Many workers who buy voluntary life insurance value it enough to continue paying for it. That perceived value should make a solid foundation upon which to build.
By Cyril Tuohy
With the Pentagon wielding the budget ax, thousands of men and women won’t be wearing fatigues much longer. As they shed their government-issued overalls, they’ll be walking away from generous government insurance programs as well.
That will leave many soldiers and service members naked – insurance parlance for going without coverage – unless they prepare for the transition. In a civilian economy where the economic engine isn’t running at full tilt, the transition may be rocky, financial advisors say.
“Our job is to help clients focus on what they can control,” said Col. Bob Hill, who retired from the U.S. Air Force and is now an Arlington, Va.-based financial advisor with First Command Financial Services in Fort Worth, Texas. First Command advises officers and commanders.
Deep Defense Department spending cuts required by law may involve cutting as many as 100,000 Army soldiers. Under 2015 spending plans, the Army, with about 520,000 soldiers, would shrink to between 440,000 and 450,000.
Cuts beyond 2015 may pare back the Army by another 20,000 to 30,000 troops. The Marine Corps, with 190,000 soldiers, is also planning to trim its ranks by 8,000 troops starting with the 2015 fiscal year and the Corps could lose another 7,000 soldiers between 2015 and 2019.
“I would not say that service members are in a panic but it's definitely the case that they are concerned because of the status quo undergoing so much change,” Hill said in an interview. “None of us really likes change.”
Soldiers need to know how much they’ve accumulated under the Thrift Savings Plan, a defined contribution plan for federal employees, the size of their transition fund to help bridge the re-entry into civilian life, and what health care benefits they are entitled to receive under TriCare, the health care program for active duty members, Hill also said.
When families leave active duty, they can lose the equivalent of as much as $1 million in government benefits, not including health and disability benefits. Parting from the military “is a decision with many long-term implications,” Hill said.
One benefit, Servicemembers Group Life Insurance (SGLI), ends three months after the policyholder leaves the Armed Forces. Coverage offers up to $400,000 for 65 cents per $1,000 of insurance, or $26 a month. Spousal SGLI offers up to $100,000 in coverage.
“Everyone knows about it (SGLI) but they don’t know the importance of replacing or supplementing that,” retired Army Command Sgt. Major Christopher S. Muller in Tacoma, Wash., said in an interview with InsuranceNewsNet.
First Command surveys show that the higher the rank, the better prepared soldiers are for the day they leave the service, particularly if they use a financial advisor.
Even with their lives subsidized by the government, there’s still not much left to pay for iron-clad insurance coverage, sock away for retirement and set aside the equivalent of three to six months of savings to cover household operating expenses.
Savings of junior service members and even some senior personnel are often inadequate. “There’s some debt out there,” Hill said.
As many as 60 percent of military families have expressed feelings of anxiety connected to cutbacks, according to First Command’s Financial Behaviors Index. Muller said the hard part is to get soldiers to open up about their finances.
Surveys also find that service members who solicit an advisor put away as much as $2,000 more per month than those who don’t.
Military families put away as much as $4,018 in short-term, long-term and retirement savings compared with $2,016 for families who don’t use an advisor, the First Command Financial Behaviors Index survey found.
“This dramatic savings gap highlights the positive influence a trusted financial advisor can have on the money habits and long-term financial security of our men and women in uniform,” Scott Spiker, chief executive officer of First Command Financial, said in a statement.
In previous eras, the Pentagon cut back on military forces because of fading threats: the disintegration of the Soviet Union or the defeat of a well-armed tyrant. This time, the cutbacks are strictly due to fiscal constraints, Hill said.
That means fewer troops, but also thinner support for those troops. Day care and recreational facilities, for example, could also disappear, the advisors said. The deeper the cuts, the more soldiers will have to pay for those services out of pocket.
In the end, Hill recommends solders focus on what they can control: household budgets, life insurance protection and retirement savings. That is why he recommends soldiers talk to an advisor. “You can't control getting cut from the military,” he said.
Cyril Tuohy is a writer based in Pennsylvania. He has covered the financial services industry for more than 15 years. Cyril may be reached at firstname.lastname@example.org.
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