGLI is often a good option for veterans with health conditions that may make coverage through a private insurance company very expensive or impossible.
Compare the cost of life insurance through VGLI and other insurance companies to see what will be most affordable and meet your family’s needs.
As a spouse, make sure you have life insurance coverage, too. Our resource, Money Ready 201: Insure Your Family, provides more information on this important topic.
Assuming your spouse is separating from the military rather than retiring, they will not be eligible for a pension. However, if they have a balance in their Thrift Savings Plan (TSP), they may have to decide what to do with it.
The TSP is a tax-advantaged account similar to a civilian 401(k) plan.
If your spouse was covered under the military's legacy retirement system, he or she would have been the source of any contributions made to their TSP account, either through payroll deductions or a rollover of an IRA or outside retirement plan.
However, if your spouse was covered under the Blended Retirement System (BRS), contributions could have also come from their branch of Service in the form of automatic and/or matching contributions. This is important because of a concept known as vesting that is covered below.
Visit militarypay.defense.gov and click the Blended Retirement tab for more information.
The TSP is a type of account that is passed on to others through a beneficiary designation, like a life insurance policy. The beneficiary is the person who would receive funds at the service member’s death. The period of transition out of the military is a great time to review beneficiary designations and decide if they are still in line with one’s wishes. It’s also a great time to review the investment allocation, ensure it aligns with your risk tolerance and goals, and then determine how you want to manage these funds upon leaving the military. Read through your options below.
As it relates to the TSP, vesting is a term used to describe when money in a TSP account becomes the property of the service member. This is important because vested funds belong to the service member when he or she leaves the military. Funds that are not vested get forfeited.
What happens to the TSP account when your spouse separates from the military? If your spouse was covered under the Legacy System, every contribution he or she made to the TSP was immediately vested, meaning the entire balance is owned by them. See the section below to read about the options for this account upon separation from service.
If your spouse was covered under the BRS, any contributions he or she made to their TSP account were immediately vested, just like the Legacy System. However, automatic and matching contributions made by his or her branch of service are not fully vested (their's to keep) until he or she completes a two-year service requirement. This means some of the TSP balance may be forfeited if your spouse is separating before completing two years of service. See the section below for options for this account upon separation.
- Leave it in the TSP. This option is available as long as there is at least $200 in the account. Investment allocations can continue to be adjusted in the account, but future contributions are limited to rollovers of IRAs or eligible employer plans.
- Roll it into an Individual Retirement Account (IRA). Your spouse can transfer or roll over the balance of his or her TSP directly into a Traditional or Roth IRA with no tax consequences, as long as certain rules are followed.
- Transfer or roll over money to an eligible employer plan. If your spouse ends up with an employer that offers a company retirement plan, he or she may be able to transfer their TSP balance into that plan, tax free if the new plan allows.
- Withdraw all or part of your money. If your spouse is younger than age 59½, then taxes and penalties may apply. Please read the next section
Click here for more information on how to manage the TSP when leaving military service.
If withdrawals are taken and your spouse is under the age of 59½, the withdrawal may be subject to a 10% penalty along with ordinary income tax.
Please note, while the TSP is a qualified plan intended to be used for retirement, there are some special situations where the 10% penalty will not apply. Visit this resource on the TSP website for more information.
After transitioning out of the military, you and your spouse may find new jobs that have a workplace retirement plan, such as a 401(k) or 403(b) plan. If your budget allows, it's often a smart financial move to contribute at least enough to receive any company match that may be offered.
Also, don’t forget that you can still contribute to an IRA to maximize your retirement savings. The more time your savings have to grow before retirement, the more compound interest you will earn, helping you meet your financial goals.
You likely have wills, powers of attorney, and/or medical directives in place, but are they up to date? This is a great time to get these estate documents completed or updated. If you already have these documents in place, review them and make sure they are in line with your current wishes. Your installation’s legal office can aid you in the process.
Also, review the beneficiaries on your life insurance policies and investment accounts to make sure they are up to date.
Visit Military OneSource for more information on the importance of estate planning.
It is difficult to consider a time when you may not be around to take care of your family, but taking the time to have an estate plan in place gives you peace of mind.
Watch this short video to learn about "The 5 Key Estate Documents."
Once your spouse leaves the military, they are issued a form called a DD214. This Report of Separation contains information needed to verify military service benefits and more. This should be checked for accuracy and a certified copy should be kept in a safe place. For more information, visit this DoD site.
As stated above, every family is unique. It's wise to be informed and have a plan for transition. Good luck as you begin the next exciting chapter!
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Resources
Here are some additional resources available to assist your transition:
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