What do veterans need to know about retirement income planning?

Veterans have access to a range of retirement benefits that can significantly impact their financial well-being in their golden years. These benefits, provided by the Department of Veterans Affairs (VA) and other federal agencies, can form the cornerstone of a robust retirement income plan.

Military retirement pensions

For veterans who served 20 years or more on active duty, a military retirement pension is a valuable source of guaranteed income. The pension amount is based on years of service and final base pay. Veterans who entered service before January 1, 2018, are typically covered under the legacy High-3 system, while those who joined after that date fall under the Blended Retirement System (BRS).

The BRS combines a reduced pension with government contributions to the Thrift Savings Plan (TSP), similar to a 401(k). This system provides more flexibility and portability for service members who may not serve a full 20-year career.

VA disability compensation

Veterans with service-connected disabilities may be eligible for tax-free monthly compensation. The amount varies based on the severity of the disability, rated from 10% to 100%. This compensation can provide a significant boost to retirement income and is not subject to means testing.

Supplemental VA pension

Low-income wartime veterans age 65 or older, or those permanently and totally disabled, may qualify for a VA pension. This needs-based benefit can supplement other income sources to help veterans meet basic financial needs in retirement.

Health care costs are a major concern for retirees, but veterans have unique options that can help mitigate these expenses. Eligible veterans can receive comprehensive health care through the VA system, often at little to no cost. This can include primary care, specialty services, mental health treatment and prescription drug coverage. Enrolling in VA health care can significantly reduce out-of-pocket medical expenses in retirement.

Veterans approaching age 65 must decide whether to rely solely on VA health care or to also enroll in Medicare. While VA health care is comprehensive, Medicare can provide additional coverage and access to non-VA providers. Many veterans choose to enroll in Medicare Part B to ensure broader coverage options, even if they primarily use VA facilities.

Beyond pensions and health care, veterans have access to several other benefits that can enhance their retirement security and quality of life. These include:

• VA life insurance. Veterans can convert their Servicemembers' Group Life Insurance (SGLI) to Veterans' Group Life Insurance (VGLI) within a certain timeframe after separation. This can provide valuable life insurance coverage without medical underwriting, which is particularly beneficial for those with health issues.
• GI Bill education benefits. The Post-9/11 GI Bill offers education benefits that can be used by veterans or transferred to spouses or dependent children. This can help reduce education expenses for family members or provide opportunities for veterans to pursue new careers or interests in retirement.
• VA home loan program. The VA home loan guarantee program allows eligible veterans to purchase homes with no down payment and competitive interest rates. This benefit can be used multiple times and can help veterans secure affordable housing in retirement.
• Burial and memorial benefits. The VA provides burial benefits, including burial in national cemeteries, headstones or grave markers and burial flags. These benefits can help reduce end-of-life expenses for veterans and their families.

Creating a comprehensive retirement income plan requires careful consideration of all available resources and potential income streams. For veterans, this means effectively integrating military benefits with other retirement savings and income sources.

Start by calculating the total guaranteed income available in retirement. This typically includes:

• Military pension.
• VA disability compensation.
• Social Security benefits.
• Any other pensions or annuities.

These guaranteed income sources form the foundation of a retirement income plan and can help cover essential expenses.

Next, consider income from retirement savings accounts such as:

• Thrift Savings Plan (TSP).
• Individual retirement accounts (IRAs).
• 401(k) plans from post-military employment.

Determine a sustainable withdrawal rate from these accounts to supplement guaranteed income sources.

You’ll also need to consider tax implications. Many veterans benefits, such as VA disability compensation and certain pension payments, are tax-free. This can provide significant advantages in retirement income planning. Consider how to optimize withdrawals from taxable and tax-free accounts to manage overall tax liability in retirement.

Planning for health care costs is another important step in the process. Factor in potential health care expenses and how VA benefits can help offset these costs. Consider whether additional coverage through Medicare or supplemental insurance is necessary to meet your health care needs.

For veterans seeking to enhance their retirement income, consider strategies such as:

• Delaying Social Security benefits to increase monthly payments.
• Utilizing VA education benefits for career advancement or personal enrichment.
• Exploring part-time work or consulting opportunities that leverage military skills and experience.

When developing a retirement income plan, veterans should keep several important factors in mind. Those factors include:

• Survivor benefits. Consider how military and VA benefits will impact surviving spouses and dependents. The Survivor Benefit Plan (SBP) allows retired service members to provide a portion of their pension to eligible beneficiaries after death. Additionally, Dependency and Indemnity Compensation (DIC) may be available to surviving spouses of veterans who died from service-connected causes.
• Long-term care planning. While the VA provides some long-term care services, coverage may be limited. Veterans should consider whether additional long-term care insurance or savings are necessary to meet potential future needs.
• Estate planning. Proper estate planning is crucial to ensure that military benefits and other assets are distributed according to the veteran's wishes. This may include creating wills, trusts and powers of attorney that account for unique veteran benefits and circumstances.
• Periodic benefit reviews. Veterans should regularly review their benefits and eligibility status, as changes in health, disability ratings or family circumstances can impact available benefits and retirement income.

Understanding veteran benefits and retirement planning can be challenging. Fortunately, several resources are available to assist veterans:

• VA benefits counselors. The VA provides benefits counselors who can help veterans understand and apply for various benefits. These counselors can offer valuable insights into eligibility requirements and application processes.
• Veterans Service Organizations (VSOs). Organizations such as the American Legion, Veterans of Foreign Wars (VFW) and Disabled American Veterans (DAV) offer free assistance to veterans in accessing benefits and planning for retirement.
• Financial professionals. Working with a financial professional who understands veteran benefits can help create a comprehensive retirement income plan that maximizes military benefits while addressing overall financial goals.
• Online Resources. The VA website provides extensive information on benefits and planning tools. Additionally, the Department of Defense's Military OneSource offers financial counseling and resources for transitioning service members and veterans.

Retirement income planning for veterans requires a thorough understanding of available benefits and how to integrate them into a comprehensive financial strategy. By leveraging military pensions, VA disability compensation, health care benefits and other veteran-specific programs, former service members can build a secure and comfortable retirement.

The key to successful retirement planning for veterans lies in taking a holistic approach that considers all aspects of financial well-being, from guaranteed income sources to health care costs and estate planning. By carefully assessing their unique benefits and circumstances, veterans can create retirement income plans that provide financial security and peace of mind for themselves and their families.

As you approach retirement, consider seeking professional guidance to ensure you're maximizing your veteran benefits and making informed decisions about your financial future. With proper planning and utilization of available resources, veterans can enjoy a retirement that honors their service and provides the financial stability they deserve.