There are so many changes that happen when transitioning out of the military. One big one it the employee benefits that are offered to you from a civilian employer. Understanding the different benefits that are now offered and what has changed since you left the military is crucial to optimizing your compensation package. These benefits can include health insurance, life insurance, disability insurance, 401(k) matching, and more. Understanding what benefits are available and how they work can help you make informed decisions about your job offer. In this guide, I will walk you through the basics of some common employee benefits to help you make informed decisions.
Health insurance is a critical component of any employee benefits package. When transitioning from the military, you may be used to free healthcare through Tricare. However, in the civilian world, you will likely be offered a choice between a Preferred Provider Organization (PPO) or High Deductible Health Plan (HDHP). It's important to understand the differences between these plans and choose the plan that best meets your healthcare needs. If you are retired military, you will be on Tricare for Retirees and will not have to worry about this, but if not you will be now paying healthcare premiums through your employer.
Generally the PPO plan will be higher out of pocket cost, and will result in more protection and the purchase of more health insurance. This is best for those that may have significant health complications or budget problems.
The HDHP will result in lower premiums, but higher deductibles that you would have to pay before insurance kicks in if something were to happen. These plans are best for those that are healthier and are able to have an adequate emergency fund to cover the higher deductible. The other attractive thing that these plans offer is an HSA plan.
A Health Savings Account (HSA) is a triple tax savings vehicle available through high deductible health plans (HDHPs). An HSA allows you to save money on a tax-free basis to pay for qualified medical expenses. Contributions to this vehicle are tax deductible on the way in, grow tax free, and are tax free when taken out for eligible health expenses. You can even keep the receipts for expenses incurred today, and then reimburse yourself decades from now for those expenses using future (inflated) dollars. After age 60, funds can be withdrawn for any reason if you just pay the taxes on the gain, turning the account into a pseudo-Traditional IRA.
Vision and Dental Insurance
These insurances are usually very inexpensive and make sense to take advantage of. A “80/20” employer to employee split is common to see on these. You may or may not need vision if you don’t have eye problems, but the dental insurance will usually make sense.
Life insurance provides financial support to your loved ones in the event of your death. In the military, you may have been covered by the Servicemembers' Group Life Insurance (SGLI) program. After you leave, you have the option to convert SGLI to VGLI. This is usually a very expensive option. I did a study on this in a blog post that you can see here. In the civilian world, you may be offered a group life insurance policy through your employer, or you may need to purchase a private policy. The best type and amount of life insurance depends on your specific situation. Generally, group term life insurance is capped at $50,000, but your employer may offer additional life insurance at a low cost that is 2-3 times your annual income. These can be very efficient ways to obtain life insurance, but you aren’t able to take your policy with you when you leave. This could be problematic if you work for a company for 10 years and then leave after accumulating serious health conditions that make you uninsurable. Life insurance is very important and something that most people are underinsured for.
Disability insurance provides financial support if you are unable to work due to an injury or illness. In the military, disability coverage is essentially covered by the VA Claims process. In the civilian world, you may be offered a group disability insurance policy through your employer, or you may need to purchase a private policy. Again like life insurance, any policy that you have through an employer cannot be taken with you when you leave. It will be very difficult to obtain a private policy if you are a disabled Veteran so if you are looking to do that you need to do it prior to separating or retiring. A common disability policy is 60% of income. A company may offer less than that, and also may have a differing definition of disability. You want to generally look for an “own occupation” policy which means that you would receive benefits if you are unable to work at your job, not just any job. This is probably the biggest hole in most young professionals’ financial plans and requires a private policy or a solid employer offer to sufficiently cover you.
A 401(k) plan is a retirement savings plan offered by many employers. Some employers offer a 401(k) match, which means they will match a portion of the contributions you make to your 401(k) plan. The match amount varies from employer to employer, but it's important to understand the match policy and take advantage of this benefit if it's available to you. A common match percentage is 5%, but some can be upwards of 10% and can even be nonelective which means the employer contributes even if you don’t. Ultimately you want to put enough money into your 401(k) to reasonably meet your long-term goals as well as choose the right investments that comprise a diversifies, low-cost portfolio.
A Flexible Spending Account (FSA) is a pre-tax savings account that you can use to pay for a wide array of health expenses. However, any money you don't use by the end of the plan year is forfeited except for $610 in 2023, so it's important to plan carefully when enrolling in an FSA. In the military, all of your healthcare expenses were covered, so paying money for healthcare is a new concept. This account can be used to pay things like copays and deductibles, prescriptions, certain medical devices, and qualified prescriptions. The limits in 2023 are $3,050.
Dependent Care FSA
A Dependent Care FSA allows you to set aside pre-tax money to pay for expenses related to childcare, such as daycare or after-school care. The maximum dollar amount you can set aside is $5,000 per household in 2023. This is usually a no brainer decision for those parents that need to pay for childcare that can costs tens of thousands of dollars per year.
Paid Leave and Holidays
In the military, this was easy as you got every holiday and Family Days if the mission permitted, as well as 30 days of leave per year. The civilian world is way different, with employers offering as little as 10-14 to as much as “unlimited” time off. Generally, you don’t get as many “free” days off as you ddid with Family Days, but then you don’t have to take leave on weekends like you did in the military. The key here is to read the fine print to understand the time off policies of your employer, and how those benefits accrue and carry over year to year. This allows you to optimally use and plan out time off as well as compare packages across employers.
Other Fringe Benefits
Other benefits you might see could be things like fitness memberships, legal help, educational assistance, or a charitable contribution match. These are things that were offered by the military but were often not “seen” as you had access to the base gym, the JAG office on base, and Tuition Assistance. Reading the fine print in your employee benefits package is important to catch all of these things that could provide a huge benefit to your budget and life.
Transitioning from the military to the civilian workforce can be stressful and hectic, but understanding your employee benefits is a crucial step in the process. While military benefits are often comprehensive, civilian benefits can vary widely from employer to employer. You may have a better compensation package at a civilian employer, or it may be worse. By understanding the basics of common employee benefits, you can make informed decisions about your job offer and ensure that you're getting the best possible benefits package and optimizing it to fit your personal and life goals.