Returning Troops Face Financial Challenges

BOSTON (TheStreet) -- Earlier this month, President Barack Obama announced that 10,000 servicemen will be withdrawn from the war effort in Afghanistan.

It will be the first wave in a troop reduction that will reduce the military presence by 33,000 by the summer of 2012. Troops stationed in Iraq will also continue to be scaled back in the months ahead.

As soldiers shift back stateside, managing their money will require extra care.

As more and more of the troops return stateside, they face a variety of issues and challenges -- not the least of which are financial.

"Having gone through that not too long ago, there is certainly a financial aspect to that adjustment," says J.J. Montanaro, a certified financial planner practitioner with USAA, which specializes in financial products and services for military personnel and their families. Before entering the financial services industry, he served in the U.S. Army for six years on active duty, including spending 2005-06 in Afghanistan, and in 2009 retired as a lieutenant colonel in the U.S. Army Reserve.

"You are coming back and all of a sudden the taxes that weren't an issue while you were deployed are coming back into play," he says, referring to the suspension of income tax during active duty. "There are extra allowances you had while deployed that go away, and a lot of times there are reduced expenses while you are deployed."

All these things can lead to necessary cash-flow adjustments, considering the potentially decreased income and likely increased expenses.

Montanaro estimates that for some enlisted men and women, combat pay could be reduced by as much as 25% once they return home.

Soldiers who participated in the Savings Deposit Program while serving in a combat zone will have 90 days to withdraw or transfer those accumulated assets once their tour of duty ends, and deposits must stop upon being transferred out of a combat zone. The SDP is a military-run savings account that offers 10% annual interest on deposits.

Taking part in the program is a wise choice for those serving, Montanaro says, provided they don't go chasing after a similar return on their money back home.

"Going from 10% to half a percent will be a shocker," he says. "Don't look at the savings rates you are going to get now. Compare it to what you got in SDP and you might decide that's just not good enough, that you have to do some risk-type investments. You don't, all of a sudden, want to be in an inappropriate investment if the markets happen to tank and you need that money. But it is human nature to be earning 10% and want to keep earning that 10% back."

If the deployed let go of managing household finances, they should be prepared to share those duties upon moving back home.

"One of the things for me when I came back was that, by necessity, while I was gone my wife was taking care of the business at home of paying bills and doing all the things you have to do on a day-to-day basis," Montanaro says. "When I came back, my inclination was that we would just go back to our normal roles, but that wasn't the case. I never got it back. There are bound to be some challenges in terms of who does what and who is responsible for things on the financial front."

Montanaro warns that the excitement of coming home can lead to a bit of a spending spree. Returning soldiers need to maintain some restraint so they don't demolish their family budget because of their well-warranted enthusiasm.

"There can be a real tendency upon return to try to make up some of that lost time," he says. "That can manifest itself in terms of spending. 'Hey, the kids want this latest hot gadget, they should have it because I'm back and I want to make everybody happy.' Or, 'We're going to take this big trip because we didn't get to take a vacation together last year.' That desire to make things right and make everybody happy could present a challenge in terms of staying on track with your family's budget."

Similarly, the thrill of being back could lead to big decisions and purchases -- deciding to have a child or add to the family, for example -- that might make more sense a bit later in life.

"There is a perspective they have coming back that life is short and it could push them down a path where they might make decisions that, financially, aren't as well thought out as they should be," Montanaro says. "There needs to be a cooling-off period."

-- Written by Joe Mont in Boston.

>To contact the writer of this article, click here: Joe Mont.

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