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How transitioning out of the military can present financial challenges

Amy Fontinelle

Posted on November 10, 2021

Amy Fontinelle is a personal finance writer focusing on budgeting, credit cards, mortgages, real estate, investing, and other topics.
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Explain why, in the civilian world, you’ll need an emergency fund.

Point out the healthcare and housing challenges transitioning out of the military and where to find assistance.

Talk about the life and disability income insurance that should be considered for a military transition to civilian life.

Transitions are never easy, but transitioning from the military to civilian life has particular challenges. Besides the obvious changes in lifestyle, there are fundamental changes related to basics of day-to-day living and personal finances to consider.

Indeed, finances are consistently identified as one of the biggest sources of stress for military veterans and their spouses, according to the Blue Star Families Military Family Lifestyle Survey. Financial issues and economic stability were reported to be a significant concern by nearly half of veterans and their spouses in surveys conducted by the veteran-support organization since 2010. In addition, a consistent majority of veterans said the financial transition to civilian life is difficult.1

But there are ways to help make that military to civilian transition a more financially secure one.

Emergency savings

In the military, pay is guaranteed and health care, housing, and food are taken care of. With this kind of security, some members may feel comfortable not having an emergency fund while serving. Perhaps that’s why more than half of military families planning to exit in an upcoming year typically have less than $5,000 in emergency savings, the Blue Star surveys found, while just under half of those planning to exit within the upcoming two years typically have less than $5,000 in emergency savings.

In the civilian world, though, you’ll need a large emergency fund because you won’t have a guaranteed contract, and you’ll be responsible for all expenses not covered by your new employer or by the Veterans Administration. So if saving hasn’t been a priority during service, it may need to become one. (Related: Emergency fund basics)

“For me, the biggest challenge was the fact that I had been in the military since I turned 18, and I was not married yet, so I had absolutely no idea how to budget for basic life necessities,” explained John Vick, a civilian campaign manager in Las Vegas, who previously spent 15 years in the U.S. Marine Corps and U.S. Navy Reserve. “In the military, my food, housing, medical, dental, even clothing was largely taken care of for me. Whatever was left got spent on recreation.”

Vick said in an interview that he ended up charging things to credit cards, assuming he would pay them off when he got a great job. That took longer than he expected, and he ended up paying much more for the debt than he anticipated.

“The only way to prepare for such a dramatic life change is to talk to people who can tell you what to expect and help you prepare for it,” Vick elaborated. “I think that family is a great resource, but in retrospect, I would have talked to a financial professional as soon as I had steady income coming in. Remember, nobody will order you to prepare for this. You have to actually ask in order for it to happen.” (RELATED: Meeting your financial professional for the first time)

Retirement savings

In the military, you may have saved for retirement using a Thrift Savings Plan (TSP) and received matching contributions from your service. As a civilian, you will not be able to keep contributing to a TSP unless you work for another federal employer. You can roll over any or all of your TSP balance to another retirement plan, such as an IRA that you set up or a 401(k) that your new employer offers. But you may want to leave your TSP intact because of its exceptionally low fees and simple investment options.

Spousal employment

Spouse unemployment and underemployment is another major financial obstacle for military families, the research found. That’s because frequent relocation and being stationed in remote locations can make it challenging for military spouses to work.

If there’s any upside to this struggle, it’s that the financial difficulties associated with having a nonworking spouse while serving create an opportunity to increase household income after transitioning to civilian life. However, spouses who struggled to find work while their partner was serving may face a new challenge: finding a job with limited work experience.

One potential source of help is the Department of Defense’s Spouse Education & Career Opportunities (SECO) program, which provides free career coaching services to all eligible military spouses. However, in order to be eligible, you need to be married to an active duty service member of the Army, Navy, Air Force, Marine Corps, or activated Guard or Reserve (on Title 10 federal orders), in the ranks of E1–E5, W1–W2, or O1–O2, according to SECO.

Because military spouses cannot access this service after their spouse has separated from service, it’s important to plan ahead. SECO can help with career exploration and mentoring, resume building, education, professional development, and, perhaps most important, job placement.

Health care

Not knowing how to access health care is another major problem for transitioning service members, according to the Blue Star survey. Service members who were on the military’s TRICARE Prime plan may have had all their medications, copayments, doctor’s visits, and medical procedures completely covered. This means it might be necessary to learn how civilian health insurance works and shop for it for the first time. And health insurance is confusing for just about everyone these days.

Some veterans aren’t aware that they may be eligible for coverage from the Veterans Administration, which provides both hospital and outpatient treatments, procedures, supplies, and services. That includes preventive and primary care, mental health care, substance abuse treatment, and medications. Most veterans get cost-free health care. Where required, copayments for services or medications depend on your priority group and the type of care. You must apply to enroll for VA health care, which you can do in person, by phone, or online.

Assuming you are not retiring, is a good place to start for information about purchasing health insurance through the federal marketplace if you won’t be getting it from the VA or an employer or if you need to purchase insurance for your family. If you are retiring from the service, you can continue your TRICARE Prime coverage, but you will need to re-enroll and your costs may increase. You can also choose another plan.


During military service, you may have lived in on-base housing. Not only is on-base housing itself free, but it also comes with free maintenance, annual carpet cleaning, light bulbs, air filters, lawn maintenance, landscaping, pest control, and trash removal. Most utilities are covered, too, if you live in government-owned housing. If you’re used to having all these expenses covered, it can be a shock to learn how much they cost and start paying for them yourself in the civilian world.

Even if you lived off-base, you received a basic allowance for housing (BAH) if you were stationed in the United States or an overseas housing allowance if you were stationed abroad. Housing allowances are tax exempt, making them an especially valuable benefit, but also making it necessary to earn significantly more as a civilian to have the same quality of housing you were accustomed to.

One option to consider if you’re ready to put down roots is a Veterans Administration(VA) mortgage.

“Veterans can benefit greatly by obtaining a VA loan to purchase a home,” said Jordan Barkin, a Realtor® with Harry Norman Realtors, an affiliate of Christie's International Real Estate in Atlanta. “Veterans and their spouses receive favorable terms from lending institutions, and the resulting monthly mortgage is often less than rent.” Further, veterans often don’t need a down payment. (Learn more: Buying your first home)

VA loans also don’t require borrowers to pay for private mortgage insurance, unlike other low-down-payment mortgages, and they’re the only zero percent down home loans on the market. The VA also limits how much veterans can pay in closing costs and has minimum standards for the safety and living conditions of a home that can be purchased with a VA loan. Further, these loans have requirements to make sure veterans don’t overextend themselves when deciding how much to borrow.

Life and disability income insurance

Those serving in the military are covered by Servicemembers Group Life Insurance (SGLI), and they can cover their family members with Family Servicemembers Group Life Insurance. As a civilian, these options are no longer available. Instead, you will either need to convert your SGLI coverage to Veterans Group Life Insurance (VGLI), obtain life insurance through your new employer, or directly purchase coverage through an insurance agency. (Related: Is military life insurance enough?)

If military or employer life insurance doesn’t offer a high enough death benefit, you can purchase more coverage from an insurance company. VGLI, for example, maxes out at $400,000 or the amount of coverage you had under SGLI, whichever is lower, while employer policies often max out at two or three times your annual salary. You can always get policies from more than one source; evaluate all your options to get the best value. (Calculator: How much life insurance do I need?)

Veterans with a medical condition that could affect their ability to qualify for life insurance should make sure to apply for VGLI during the 240-day no-health application period where their medical status will not be a factor in their approval. VGLI premiums are based on age. (Related: Help for conversions)

VGLI and employers provide term life insurance coverage, while insurance agencies offer whole life and other options in addition to term. Term is the least expensive and easiest to understand, so it may be an expedient choice, especially if you’re transitioning quickly and don’t have the capacity to evaluate more complex options. However, such options can be useful if you’re seeking permanent, lifelong coverage. (Related: Term vs. perm life insurance: 3 considerations)

Veterans Mortgage Life Insurance is available in amounts up to $200,000 for certain severely disabled veterans. The program provides insurance coverage on home mortgages to veterans who received special housing grants because of service-connected disabilities.

Similarly, military members can receive tax-free veterans disability benefits if they are disabled as a result of their service. Essentially, your disability income insurance is covered while you serve. In addition, if you develop a disabling condition related to your service after separation, you may be eligible for special benefits.

But if you are fortunate enough to separate from service without a disability, private long-term disability income insurance is another valuable financial product to hold in your portfolio. It replaces a percentage of your income if you become unable to work due to a significant illness or injury. It can provide substantially more than government disability benefits, such as Social Security Disability Income, helping you maintain your quality of life, support your family, and pay your medical bills should you become ill or injured.

One challenge with this insurance for former service members is that preexisting conditions will not be covered, and service members are more likely to have preexisting conditions such as hearing loss, chronic back pain, lung problems, certain cancers, and post-traumatic stress disorder (PTSD). Further, having certain conditions may disqualify you from approval, but you should always talk with a financial professional before assuming you can’t obtain coverage. You might not be able to get a policy that will pay benefits if any existing PTSD prevents you from working, but that doesn’t mean you won’t be able to get a policy that will pay benefits if you become injured or ill in the course of civilian life.

It’s also important to know that if you do obtain a private disability income insurance policy and later need to file a claim, your benefits may be reduced if you are receiving VA benefits. It’s important to understand exactly how a policy will work before you purchase it. In addition to purchasing a private policy from an insurance company, you may be able to obtain disability coverage through a total disability income provision rider on a veterans life insurance policy.

General living expenses

For veterans and their families, general living expenses overall are likely to increase. But specific categories of expenses may go up or down depending on the overall cost of living in your new location and whether you will be living alone or sharing housing with family, friends, or roommates.

The Basic Allowance for Subsistence (BAS) that is meant to cover the cost of your meals while in the military is tax exempt. As a civilian, you will receive no such allowance. In addition, you may find that groceries at regular grocery stores cost more than what you paid at the commissaries where you were stationed.

The government’s housing and subsistence benefits average over 30 percent of a service member’s total regular cash pay. Taxes, then, can come as a significant shock for transitioning service members. Civilians have to earn substantially more to take home the same pay as a service member and will likely be in a higher marginal tax bracket. Property taxes may become a new financial responsibility as well.

One way to cope with higher living expenses is to take advantage of the many discounts available to veterans.

“The large cell phone carriers are now offering exclusive cell phone plans tailored to active duty military members and veterans,” said Logan Abbot, president of cell phone plan comparison site “It’s a small gesture, but the savings are very large compared to a normal unlimited talk, text, and data plans, and could be very financially useful for people transitioning from military service to civilian life.”

Hundreds more businesses also offer discounts to military and veterans. Even big-ticket items, such as vehicles and vehicle loans, can provide discounts to veterans, as can smaller purchases, like clothing and entertainment. Any time you purchase a product or service, ask first if they offer a veteran’s discount, even if one isn’t advertised, and always have ID to prove that you qualify. Be sure to comparison shop, because the discount available to veterans won’t necessarily be better than a sale price, an alternative discount code or coupon, or a competitor’s price. All this being said, civilian pay is usually much better than military pay, even after accounting for the military’s housing and other benefits. You may not have much trouble making up the difference with your new income. But it’s important to be aware of the differences so that when you’re applying for jobs and negotiating your new salary and benefits, you can be sure your new income will provide a similar standard of living, if not a better one, for you and your family.


There are various transition-assistance programs available to veterans transitioning to civilian life, especially the Financial Planning for Transition class to help set financial goals, create a budget, understand how taxes affect income, evaluate cost of living changes, and much more.

And remember that nearly everyone values the contributions and sacrifices of our military and will be glad to help you wherever you are in your transition process if you just ask for the help you need. And a financial professional can help that transition from military to civilian life.

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This article was originally published August 2018. It has been updated.


1 Blue Star Families and the Institute for Veterans and Military Families, “Military Family Lifestyle Survey Archive,” 2010-2021

1 Blue Star Families and the Institute for Veterans and Military Families, “Military Family Lifestyle Survey Archive,” 2010-2021.

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The information provided is not written or intended as specific tax or legal advice. MassMutual and its subsidiaries, employees, and representatives are not authorized to give tax or legal advice. You are encouraged to seek advice from your own tax or legal counsel. Opinions expressed by those interviewed are their own and do not necessarily represent the views of MassMutual.