Military retirement

Establishing an emergency fund is an important first step

By Andrew Fickes on July 10, 2015

When Jim Mapes joined the U.S. Army, he said he possessed a naiveté about his future, and planning for retirement wasn't in his thoughts.

"It was just a job then," Mapes said.

But at some point in his military career, Mapes said he went through a "professional puberty," and, to his benefit, figured out retirement.

Mapes, who retired as a command sergeant major in 2011 after almost 23 years of service, is a licensed associate under his wife, Staci, a financial advisor at First Command Financial Planning in Lakewood.

First Command, based in Fort Worth, Texas, has provided financial planning and advice to servicemembers and their families for more than 50 years.

"The biggest thing - with any age group - is when people start working, they don't know what retirement is," Staci Mapes said. "It's so farfetched. They can't fathom what retirement means."

Matt Bumstead, the chief executive officer and co-owner of Summit Financial, Inc., in Renton, agrees.

"The type of person starting in the military is like a college student getting an undergraduate (degree)," Bumstead said. "Many are not wise about their money. They usually know nothing about saving money. This is a huge failure of our country for not having financial education in our high schools."

Bumstead said any person joining the active-duty military would be smart to start out by looking at their financial planning like a pyramid.

"Start at the base of the pyramid," he said. "Your base is your insurances (like your Servicemembers Group Life Insurance). The next level up is your emergency fund. These are your liquid assets. Make sure you're debt free. Don't spend money you don't have. The third level is your savings for retirement. The fourth level will be your ‘play' money, after-tax investments."

Far too often, Bumstead said, people end up inverting the pyramid: They start with a huge property investment before shoring up their emergency fund and putting away a percentage of their monthly income for retirement.

"Make sure to have your other three levels covered, and then think about investments," Bumstead cautioned.

Bumstead, also a chartered Federal employee benefits consultant, said his company is a full-service wealth management and financial firm.

"We're experts on Federal benefits," he said.

Many of the clientele at Summit Financial are civilian employees working for the military. However, on occasion, Bumstead said he does counsel active-duty military personnel who are just entering the service.

"There are very few people that I see who are with the military for twenty years," Bumstead said. "They're there for three to five years."

For those who are in the military for a short time, Bumstead said it may be better to invest their money in a traditional or Roth IRA rather than the Thrift Savings Plan, which is a standard-issue 401k plan available to all military personnel.

A Roth IRA, Bumstead said, is good to invest in when you're young, because you pay after-tax money into it, it grows tax deferred, and it is completely tax-free when you take it out. If contributing to a Roth TSP, Bumstead said active-duty military do not receive the five percent match from the Federal government - only civilian Federal employees qualify for the five percent match.

"If you're only in the military for seven years and you're only going to be contributing a couple hundred bucks, up to $500, in a Roth TSP, then it might be better to contribute to a Roth IRA," Bumstead said. "You open up a Roth IRA, and you can take that with you after you leave the military."

Traditional and Roth TSPs, Bumstead said, do transfer and can be rolled into a 401k at another position in the civilian world. If a retired military servicemember transitions into a Federal job, their TSP can stay with them.

Bumstead said when considering what IRA to invest in, one should consider tax status, marital status, whether or not there are children, and also what plans there are for the future.

Meanwhile, if an active-duty servicemember is planning to make the military a career, he or she has many things to consider.

"As it stands today, someone who comes in the military, whether as an officer or enlisted, there are different percentages of retirement based on years of services," Staci Mapes said. "When servicemembers start planning for retirement early in their career, they have a better ability to anticipate where the next twenty years or so take them financially. This will be important to planning for the days of ‘ultimate retirement.'"

A huge thing to consider, Mapes said, is understanding how military pay and benefits are taxed or not taxed and whether separating or retiring individuals need to adjust accordingly.

"All pay is taxed in the civilian world, so your take-home may be less," Mapes explained. "When people separate from the military, they may enter a tax bracket that's completely different."

Therefore, putting savings away in a 401k and other types of retirement vehicles that are appropriate for their specific situation, and providing for an emergency fund prior to retirement is important, Mapes advised.

“We try to coach our clients to try to live on eighty percent of their income and put away twenty percent into a comprehensive financial plan including risk management, savings and wealth building,” she said. “The military is very good at discipline. They’re very coachable, and a lot of them really follow that.”

Bumstead advises that before people put money away into their retirement funds, they first establish a minimum of three months of income in an emergency fund. Remember, he said, retirement accounts aren’t accessible until age 59 1/2.

“You definitely want to have an emergency fund,” he said.

And finally, Bumstead encourages people to be deliberate in their decision to retire. Make sure, he said, that you know what your next job will be, post-military. This move, he said, will put you on the right foot.

First Command Financial Planning, 8820 59th Ave. SW, Ste. 200, Lakewood, 253.584.7569,

Summit Financial, Inc., 1201 Monster Rd. SW, Ste. 420, Renton, 425.282.5406,