By Jim Middlemiss
Bankrate.com
Monday, March 31, 2006
Recent attacks on Canadian troops in Afghanistan that killed some soldiers and left others injured brings home the stark reality of what happens in times of war and civil unrest. Canada has more than 2,300 troops deployed in Afghanistan, about four per cent of the country's military total of 62,000 soldiers, not including reserves.
Adrian Mastracci, investment counsel at Vancouver’s ‘fee-only’ KCM Wealth Management, says, “Military people make some sacrifices that the rest of us likely do not. They are deserving of their pensions.”
The life of a soldier is no picnic. It involves hard training and dangerous missions. It also requires soldiers to be ready to move at a moment's notice and face the reality that they might not return from their venture alive or could be critically injured.
That's why financial advisers say Canadian Forces personnel and their families have some special financial planning needs that most Canadians don't face. Their financial goals are similar to most Canadians -- they want to buy a house, put their kids through school and save for retirement. "When it comes to actually investing their money, the rules are the same," says Audrey McFarlane, a certified financial planner. "They still need to build balanced diversified portfolios using quality investments."
But given the transitive nature of their jobs, the relatively low pay for foot soldiers and the risks they face, military personnel have some special needs when it comes to financial planning.
Communication is a challenge
Advisers say the biggest challenge is communication. "They are often on three- to six-month assignments say, in Afghanistan, on ships, etc., hence, they are not always easily reached," says Adrian Mastracci, a fee-only adviser at KCM Wealth Management in Vancouver. "It's not always easy to have a conversation with them."
They are often separated from their spouses, which adds to the complexity of their planning needs. "Often, one spouse is in Canada, while the other is serving outside of Canada, so they don't get to discuss the finances as often as many others. You can also get a case where one spouse might live in Vancouver and the other is stationed in say Petawawa (Ontario). That, too, presents communication challenges between the spouses. Typically, one of them directs the finances."
Not only that, Mastracci says a couple who lives in separate locations is more likely to spend more of their cash than if they lived and served in the same location.
Military has own financial advisers
The military recognizes the financial challenges soldiers face, and in 1969, it created the Service Income Security Insurance Plan (SISIP) Financial Services, an internal division whose job it is to provide soldiers with financial help. André Bouchard, president of SISIP, in Ottawa, says when his organization was created, "there was a perceived need that the government benefits that were in place maybe were not sufficient to provide benefits to the family of a dying member or if someone was experiencing a disability."
So SISIP started with a focus on providing additional insurance, and it has since expanded into financial planning, counselling and education. It has 22 financial planners who operate in 19 offices across the country, most of which are on bases or at military headquarters.
Pay varies widely
When it comes to soldiering, it's not a get-rich business. Pay is based on rank and length of time in the service. According to Canadian Forces recruiting information, pay starts as low as $1,300 a month for a beginning cadet and rises to $7,900 a month for a major who has been in the Forces seven year. Pilots and doctors can earn more, as do senior officers.
They do enjoy a number of benefits, though, including 20 days of vacation, medical and dental care, a defined-benefit pension plan, parental leave and relocation benefits.
Insurance can be a problem
One of the biggest hurdles for military personnel is insurance, says Bouchard. The Forces provide life insurance of two times one's annual salary, but "in most cases, this will not be sufficient for married persons to look after the needs of their family." The nature of risk a soldier faces means that obtaining insurance can be a costly challenge, because most polices have a war waiver or prevent coverage for risky activities such as sky diving, which can be part of a soldier's job.
Bouchard explains that SISIP, a self-insurer, provides as much as $400,000 in additional coverage without the war risk limitations found in most policies. "Our premiums would be cheaper than most insurance companies in the marketplace."
He notes the average age of Forces personnel is 34 or 35, so SISIP targets a younger crowd. SISIP focuses on financial education and counselling to assist them in building their assets and learning how to handle their money.
Automated savings plan a must
So, what should soldiers and their families think about when it comes to financial planning? McFarlane says the first thing military personnel need to do is establish an automated savings plan. "Everyone should be doing automated monthly payments to their RRSP." Because military personnel may be gone for months at a time, it's easy to let things slip and miss RRSP deadlines.
They should also be thinking about buying a home sometime down the road. One of the perks of soldiering is access to low-cost military housing. "It's a good deal," notes McFarlane. However, it can also be a hindrance to a soldier's long-term financial health. "They are not participating in the real estate market, so it is important that they save additional money to get into the real estate market."
McFarlane notes that military personnel are also required to move a lot. Fortunately, the Forces provides a relocation program and an allowance that helps stabilize the cost of living when moving from a low-cost to a high-cost city. But that's only part of the moving challenge. McFarlane says that when soldiers and their families move from one province to another, they need to have professionals review their important documents, such as wills, powers of attorney and health care directives, as the rules governing them can differ from province to province.
Keep affairs current
While many Canadians fret over a lack of company pension plan, that's not a problem for those in the Forces. "Military people make some sacrifices that the rest of us likely do not. They are deserving of their pensions," says Mastracci. The plan is indexed to inflation and soldiers know how much they will earn in retirement based on their service and career pay.
Lastly, McFarlane says that military personnel more than any people in any other occupation need to make sure their affairs are current and "everything is in order. You've got to have everything -- financial papers, important documents -- together and accessible." Keep your beneficiaries and executors up to date on your latest moves.
Bouchard says when the time comes to be deployed, soldiers and their family can call on SISIP for advice. "We try to assist them as much as we can before deployment."
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