Leaving the military doesn’t necessarily mean leaving your benefits behind. But understanding which benefits you’re eligible for, how they interact, and what happens to them after separation can be complicated.
When they consider retirement savings, disability compensation, health coverage, and survivor benefits separately, veterans and service members risk overlooking valuable financial opportunities, said Sherron Permashwar, founder of The Modern Savvy CPA and a member of multiple committees and task forces with the American Institute of CPAs (AICPA).
Ahead of Veterans Day, she explained in an interview with me why a complete inventory of military and civilian benefits can help veterans make better financial decisions and avoid costly mistakes.
Below is a transcript of the interview with Permashwar, edited for brevity and clarity.
Why veterans may be leaving benefits behind
Bob Powell: Veterans may be leaving valuable benefits on the table, especially when they leave military service before completing 20 years. What’s the biggest mistake they make?
Sherron Permashwar: Leaving the military doesn’t have to mean leaving all your benefits behind. A veteran who separates before 20 years generally won’t receive all the traditional military retirement and medical benefits. But there are still benefits they need to investigate, including retirement savings, medical benefits, and disability benefits.
One of the biggest problems I see is that veterans look at their benefits in separate silos. They’re not looking at the overall picture. You have to pull everything together because one benefit might affect another.
Powell: You suggest there’s an important question veterans need to answer first: Which category do they fall into? Are they still serving, on active duty, in the National Guard or Reserves, or already separated?
Permashwar: It’s important to understand where you are because that determines which avenues you need to investigate.
Different circumstances can mean different benefits and eligibility requirements. You have to understand your individual situation before deciding what steps to take.
How veterans can avoid Thrift Savings Plan mistakes
Powell: One of the benefits you emphasize is the Thrift Savings Plan. What should veterans and service members know about it?
Permashwar: The Thrift Savings Plan, or TSP, is similar to a 401(k). It’s a retirement savings benefit that service members contribute to.
One of the biggest mistakes people make when leaving an employer is not understanding what to do with their retirement savings. Veterans can make that same mistake when leaving the military.
You don’t necessarily want to cash out your TSP immediately. There may be benefits to leaving the money invested, depending on your circumstances. That’s a decision you should investigate carefully, ideally with a financial adviser who understands your overall situation.
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Powell: And for people who are still serving, how important is it to contribute to the TSP?
Permashwar: It’s very important. Think of it as your 401(k). Make sure you understand the contribution rules and any matching contributions available to you.
I see veterans making some of the same mistakes that civilian employees make with their 401(k)s. They’re leaving money on the table by not taking full advantage of their retirement savings opportunities.
And remember, the money in your TSP is yours, even after you leave military service. There may be situations where taking money out makes sense, but in most situations, I would encourage people to look carefully at the alternatives before cashing out.
Powell: You also mentioned that some veterans simply forget about their TSP accounts.
Permashwar: That’s one of the benefits I’ve seen overlooked most often. Forgetting about the money while it’s invested and growing may not seem like a problem. But forgetting about the account altogether can become a problem later.
You need to know what you have and make sure it’s part of your financial plan.
How military retirement and disability benefits interact
Powell: Military retirement benefits come in different forms. What should veterans understand about those differences?
Permashwar: There are different military retirement systems, including the Blended Retirement System, and the rules depend on your circumstances. That’s why it’s important to know which system applies to you and what benefits you’re eligible for.
Disability benefits are another area where there’s a lot of confusion. Eligibility depends on your individual circumstances, including your service-related disability and the applicable qualification rules.
There’s no single answer that applies to everyone. You need to investigate the programs and submit the appropriate applications.
Powell: Veterans also need to understand how VA disability compensation and military retirement pay work together. That’s not necessarily easy to figure out.
Permashwar: Absolutely. You shouldn’t assume that receiving one type of military benefit means you can’t qualify for another. You need to look at the different programs, understand their eligibility requirements, and submit the necessary information.
There are also programs called Concurrent Retirement and Disability Pay, or CRDP, and Combat-Related Special Compensation, or CRSC.
Those aren’t universal benefits. They have their own qualification requirements, and veterans need to investigate whether they may be eligible.
Powell: So the message is not to assume you’re ineligible before examining the rules?
Permashwar: Exactly. You don’t want to leave benefits on the table because you’ve made assumptions. You need to invest the time to understand what you’re eligible for and how to apply.
The calculations and qualifications can be complicated. That’s why doing the research and getting clarity are so important.
How taxes affect military retirement income
Powell: Veterans and service members also need to think about taxes. How should they approach that part of their retirement planning?
Permashwar: I’m a CPA and financial planner, so I look at financial planning as a forward-looking process.
You have different benefits with different tax treatments. Some are taxable, some may be partially taxable, and others aren’t taxable at all. VA disability benefits, for example, are generally tax-free.
When you’re planning for retirement, you need to understand those different sources of income.
I often advise clients to think about saving in different tax buckets. Then, when they’re retired, they have more flexibility over which accounts they draw from in different years. That can give them some ability to manage their tax bracket.
Powell: So veterans shouldn’t look at their military retirement income separately from their other retirement resources?
Permashwar: That’s right. You have to look at everything together, including Social Security, military benefits, disability benefits, and retirement savings. It’s the complete picture that helps you make better decisions.
How Medicare and VA health benefits work together
Powell: Another area that causes confusion is the interaction between Medicare and VA health benefits. What should veterans be thinking about?
Permashwar: Health care is one of the most complicated areas of financial planning. You need to understand Medicare Part A and Part B, what your VA benefits provide, and how the different coverage options work together.
You shouldn’t assume that you understand the rules just because you’re familiar with one program. There are different coverage arrangements, and you need to investigate which ones make sense for your circumstances.
Powell: And even people with financial expertise can find Medicare overwhelming.
Permashwar: Absolutely. When my mother enrolled in Medicare about five years ago, I found the amount of information overwhelming. I’m a CPA, and I still needed to get a health care specialist to help me understand everything.
That experience reinforced how important it is to get qualified assistance when you’re dealing with something you don’t fully understand.
Why survivor benefits deserve more attention
Powell: We’ve talked about retirement income, disability benefits, and healthcare. But veterans also need to consider survivor benefits and life insurance. What mistakes do you see there?
Permashwar: My best advice is to build an inventory. I call it a legacy library. It’s something I use with my clients when we’re organizing their financial and estate information.
Sit down and identify everything you have. If you’re not sure about a benefit, call and find out.
Some people don’t know what military life insurance they have, what survivor benefits are available, or what other insurance policies may be part of their benefits.
Your inventory should include your military accounts, your accounts outside the military, your insurance policies, and your survivor benefits.
Powell: And beneficiary designations should be part of that inventory?
Permashwar: Absolutely. Make sure you’ve designated beneficiaries on your accounts and insurance policies.
The military does a good job, in my experience, of helping service members with beneficiary designations. But I’ve also seen situations where they weren’t completed. That can create problems for families, including situations where assets have to go through probate.
You don’t want your family dealing with unnecessary complications, even over a relatively small amount of money.
What veterans should do before making financial decisions
Powell: If veterans are worried they may have overlooked benefits, where should they begin?
Permashwar: Start by putting everything together. After 30 years in accounting and finance, one thing I’ve learned is that people can miss opportunities simply because they don’t understand how everything fits together.
When your information is scattered, it can feel overwhelming. But once you’ve organized it, you can begin to see where you stand and what questions you need to ask.
You may discover that you’re eligible for something you hadn’t considered. Or you may realize that one financial decision affects another benefit.
That’s why I encourage veterans to be proactive. Don’t assume you don’t qualify. Do the research, make the applications, and find out.
Powell: Given how complicated these decisions can be, would working with a CPA or financial planner help veterans evaluate their options?
Permashwar: Absolutely. Financial planning is about looking forward. You can’t change the past, but you can make decisions about what happens next.
I believe financial planning should be part of everyone’s financial journey. For veterans, that means understanding how their benefits work today, how they may work in retirement, and how those decisions affect their financial future.
A CPA financial planner brings a tax perspective to that process, which can be valuable when you’re dealing with different sources of income and different tax treatments. The goal is to understand what you have, what you may qualify for and how to make those resources work together.
Powell: So, especially on Veterans Day, the message is to make sure the benefits earned through military service aren’t overlooked.
Permashwar: Absolutely. Be proactive, understand your benefits, and make sure you know what’s available to you.
And happy Veterans Day to everyone. We appreciate your service.
Reader takeaways
- Before making a financial decision about military benefits, create a complete inventory of what you have, what you may qualify for, and how those benefits work together.
- The financial consequences could include missed retirement savings opportunities, unnecessary taxes, overlooked benefits, and complications for surviving family members.
- The emotional dimension is particularly compelling: Veterans have earned access to certain benefits through their service, but understanding and using them can require considerable effort.
