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Military Retirement Planning: How Advisors Can Navigate

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After 23 years in the Army, Merle Jones, president of Jones Investment Group, based in St. Robert, Mo., was drawn to the financial planning industry but knew he wanted to continue working with members of the military. 

“When I first got into the business, most people were saying, ‘You got to work with seniors,’ but I kept going back to the military because those are the people I understand,” he told AdvisorOne. “The military system has a lot of its own nuances.”

One of those nuances is the thrift savings plan, a defined contribution plan similar to a 401(k), but exclusively for members of the military and civil service employees. “It’s not matched,” Jones said, “but it gives them an opportunity to run tax-deferred retirement.” Furthermore, “The cost inside is relatively low compared with most 401(k)s.”

The way the military treats pensions and survivor benefits is also unique, he continued. At the end of their service, military retirees have the option to designate up to 6.5% of their benefits to go to their spouse or children, Jones said.

Ensuring family members are cared for after a client’s death is important for every client, but it’s especially important for those working dangerous jobs.

“When you’re in a high-risk occupation like the military, when you build financial strategies you want to make sure that you have your offense, and you’re building your IRAs, but you also want to make sure you have your defense and protection set aside for the family,” Jones said.

Another important part of servicemembers’ financial lives is Servicemembers Group Life Insurance, which can be converted into Veterans’ Group Life Insurance when they leave the service. “It’s nice that it’s guaranteed convertible, but the bad news is the cost: It’s very expensive when you get into the older years.”

While a pension is a benefit rarely available to civilians, it’s not necessarily the best strategy for servicemembers. Jones suggested a Roth IRA may be a more useful vehicle for investing.

“The thing is, with an individual Roth IRA, [they have] the ability to reach in and use that money for their children’s college and keep it all growing, because most of these folks are not that old. That’s tax-free growth. If you think taxes are going to go up in the future, if you’re in a low tax bracket, I think you should pay your taxes in a low tax bracket and fund your Roth IRA and be able to leverage the versatility of the Roth versus a retirement account.

Military retirees aren’t that old, but many of them are also not highly paid. “The first several years they’re in, they’re underpaid,” Jones said. “Toward the mid-level, higher-level part of their careers they’re paid a reasonable amount of money that they can start investing.”

He continued, “A retirement account is good if you can afford both, but I would start with a Roth. More times than not—there’s no 100% anything in our business—but more times than not, a Roth for most folks in their 30s and 40s is a much better vehicle for long-term tax strategies.”

Financial planners who understand these nuances can have a measurable impact on military retirees’ financial security. According to the First Command Financial Behaviors Index, a monthly survey of approximately 530 consumers with annual household incomes of at least $50,000, military families who work with a financial advisor were less concerned than families without a planner about several major financial issues, including their ability to retire comfortably or send their kids to college, personal debt and the state of the economy. In fact, the only issue measured by the index that families with planners were more concerned about was the stock market.

“What we want to do is make sure our military friends and family are taken care of and are educated,” Jones said of his firm’s philosophy. “Over the years, there have been a lot of things in the press where different companies have a tendency to prey on the military. What we want to do is be a solution: help them find good quality investments at reasonable prices.”

Finding solutions at “industry-average prices” is important for a group that is only moderately wealthy. “Most military people don’t make a lot of money,” Jones said. “They get to the senior ranks, and they get to a point, especially if they’re on the enlisted side, where they are able to start putting away a little money. We come up with a lot of strategies to help them get started with a small amount and increase it over time.”

While military families who work with planners are less concerned about retiring well than those who don’t use a planner, the Financial Behaviors Index for the fourth quarter of 2012 still found 44% of families were worried about retirement. Jones stressed that when planning, he starts small and helps his clients work with what they have.

“We do a lot of dollar-cost averaging: a little bit every month, get them started, help them build a good, sound financial strategy that they can keep with them for the rest of their lives.

“We have to remember we wouldn’t have the freedoms we have if not for them serving,” he concluded. “It’s not a profit center; it’s taking care of families and taking care of those who take care of us.”


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