Happy New Year CUInsight Readers!
Before we talk about military transitions, we would like to extend a hearty thanks to all credit unions and credit union partners for serving our military and veteran communities! We are extremely grateful for all you do.
Whether you work in a Defense Credit Union or not, America’s credit union system diligently serves our military members, veterans, and their families. By offering superior products, each of you is consistently the top choice in financial institutions for our military. We see evidence of this in countless posts on LinkedIn and Twitter, along with credit union press releases.
As such, we would like to share some important insight in the new year and what happens throughout the military lifecycle. During my time in the military, each January seemed to be the ideal month for many of my colleagues to apply for military retirement. I “pushed the button” exactly four years ago, officially beginning my transition process after two years of planning. Outside of saving for the retirement ceremony, this simple act initiates several other financial impacts over the next several months. There are two main points to bear in mind for all credit unions.
First, we all know that more people need financial education than ever before. A depressing statistic is a recent Federal Reserve report that found almost 40 percent of Americans would have to use additional sources of credit to cover a $400 emergency. Military members are no different. And while basic savings is always a challenge, there is a separate danger lurking as military members retire. That is the inescapable fact that all military members will go without a paycheck for approximately 45 days before their retired pay starts.
This 45-day gap occurs because the Department of Defense withholds the last active duty paycheck to settle any outstanding travel or overpayment debts. Plus, for some reason, it takes longer than it should to transfer a servicemember’s personal information to the retired pay system. The result is approximately 45 days (or more) due to various levels of bureaucracy. Even though the member will eventually be paid, it still amounts to each member being several thousand dollars short in the interim.
Yet, mortgage/rent, car loans, insurance, and other necessities must still be paid on time. The need to plan for this eventuality can be much higher than struggling to save $400 for a rainy day. Worse, if your military member is already struggling with financial hardships, it can strain or damage your relationship if/when they miss a loan payment or end up borrowing from a competitor at higher interest rates.
It is also important for military members to realize when the first retirement check arrives, any selected benefits such as the Survivor Benefit Plan and Veterans Group Life Insurance along with any state income taxes are deducted automatically. It is surprising how many military members fail to factor in the cost of these benefits. Failing to plan for these expenses can put the member at serious financial risk seemingly without notice.
In terms of what a military pension will pay for—if a military retiree is lucky, their monthly pension might cover rent and nothing else. Adding to this sudden financial adjustment is the fact that housing costs become real (e.g., no more non-taxable basic allowance for housing), and finding a job after twenty plus years in the military can take longer than expected. Credit union financial counselors need to be aware of these unique pressures to be proactive.
Second, we all agree that credit unions offer great financial counseling and education. Here is where you can excel: understanding your military member’s transition and financial pressures (everything I described above) can help you better serve your brand-new “veterans;” build stronger member-trust; potentially offer additional products and services. Plus, credit unions already have the lion’s share of trust in the military.
In a recent Military Saves Survey, we continue to see credit unions outpacing every other trusted source of financial information on the installation, including the chain of command. This is not by accident—you earned it!
Military Saves Survey
|Banks or credit unions||49%|
|Family and friends||38%|
|Personal Financial Manager or family readiness program||31%|
|Non-profit / education organizations||19%|
|Military chain of command||5%|
|Military relief society||4%|
The good news is that retiring military members tend to “push the button” several months ahead of actual retirement, usually 6-9 months in advance. This gives your credit union time to help your members develop a plan in terms of:
- Saving for the 45-days In Between Paychecks (in addition to everything else)
- Budgeting for Retired Pay (especially if cash flows are less in retirement)
- Restructuring or Prioritizing Debt Payments (pay off debts before retirement)
- Understanding and Improving Credit Scores (as income levels change)
- Fixing Credit Reporting Issues (e.g., Medical Debt due to Tri-Care errors)
- Getting Better Loan Rates (where your credit union should excel)
Many other financial pressures affect our nation’s military members. Credit needs for first-termers, deployment pressures, military relocations, and wounded warrior/casualty affairs are some that come to mind. If you have questions, please do not hesitate to reach out to DCUC. In the meantime, we are thankful you are there to meet your member needs and further our credit union ideals.