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Why military members can make great clients

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NASHVILLE, Tenn. - Military members can be terrific clients. They are often disciplined savers, and mid-career personnel can make well into the six figures. Some planners, however, hesitate.

"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 certified financial planner 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, Sheldon cautioned, 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.

For example, those in the armed forces who are nearing retirement age will face a major "planning pain point" on January 1, 2018, 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 pay-out may not be the best deal for retirees.

Armed services retirees often "move into high-paying civilian positions and have significant investment portfolios," says CFP Curt Sheldon, a retired air force fight pilot.

"It's tempting to take the cash," he says, "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 say. 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 says.

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 adds.

TSPs represent a "material decision" for advisers working with military members, Sheldon says. "They're great for accumulation, not so good for distribution plans."

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