Serv­ing Mil­i­tary Clients

A re­tired Air Force pi­lot turned CFP says ad­vis­ers should take a closer look at armed ser­vices per­son­nel and be aware of their unique needs.

Financial Planning - - CONTENT - By Charles Paik­ert

A re­tired Air Force colonel turned CFP says ad­vis­ers should take a closer look at armed ser­vices per­son­nel and be aware of their unique needs.

MIL­I­TARY MEM­BERS CAN BE TER­RIFIC CLIENTS. THEY are of­ten dis­ci­plined savers, and mid­ca­reer per­son­nel can make well into the six fig­ures. Some plan­ners, how­ever, hes­i­tate to add mil­i­tary clients to their ros­ters.

“There’s a mis­con­cep­tion that mem­bers of the mil­i­tary can’t bal­ance their check­books and don’t need a fi­nan­cial ad­viser,” says Curt Shel­don, a re­tired Air Force fighter pi­lot who is now a CFP with his own firm in Alexan­dria, Vir­ginia.

Speak­ing at a ses­sion on what fidu­cia­ries need to know to serve mil­i­tary mem­bers at the an­nual Fi360 con­fer­ence, Shel­don said that, among other ad­van­tages, armed ser­vices re­tirees of­ten “move into high-pay­ing civil­ian po­si­tions and have sig­nif­i­cant in­vest­ment port­fo­lios.”

What’s more, mil­i­tary mem­bers, ac­cus­tomed to a dis­ci­plined life­style, bring that self-con­trol to their sav­ings, he told the au­di­ence.

But, cau­tioned Shel­don, a colonel who served in Op­er­a­tion Desert Storm, men and women who are or have been in the mil­i­tary “speak a dif­fer­ent lan­guage,” may have dealt with highly stress­ful sit­u­a­tions and have very par­tic­u­lar fi­nan­cial plan­ning needs.

PLAN­NING PAIN POINTS

For ex­am­ple, those in the armed forces who are near­ing re­tire­ment age will face a ma­jor “plan­ning pain point” on Jan. 1, ac­cord­ing to Shel­don.

That’s when a new so-called blended re­tire­ment sys­tem for the U.S. mil­i­tary kicks in. Upon reach­ing re­tire­ment age, in­di­vid­u­als will be able to re­ceive a lump sum por­tion of their pen­sion’s fu­ture cash flow at a dis­count rate, cur­rently pre­dicted to be 7%. The prob­lem, Shel­don says, is that, with in­ter­est rates cur­rently around 2%, that fu­ture pay­out may not be the best deal for re­tirees.

“It’s tempt­ing to take the cash,” he said, “but an ad­viser re­ally has to sit down and ask the client what their needs are, what else they have and why they re­ally want to do it.” Those in the armed forces also have to de­cide what to do with their thrift sav­ings plan, known as TSP, the gov­ern­ment’s ver­sion of a 401(k).

Many mil­i­tary mem­bers have sub­stan­tial sav­ings that are tax-ex­empt, Shel­don said. For ex­am­ple, mil­i­tary mem­bers do not have to pay any taxes on pay they re­ceive while in a com­bat zone. Funds from IRAS and 401(k)s can be rolled into TSPS, but con­tri­bu­tions and dis­tri­bu­tions are pro rata. As a re­sult, “you can’t max­i­mize tax ef­fi­ciency and you can’t con­trol taxes on dis­tri­bu­tions,” Shel­don said.

What’s more, dis­tri­bu­tions, whether in the form of a par­tial with­drawal, monthly pay­ments or a life an­nu­ity, are “cum­ber­some at best … and there may be pos­si­ble es­tate plan­ning sur­prises,” Shel­don added.

TSPS rep­re­sent a “ma­te­rial de­ci­sion” for ad­vis­ers work­ing with mil­i­tary mem­bers, ac­cord­ing to Shel­don.

“They’re great for ac­cu­mu­la­tion, not so good for dis­tri­bu­tion plans,” he said.

Charles Paik­ert is a se­nior edi­tor of Fi­nan­cial Plan­ning. Fol­low him on Twit­ter at @paik­ert.

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