– Are you a member of the military? Curious about how to navigate retirement planning?
Embarking on a retirement journey holds distinct significance for those who’ve dedicated their lives to military service.
In this episode, Jeremy Keil interviews General Michael Meese from the American Armed Forces Mutual Aid Association (AAFMAA) about military retirement planning. Mike talks about the changes made to retirement benefits for military personnel, including the introduction of a defined contribution plan similar to a 401(k) and the Thrift Savings Plan (TSP). He also highlights the importance of insurance coverage and the Survivor Benefit Plan for retirees.
- His military career and role in the American Armed Forces Mutual Aid Association (AAFMAA)
- How the military retirement system works
- What the Thrift Savings Plan (TSP) is
- What the ServiceMembers Group Life Insurance (SGLI) is and how to switch to VGLI after leaving the military
- What key factors service members need to consider about retirement
- What his personal retirement plan looks like
- And more
How To Plan For A Military Retirement
What is AAFMAA and what do they do?
AAFMAA, the American Armed Forces Mutual Aid Association, is a unique and historic organization originating from the Midwest in the late 19th century. Born out of a need to support families of service members lost in battle, AAFMAA was initially established as the Army Mutual Aid Association, offering a form of mutual insurance to provide financial assistance to widows and families.
Over the years, it has evolved into a comprehensive mutual organization dedicated to assisting military members and their survivors. With a membership of over 100,000, AAFMAA provides a range of services, including insurance, mortgages, financial planning, and wealth management.
Through its mutual aid principles, AAFMAA focuses on taking care of survivors of service members, both active duty and retirees, offering critical support in areas such as military retirement and the survivor benefit plan.
How does the military retirement system work?
The military retirement system operates based on a defined benefit plan designed to encourage service members to retire after about 20 years of service.
Traditionally, people became eligible for retirement benefits only after completing a 20-year tenure. Upon reaching this milestone, retirees would receive a base payment equivalent to 50% of their average base pay from the last three years. With each additional year of service, retirees would gain incremental increases in their retirement payment, reaching 75% of their base pay after 30 years of service. Some service members, typically senior officers or sergeants majors, might extend their careers up to 40 years to retire with 100% of their base pay.
However, in 2018, Congress introduced changes to address the issue of people leaving the military before reaching 20 years without any retirement benefits. This reform modified the defined benefit plan, offering 40% of pay at 20 years and 60% at 75 years.
What is the Thrift Savings Plan (TSP), and how does it work?
To enhance retirement security, Congress introduced a defined contribution plan similar to a 401(k). The Thrift Savings Plan (TSP) was established. It functions as a savings and investment platform where you can allocate funds based on their role in the federal government.
For those who entered the military after 2018, there’s a matching contribution of up to 5%, while pre-2018 military members like General Michael Meese could contribute without matching.
The TSP offers a range of investment options encompassing stable value, government, bond, small cap, large cap, and international funds. Investors can distribute their contributions among these funds or opt for a life cycle fund, which adjusts investments automatically based on chosen retirement dates, ensuring a balanced and optimal investment approach.
What is the ServiceMembers Group Life Insurance (SGLI)?
The ServiceMembers Group Life Insurance (SGLI) is an automatic life insurance program for military personnel, offering substantial coverage of $500,000 at a competitive cost of $30 per month.
SGLI provides financial security to service members while they are active, pooling the health diversity of military personnel to maintain affordability without requiring underwriting.
However, it’s important to note that SGLI coverage ends 120 days after a service member’s departure from the military. To ensure continued coverage beyond military service, you should explore insurance options with organizations like AAFMAA or similar providers.
How do you switch to Veterans’ Group Life Insurance (VGLI) when you leave the military?
To switch to the Veterans’ Group Life Insurance (VGLI) after leaving the military, you need to apply for it within 240 days of your departure. This application window is crucial, as it allows you to obtain VGLI coverage without needing a medical exam. This is particularly important for service members with existing health conditions, as they can secure coverage within this timeframe without facing medical underwriting.
However, it’s important to note that VGLI premiums can be comparatively higher due to its acceptance of all applicants, regardless of their health status. For instance, the rates for those in their fifties can be nearly 10 times higher than what they paid during their military service. Therefore, if you are reasonably healthy and want more affordable alternatives, it’s advisable to explore other insurance providers. Seeking an underwritten policy from these organizations within the 240-day window might lead to substantially lower rates compared to VGLI, with some instances showing up to a 75% reduction in premiums.
What should service members consider about retirement?
When approaching retirement, service members should consider key factors that extend beyond financial calculations.
Firstly, it’s crucial to consider the implications for their family’s well-being. While military retirement offers a dependable income stream adjusted annually, it’s important to remember that this income stops upon the retiree’s passing. This highlights the importance of the survivor benefit plan, a critical decision-making point during retirement. By contributing 6.5% of their retired pay, retirees secure a safety net for their spouse, ensuring a continuation of 55% of the retired pay after their death.
Secondly, retirement decisions hold a long-lasting impact. The choices made as a 37-year-old retiree resonates throughout life, even as one becomes a 93-year-old. The importance of considering factors like life insurance and retirement strategies cannot be overstated. These decisions are interwoven with the broader narrative of life post-military service. Acknowledging this transformation underscores the need for foresight and meticulous planning, especially when addressing these impactful decisions that might be made only once.
Retirees should adopt a holistic approach that takes long-term familial security into consideration. Balancing financial preparation with family support is key as service members transition into retirement.
Why do veterans need a complete comprehensive physical from the military as they retire?
As veterans transition into civilian life after dedicating years to military service, ensuring their health and well-being remains a top priority. One crucial step that often gets overlooked is obtaining a comprehensive physical examination from the military before retirement. This examination not only offers insights into their current health status but also documents any conditions that may have arisen during their service.
Upon receiving this comprehensive examination, veterans can then leverage the Department of Veterans Affairs (VA) resources. By sharing their military medical records with the VA, veterans gain access to a range of health care benefits and support. These benefits cover healthcare services for conditions that may have emerged during military service, ensuring that veterans receive the medical attention they deserve. The VA also offers a pension and compensation exam, which can provide disability pay for health conditions that either originated or were exacerbated by military service.
To learn more about How To Plan For A Military Retirement, check out the resources below!
If you have any questions, feel free to contact us or our guest, Mike Meese, using the contact information provided below!
- Honoring Service Members on Veterans Day With Dale Kooyenga (Ep. 110)
- How to Lead a Life of Significance With Chris Kolenda, Ph.D. (Ep. 138)
- Thrivent Financial
- We Energies
- AAFMAA Military Transition Guide
- Military Transition Ahead? AAFMAA’s Transition Timeline Can Help.
- Free Retirement Planning Video Course: 5stepretirementplan.com
- 3 Things You Should Know Before Choosing A Financial Advisor
- 7 Questions That Could Make or Break Your Retirement
- Subscribe to Retirement Revealed on Google Podcasts
- Subscribe to Retirement Revealed on Apple Podcasts
Connect With Michael Meese:
Connect With Jeremy Keil:
- Keil Financial Partners
- LinkedIn: Jeremy Keil
- Facebook: Jeremy Keil
- LinkedIn: Keil Financial Partners
- YouTube: Retirement Revealed
- Book a call with Jeremy
About Our Guest:
Mike serves as President of AAFMAA, overseeing all aspects of the Association to ensure the financial security and independence of the American Armed Forces Community. He joined AAFMAA in 2013 as Chief Operating Officer and later became AAFMAA’s Executive Vice President and Secretary. He is a leader in military and Veterans issues, including chairing the 2016-17 Transition Team for the Department of Veterans Affairs.
Mike retired from the United States Army as a Brigadier General having concluded his 32-year career teaching economics and national security courses while serving as the Professor and Head of the Department of Social Sciences at the U.S. Military Academy. He has written numerous articles and two books: the Armed Forces Guide to Personal Financial Planning and American National Security. He served in a variety of strategic political-military positions including deployments to Afghanistan, Iraq, and Bosnia for a total of 31 months and was the Executive Director of the Secretary of the Army’s Transition Team in 2005. He is a graduate of the National War College, U.S. Military Academy, and earned his Ph.D., MPA and M.A. from Princeton University.
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