Financial Literacy: What Veterans Need to Know

Military veterans may be eligible for tax-free monthly monetary benefits based on their current circumstances, discharge conditions and record of service. While the U.S. Department of Defense offers a variety of benefits to meet health and income needs, three of the most common are disability, veterans and retirement pensions.

Veterans with disabilities related to a disease or injury that occurred or was exacerbated during active military service may be eligible for disability benefits. Benefits are available for mental and health conditions. Compensation may also be available for disabilities suffered after military service that are considered related to disabilities suffered in service. Covered disabilities may also happen after service that are presumed related to the circumstances of service. The level of compensation is related to the degree and severity of disability. Medical records should show evidence of how the disability connects to service. Additional special monthly compensation is available to veterans with special circumstances, such as needing an attendant or a specific disability, such as the loss of use of a hand or leg.

The U.S. Department of Veterans Affairs (VA) offers a needs-based, tax-free paid benefit, known as the Veterans Pension, to qualifying applicants. This is considered supplemental income for wartime veterans. Veterans discharged under dishonorable conditions are ineligible. You must have served at least 90 days of active duty, including at least 1 day during a period of war. The amount of benefit is based on yearly family income. If you entered active duty after Sept. 7, 1980, you must have served at least 24 months or the full period in which you were called or ordered to active duty, with at least one day during a wartime period.

Your net worth also has to be less than the level set by Congress to qualify for a Veterans Pension benefit. For 2020, that amount is $129,094.

Your maximum annual pension rate (MAPR) amount is based on the number of dependents you have; whether you’re married to another Veteran who qualifies for a pension; and the level of your disability, if applicable.

As of Jan. 1, 2018, the military retirement system underwent major changes. The former system was a defined pension benefit, with no requirement from participants to pay in. The new system requires military members to contribute to their own retirement. Members of the military enrolled as of Dec. 31, 2017, are grandfathered under the legacy system and will not be switched automatically to the new system. However, service members with fewer than 12 years since their pay entry pay date and members of the reserve who have accrued fewer than 4,320 retirement points as of Dec. 31, 2017, will have the option of participating in the new system. The opt-in period ends Dec. 31, 2018. Nearly 1.6 million current service members are eligible to make this choice or remain in the legacy plan.

All service members who enter the military as of Jan. 1, 2018 will automatically enrolled in the new system, referred to as the Uniformed Services Blended Retirement System (BRS.)

To those who have the option, Defense Department suggests service members use training and informational tools, including the BRS Comparison Calculator and numerous online BRS resource materials. The new plan will allow the 83 percent of service members who do not stay in the military the full 20 years required to get a pension to save some money toward retirement.

The Department of Defense says the new system blends a smaller, traditional defined benefit pension with a defined contribution system of automatic and matching government contributions through the Thrift Savings Plan (TSP). A TSP is similar to a 401(k) in the civilian world. The new system decreases the pension by 20 percent and decreases the disability retirement calculation in order to prove a 5 percent government match to TSP accounts. The matching will end after 26 years of service.

Under the legacy system, veterans who served in the military for 20 or more years are eligible for a retirement pension based on percentage of basic pay. How this is calculated also depends on what year you entered the service. Changes were made for those who entered after September 1980 and August 1986.

Many former service members are eligible for money to put toward education. Eligible veterans can receive up to 36 months of education benefits under the Post-9/11 GI Bill. Benefits are available for 15 years since the last period of active duty of at least 90 consecutive days. The Forever GI Bill, which became law in August 2017, expanded these benefits. One expansion under the law was to remove the 15-year restriction for those discharged on or after Jan. 1, 2013.Veterans and their dependents are eligible for in-state tuition rates in all 50 states if they enroll within three years of discharge.

Most veterans are eligible for both Social Security payments and benefits tied to their military service. In 2019, more than 9 million veterans received Social Security benefits. The majority of beneficiaries served from 1955 to the end of the Vietnam War in the mid-1970s. Qualifying for these benefits requires working for a minimum number of years, although in some cases military pay may qualify for Social Security earnings during active duty or training.

If you were in the active military service from 1957 through 1967, special extra earnings are added to your earnings record when you apply for Social Security retirement benefits. If your active duty was after 1967, the extra earnings are already on your record.

If you were in the military from 1940 through 1956, including attendance at a service academy, you did not pay Social Security taxes. However, your records are credited with special earnings that may help you qualify for Social Security and Medicare or increase the amount of your Social Security benefit. There is no reduction in Social Security retirement benefits because of military retirement benefits.

Some disabled military veterans are able to receive Social Security disability insurance benefits, as well. Approximately 621,000 military veterans received Social Security disability benefits in 2016, according to the Social Security Administration.

Like all Americans, veterans can start receiving benefits at age 62. But the earlier you start getting them, the more the monthly amount is reduced. If you can wait until full retirement age, which changes depending on the year you were born, you can receive full benefits and income.

Former service men and women can qualify for additional benefits. The SSA evaluates military records when claimants apply for benefits, and qualifying veterans can get a lifetime earnings credit for wages during service. Eligibility is based on length of service.

A veteran’s best strategy for a financially healthy retirement includes double-dipping, which means collecting veterans retirement benefits while still working full-time (or as a contractor) in the private sector. Critics of this practice argue that veterans are compensated enough without income from a second (or third) job, either in a civilian or government position.

Others see the ability to earn extra income as a benefit of the hard years of service. Although the law generally prohibits drawing two salaries from the federal government, military retirees are exempt. People on terminal military leave may work as civilian federal government employees, collecting both their military pay and their salary in their new government job.

The Government Accountability Office reports that in 2014 nearly 60,000 disabled veterans received cash benefits from three federal programs simultaneously. Some received up to $200,000 in benefits from federal salaries, military pensions, disability income and Social Security payments.

It’s legal to access benefits on multiple fronts like this, but this may eventually put a strain on disability programs and other government benefits.

The federal government sponsors a special veterans savings and retirement plan called the Thrift Savings Plan (TSP). The TSP is a defined contribution plan, similar to 401(k)s.

Established as part of the Federal Employees Retirement System Act of 1986, the plan includes tax incentives and professionally managed funds. Because this account is designed for long-term savings, it carries penalties for early withdrawals.

Veterans can also choose a Roth-type TSP, which can include contributions from tax-exempt combat pay and can draw interest over a period of years.

Veterans preparing for retirement may purchase annuities to supplement their military benefits and future benefits like Social Security and pension payments. Annuity income provides tax advantages, a consistent and guaranteed stream of money and hedges the risk of running out of money late in life.

The VA pays eligible survivors of those who die in the line of duty or from service-related injuries and diseases. This benefit, known as Dependency and Indemnity Compensation (DIC), can extend to parents of deceased service members.

Another VA benefit available for survivors is the survivor pension program. This is for low-income, un-remarried surviving spouses and unmarried children of deceased veterans with wartime service.

Military employees have the option of paying premiums to participate in the Survivor Benefit Plan (SBP), an insurance plan that helps account for lost income when the service member dies. Eligible survivors receive inflation-adjusted monthly payments.

The government also offers life insurance options for veterans, including Service Disabled Veterans Insurance, Veterans Group Life Insurance and Family (SGLI), Traumatic Servicemembers’ Group Life Insurance (TSGLI), and Veterans Mortgage Life Insurance. These low-cost options allow veterans to provide financial security for dependents.

The government pays a death gratuity of $100,000 to the next of kin for armed service members who die on active duty or while traveling to or from active duty. This payment is also available for the family of service members who die in other circumstances, such as while training or traveling to or from training.

A 2017 study by the AARP Fraud Watch Network found twice as many veterans as non veterans lost money to scam artists over the previous five years. The study, based on a survey, found that 16 percent of veterans had lost money to scams, compared with 8 percent of nonveterans. A whopping 78 percent of veterans said they had received scam pitches related to their military service.

Among the tips offered by the AARP is to check charities on www.give.org or www.charitynavigator.org before giving any money and make donations directly to the veterans’ organizations you know.

All veterans should be wary of insurance company representatives or other professional who use high-pressure tactics to induce them to invest in a product. This includes annuities that are not appropriate for their situation. While annuities can be a useful tool for securing retirement income, they’re not a good fit for everyone.

Some insurance agents and financial advisors push people to purchase annuities because they have high commissions, which may make the policy too costly.

Be aware of advisors who manipulate your income reports to make you eligible for tax benefits and low-income pensions. The falsehood will manifest later when you want to access annuity funds only to find out that it is locked up and can be withdrawn only after paying a large penalty.

The National Association of Insurance Commissioners (NAIC) and other regulatory agents work to prevent agents from preying on veterans and exploiting their hard-earned benefits.

Eligible veterans and their dependents have access to health benefits through the Tricare program offered by the government. They are provided with hospital and outpatient care based on whether treatment is considered a “need.” VA health care will be based on factors including income level and length of service. Retired service members and their families have a variety of options to select from in choosing which Tricare plan is best for their needs. Plans are also available for retired National Guard or reserve members.

Veterans should dedicate a portion of their savings from pensions, civil income, annuities and other retirement accounts to medical expenses that are not covered by the VA or health insurance.