Halloween is rapidly approaching and that turns our thoughts to scary things. Your finances can be a little scary too. Here are 6 scary financial situations you should be on guard for.
Owing Taxes When You File. This one tends to hit retired military members their first full year in retirement. It has to do with the way the withholding tables work and the fact that you likely have multiple income sources. More likely than not, you'll need to direct your employer or DFAS to withhold an additional amount from your pay. How much? Hard to say without knowing your situation. But I can tell you that my retired military clients that are employed have an average tax rate of 15% or more. If your withholding is less than 15% of your taxable pay, you probably should be scared.
Large Capital Gains Distributions. Capital gains distributions are a good thing. The taxes on them can be scary. Since the first half of 2023 was pretty good for the stock market, I think capital gains distributions from mutual funds could be substantial this December. If you have actively managed mutual funds the gains will likely be greater. If you do get a large capital gains distribution, you might want to make an estimated tax payment so that you don't get hit with an under-withholding penalty. You might also want to consider more tax-efficient investments like ETFs.
Ancillary Probate. Probate is kind of scary. Multiple probate estates are really scary. If you own rental properties scattered across the country, you have exposure to multiple probate estates. You can avoid this by implementing a trust-based estate plan. Work with a qualified estate planning attorney to set up the plan.
Lack of an Emergency Fund. While on active duty, you can kind of place fast and loose with an emergency fund. Let's face it. On active duty, you have job security. That isn't the case in the civilian world. Work to have 6 to 12 months' worth of living expenses set aside in a highly liquid account (You can count your pension and VA Disability Compensation and only need to cover the amount that exceeds your "guaranteed" income).
Disability. You're about twice as likely to be disabled and unable to work than to die prematurely. And the financial results of a long disability could be worse than passing away prematurely. I rarely run into active and retired military members that lack life insurance. I've run into plenty that don't have disability insurance. That is scary.
Lawsuits. You could find yourself subject to a lawsuit at any time. Maybe you were at fault in an accident, or someone got hurt on your property. There probably isn't any way to stop a lawsuit. But you can transfer some of the financial risk through an umbrella policy. Talk to your insurance company to find out if you can purchase one.
Military Finances are Different
All the above issues are scary for all taxpayers. But your finances aren't like your civilian counterparts. That's why we think you should work with a Financial Advisor/Planner that deals with the issues Active and Retired Senior Military Officers and NCOs face. If you'd like to find out how we do that, use the button below to schedule a free initial consultation.
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