Veteran Wealth & Legacy Guide

Your military retirement pay under the High-3 system is calculated using the average of your highest 36 months of basic pay, multiplied by 2.5% for each year of service. A 20-year veteran retiring at a typical E-7 or O-4 level receives roughly 50% of their High-3 average. Every additional year adds another 2.5%.

Members who entered service after January 1, 2018, are automatically enrolled in BRS. Those who were serving between January 1, 2006, and December 31, 2017, had a one-time opt-in window.

Under BRS, your multiplier drops to 2.0% per year (vs. 2.5%), but the government matches up to 5% of basic pay into your TSP — creating a more portable wealth-building vehicle for those who may not reach 20 years.

At retirement, you have a 1-year window to elect SBP coverage for your spouse and dependents. SBP provides up to 55% of your retired pay to your survivor if you die first, adjusted annually for COLA.

Cost: 6.5% of your gross retired pay per month.

Why this matters: SBP is one of the most significant and irreversible financial decisions you will make. Once the window closes, you cannot add coverage later (outside of a brief remarriage window). Veterans who decline SBP to "save" the 6.5% premium and rely on life insurance alone often leave their spouses in a structurally weaker position — particularly because SBP includes COLA adjustments that term life insurance cannot replicate.

The Offset Problem (SSBP): If your spouse is also eligible for DIC (Dependency & Indemnity Compensation), understand that SBP premiums are offset by DIC — meaning your estate may pay for SBP and receive little net benefit. Run the numbers with a VA-knowledgeable financial advisor before declining.

The Thrift Savings Plan offers five core funds:

Lifecycle (L) Funds automatically reallocate between these five based on your target retirement date. They are adequate for passive investors but often overweight the G Fund — which is appropriate near retirement but unnecessarily conservative for veterans in their 30s or 40s still 20+ years from full drawdown.

Recommended Review: Log in to tsp.gov and review your current allocation. If you are under 45 and primarily in G or F funds, you are likely under-invested for long-term growth.

When you separate from service, you have four options for your TSP balance:

The year you separate from active duty is typically your lowest-income year. Your military pay stops or drops, and your civilian career may not have fully ramped up. This gap creates a strategic Roth conversion window.

Converting $50,000–$78,000 at 12% versus waiting and converting at 22% or 24% in peak earning years saves you $5,000–$10,000+ in lifetime tax burden on that single conversion.

The VA uses a "combined ratings table" — not simple addition — to calculate your composite disability rating. If you have a 50% rating and a 30% rating, your combined rating is not 80%; it is calculated as follows:

50% + (30% of remaining 50%) = 50% + 15% = 65% → rounded to 70% under VA rules.

This "whole person" method means each successive rating is applied to the remaining non-disabled percentage. Understanding this is critical when filing for additional conditions, because marginal conditions may push you over rating thresholds that unlock disproportionately large benefit increases — particularly the 100% P&T (Permanent & Total) rating.

Prior to 2004, veterans could not receive both military retired pay and VA disability compensation simultaneously (the offset rule). Two programs now allow concurrent receipt:

• CRDP (Concurrent Retirement & Disability Pay): Available to retirees with a combined VA rating of 50% or higher. Eliminates the VA offset dollar-for-dollar and is automatically applied.

• CRSC (Combat-Related Special Compensation): Available to veterans with combat-related disabilities regardless of disability percentage. You apply for CRSC separately. CRSC is tax-free; CRDP is taxable.

File early. The VA effective date for compensation is the date of your claim, not the date the VA rates your condition. A claim filed the day before separation locks in that effective date even if the rating decision takes 6–18 months.

Use a VSO (Veterans Service Organization) — American Legion, DAV, VFW — or an accredited VA claims agent to file. Accredited attorneys can assist on appeals at the BVA level.

The VA home loan guarantee is one of the most powerful financial tools available to veterans — and the most underutilized:

Funding Fee: Most veterans pay a funding fee (1.25%–3.3% of loan amount depending on service history and down payment). Veterans with a service-connected disability rating of 10% or higher are exempt from the funding fee entirely — this can save $3,000–$10,000 on a typical loan.

You do not "use up" your VA loan benefit permanently. Two pathways exist to restore entitlement:

Strategic Use: Veterans who move frequently (e.g., career military transitioning to civilian jobs in new cities) can potentially hold two VA-financed properties simultaneously using tiered entitlement. Consult a VA-approved lender to calculate your available entitlement before assuming you must use conventional financing.

If you already have a VA loan, the IRRRL (streamline refinance) allows you to refinance to a lower interest rate with:

Upon separation, your SGLI (Servicemembers' Group Life Insurance) coverage terminates. You have 240 days from separation to convert to VGLI without evidence of insurability — meaning no medical exam, no underwriting questions, regardless of health status.

Maximum VGLI coverage: $500,000.

Cost consideration: VGLI premiums increase with age in 5-year bands. At younger ages (under 35), VGLI is competitively priced. By age 50+, premiums often exceed comparable private term insurance by a significant margin.

A sophisticated life insurance architecture for veterans is not a single policy — it is a layered structure:

Layer 1 — Income Replacement (Term): 10–20 year level term policy equal to 10–12× your annual income. Covers the peak earning and debt years. Most cost-effective per dollar of death benefit.

Layer 2 — Mortgage Coverage (Decreasing Term or Separate Policy): Matches your mortgage payoff timeline. Protects your spouse's housing security independently.

Layer 3 — Permanent Legacy (Whole Life or IUL): Smaller face amount ($100K–$500K) funded for cash value accumulation. Provides estate liquidity, potentially tax-advantaged growth, and a death benefit that does not expire.

Layer 4 — SBP as the Government Annuity Floor: Treats SBP as a base survivor income rather than total coverage. Private layers supplement above it.

The goal is not maximum coverage — it is precision coverage that matches actual financial exposure at each life stage.

Military retirement pay continues regardless of disability, which creates a false sense of security. However, if you separate and begin a civilian career, your civilian income is entirely unprotected unless you carry private disability insurance.

VA disability compensation is not the same as disability income insurance. VA compensation is based on impairment ratings, not income replacement.

An incomplete estate plan is not merely an inconvenience — it forces your family through probate, exposes assets to creditors, and can create family conflict at the worst possible moment. These six documents form the essential framework:

Beneficiary designations on your TSP, IRA, life insurance, and VGLI supersede your will and trust. They are the single most commonly neglected element of estate planning.

Veterans face estate planning challenges civilians do not:

SBP Election Permanence: As discussed in Chapter 1, your SBP election is largely irrevocable. Your estate plan must work around — not against — whatever election you made at retirement.

Federal vs. State Jurisdiction: Military retired pay and VA disability compensation are governed by federal law. State divorce decrees, for example, cannot divide VA disability pay — only military retired pay (under USFSPA). Ensure your estate attorney understands these federal carve-outs.

DD-214 Security: Your DD-214 is required to access virtually every veteran benefit. Store the original in a fireproof safe or safety deposit box. Provide a certified copy to your estate attorney and tell your spouse where it is. The VA and NPRC offer certified copies but the process takes weeks — time your family may not have.

In 2024, the federal estate tax exemption is $13.61 million per individual ($27.22 million for married couples). The vast majority of veteran households will not trigger federal estate taxes under current law.

However, this exemption is scheduled to sunset after December 31, 2025, reverting to approximately $7 million per individual (inflation-adjusted from the 2017 TCJA baseline) unless Congress acts. Veterans with substantial real estate, retirement accounts, business interests, or life insurance proceeds approaching $5–$7 million should begin estate tax mitigation planning now.

Key tools at this threshold: Irrevocable Life Insurance Trusts (ILITs), Spousal Lifetime Access Trusts (SLATs), charitable remainder trusts, and family limited partnerships.

The SECURE Act (2019) and SECURE 2.0 (2022) fundamentally changed inherited IRA rules. Non-spouse beneficiaries who inherit a traditional IRA or TSP rollover after December 31, 2019, must distribute the entire balance within 10 years of the account owner's death — eliminating the "stretch IRA" strategy.

This creates a compressed tax event for your heirs. Solutions:

Discuss the 10-year rule implications with your estate attorney and financial advisor together — this is a tax, legal, and financial planning issue requiring coordinated advice.

True legacy planning is not simply about minimizing taxes at death — it is about intentionally transferring values, knowledge, and resources across generations.

Your service created the foundation. This guide is the framework. The plan you build — and maintain — is the legacy.