Tips for Returning Troops

By Jaime Levy Pessin, Wall Street Journal

For U.S. troops returning from overseas, personal-finance issues can be a sobering part of homecoming.

Nearly 150,000 service members returned from Iraq and Afghanistan last year, and 35,000 more came home from Afghanistan in the first two months of 2012, according to the Defense Department.

"It's a feel-good moment, but it's also a time of adjustment," says Brenda Linnington, director of the Better Business Bureau's Military Line, a program covering consumer issues for service members. For reunited families, and young couples especially, desires to celebrate or make a big purchase can collide with realities such as reduced income and increased expenses.

Recognizing the challenges its personnel face, the military provides financial counseling for troops both before and after deployment in combat, though it doesn't say how many service members seek such assistance.

What follows is a look at some of the issues, and advice from experts in the field.

Time to Adjust the Budget

Perhaps the most important challenge has to do with budgeting. Service members get extra pay for the time they spend in a combat zone; that hazardous-duty pay bump—and associated tax benefits—can significantly boost troops' incomes.

So when they return from a deployment in Iraq, Afghanistan or other countries with the combat-zone designation, troops often see a decline in income. At the same time, they're also faced with paying bills that they were able to put on hold while they were away—the soldier's car insurance, for example.

"If you relied on the additional money, you have to change your lifestyle to accommodate the change in pay," says Gerri Walsh, president of the Finra Investor Education Foundation. The foundation, based in Washington, D.C., is affiliated with the Financial Industry Regulatory Authority, a self-funded industry watchdog group, and is a co-sponsor, along with the Defense Department, of the website www.SaveandInvest.org/MilitaryCenter, a resource center for military families. 

Avoid the Feel-Good Splurge

Robert Gerstemeier, a Chicago financial adviser and a commander in the U.S. Navy Reserve, says that when troops return from deployments, many are eager to enjoy themselves and pamper their families. Mr. Gerstemeier, who has provided financial counseling through the military and has clients who are service members, advises returning troops to not "go blowing all your hard-earned money. Treat yourself to something, but don't do it so that in six months you're still paying for it."

Ms. Linnington, who is married to an active-duty soldier who has been deployed three times, says she and her husband don't make any big-ticket purchases while still in the "honeymoon phase" after a deployment. "We know decisions need to be made when we're calmer and less emotional," she says.

Don't Raid Your Thrift Savings Plan

Although the military does provide a pension for career service members, it's important to set aside money for retirement anyway. Service members have to stay in the military for 20 years to qualify for a pension, Mr. Gerstemeier notes—and that doesn't always happen.

While serving in combat zones, soldiers can put extra money into their Thrift Savings Plan accounts, which are essentially 401(k)s for government employees. Troops serving in combat zones this year can deposit as much as $50,000 in a thrift account, far more than the $17,000 that civilians can put into a 401(k). But thrift plans have the same early-withdrawal penalties as 401(k)s. Taxes and a 10% penalty apply in most cases if withdrawals are made before the investor turns 59½.

Civilians Face More Decisions, Fewer Benefits

For those who leave the service when they return from a deployment, the potential financial obstacles can be even more complicated. For many young people, it's the first time they have to find a job and make other important financial decisions.

"A lot haven't had to fend for themselves—they haven't had to choose a health-care plan or life insurance," says June Walbert, a lieutenant colonel in the Army Reserve and a financial planner with USAA, a financial-services firm that provides insurance, banking and financial advice to service members, veterans and their families. "They're starting from ground zero with huge decisions," Ms. Walbert says.

Another big challenge for many: A person who made $50,000 in the military can find that the same salary in a civilian job doesn't stretch as far, considering that the military provides a housing allowance, subsidized health care, cheap life insurance and other perks.

The Better Business Bureau recommends that soldiers considering leaving the service take advantage of some resources available to them, like the Army Career and Alumni Program and the Labor Department's Veterans' Employment Training Services (www.dol.gov/vets), to help smooth the transition.

Beware of Scams Aimed At the Recently Returned

Regardless of whether a soldier stays in the military or leaves, financial experts warn them to beware of schemes targeting members of the armed forces coming home from deployments. In particular, Finra and the Better Business Bureau advise service members to be wary of payday loans, identity theft and investment schemes touted by scam artists who claim to have ties to the military.

"There will be a slew of people waiting for you to spend money, whether it's a motorcycle salesman or a financial-services professional," says Ms. Walsh, adding that investors can check out financial-services professionals through BrokerCheck, a tool on Finra's website. "You will be surrounded by people who want a piece of that pie."