Your Three Military Retirement Budgets

As y’all know, I am passionate about people being financially prepared to leave the military. In my little perfect dream world, every single military service member would step into the civilian world with a plan, a budget to support that plan, and a bulky transition fund to support that budget.

This post is part of The Comprehensive Military Retirement Checklist. Be sure to read all the other posts that go with the checklist, too!

Unfortunately, retiring from the military is often a time of uncertainty. Very few people know exactly what their life is going to look like in the months and years after retirement. Maybe your path will be driven by a job, or maybe you’re staying put just until your child finishes high school, or maybe you are seeking a particular climate or atmosphere for your new home. There are so many possible variables!

For this reason, I suggest building out a couple of budgets, maybe three. Some days I think two is enough. But that middle budget (the dream budget) provides a valuable talking point for a married couple, and it helps you clarify your actual wants and needs.

The Bare Minimum Budget

The first budget is the least fun and also the most important. Depending on your perspective, this might be your worst-case-scenario budget. Calculate your military retirement pay (manually, with help from your retirement services officer or personal financial manager on base, or using an app like Military Retirement), and build a budget using only that military retirement pay and whatever other income you have that is highly likely to remain stable: a spouse job if that won’t be impacted by retirement, rental property, etc.

Do not include disability compensation, or educational benefits from the Department of Veterans Affairs, or anything else that isn’t current income that is almost definitely going to continue. Even if you’re sure that you are eligible for additional benefits, there are any number of reasons that these things can be delayed or things can happen differently than you anticipate.

Then anticipate your actual costs after retirement, considering the things that will change when you’re no longer on active duty. These might include higher Tricare costs, no more buying uniforms, new/higher state taxes, lower transportation costs (especially if you’re not working), new personal property taxes, fewer haircuts (and maybe no razor blades LOL), etc.

Depending on your situation, this budget might be tight, or even have a significant shortfall. That’s OK – the point of this exercise is so that you KNOW what might happen, and you can prepare for it. Preparing could mean a wide variety of things: choosing a smaller house or apartment when your lease comes up, or increasing the size of your transition fund, or knowing that you’ll need to take a less than idea job to make ends meet.

The Dream World Budget

Imagine that retirement unfolds exactly how you hope it is going to unfold: any VA benefits come through right on time, you get an amazing job exactly when you want it, there are no unexpected delays in pay or benefits, and nothing expensive or surprising happens in the months after retirement.

On one hand, this budget may be the least important of the three. Presumably, your dream world includes enough money to cover all of your needs and a good chunk of your wants. On the other hand, it’s good to prove that it does. It’s also a useful reference when you’re building your third budget.

The Most Likely Budget

This budget is the budget you think is going to happen: housing expenses that you expect, a reasonable (conservative) estimate of disability compensation, getting a new job at a reasonable salary in a reasonable amount of time, retirement pay starts relatively on time, etc. You can include GI Bill housing allowance payments if you’re pretty darn sure that you’ll be going to school next semester (just remember that it only pays for days that you are actually in class.)

Be sure to be realistic about those costs that will change from active duty, including taxes, maybe setting up a new household, whether your spouse will be able to find a job (if they aren’t already working, or you will move and their job isn’t portable.)

Feel free to use whatever budgeting tool or template that works for you, or you can use this template from the Navy-Marine Corps Relief Society.

You may only need two budgets, or you may need more budgets if your life has more variables. Your right number is up to you. But don’t get hung up on how many budgets, the important thing is to do it. This exercise will take a little bit of time, and probably require you to work with your spouse, but these budgets will be key tools in the rest of your transition financial plan.