Advisors salute the end of Military Appreciation month by offering inflation fighting tips

The end of May also means the coming to a close of military appreciation month. Nevertheless, financial advisors are not turning their backs on current military members and veterans simply because they are flipping a calendar page.

And especially not with inflation and market volatility increasing their retirement anxiety.

Mike Hunsberger, owner of Next Mission Financial Planning as well as a member of XYPN, for example, points out that military pay and benefits are adjusted on an annual basis and take effect in January. The increase in the costs of goods and services, however, takes place during the year. As a result, military members often have more difficulty making ends meet later on in the year. 

To combat this problem, Hunsberger recommends that clients save or invest a portion of their annual, longevity, and promotion pay increases whenever they get them. This builds savings over time, but can also give some flexibility if they need to reduce savings for a specific goal or an event for which they may need additional funds.

The biggest change he’s initiated with military families who are still serving is recommending they increase the amount of liquid emergency savings they have. Hunsberger says this has been largely driven by the recent Congressional budget impasses that have put military paychecks in jeopardy. 

“Paycheck stability had been a hallmark of military life so clients would often only want to maintain 3 or so months in emergency savings. I now recommend they increase this to about 6 months. This cash buffer goes a long way to keeping the rest of the plan on track should something happen and with short-term rates on high-yield savings accounts they’re still earning an OK amount of interest,” Hunsberger said.

Elsewhere, Amy King, founder of Instar Financial Planning, says change and uncertainty are part of the fabric of every military family. Due to this fact, her retirement planning approach reflects the likelihood that everything she has laid out will change “because it almost always does.”

“When geopolitical uncertainty or a service-related illness or injury strikes, some military families decide to change their timing for transition back to civilian life. Or, the family may have no choice about the timing. We always know these things are a possibility and we plan for it. Depending on where the service member is in their career, we will look at scenarios where the family loses the choice of staying until retirement, or they lose the choice to leave as planned,” King said.

And while gaps may exist between cost of living increases and pay, King notes there are some incredibly valuable benefits to service members that can meaningfully reduce out of pocket costs of raising a family on a military pay check.

“We can’t control legislation, but we can incorporate the use of the new healthcare FSA, the dependent care FSA, VA education benefits for themselves and dependents, transition assistance programs and myriad other benefits designed to assist servicemembers,” King said.

King adds that it's incredibly important for financial advisors who serve military clients to remain abreast of Federal and State military and veterans benefits as well as non-profit programs.

“It’s a lot of work, but it’s one of the most valuable ways a financial advisor can serve military clients,” King said.

Finally, Derek Merkler, financial planner at Trophy Point Financial Planning and also a member of XYPN, says service-related health risks and geopolitical volatility both matter in retirement planning for military clients, although he treats them as separate planning issues. In his view, military service carries a higher risk of serious injury, disability, or long-term health complications than many civilian careers, but those outcomes are not predictable enough to build every plan around an assumed medical retirement or discharge.

However, according to Merkler, the byproduct of military bureaucracy means that, if a medical retirement or discharge process begins, he has time to adapt the core plan and account for expected benefits and the end of military service.

“Geopolitical volatility is different because increased deployments and global instability raise the importance of contingency planning for the family. In the worst-case scenario, the focus shifts from the service member’s own retirement to preserving the surviving family’s lifestyle by coordinating military survivor benefits, life insurance, savings, and the estate plan,” Merkler said.

In Merkler’s view, military benefits are generally quite good, and many either adjust directly with inflation or tend to increase over time in practice. The biggest cost-of-living gaps he sees tend to affect junior service members, especially those with families, because more of their income goes toward necessities. 

“For some clients, I’ve put more emphasis on helping them track spending so they can see where their money is actually going and make more intentional, values-based decisions. That often means separating expenses that truly improve their quality of life from spending that occurs out of habit, stress, or accident,” Merkler said.

One specific benefit gap he watches closely is Servicemembers’ Group Life Insurance, or SGLI. Even though the maximum coverage increased to $500,000 in 2023, the prior increase was all the way back in 2005 and many service members with spouses or children are still underinsured at the current level in his view.