Retirement Planning for Military Spouses

By Carol Church

The military’s new blended retirement system will be in full effect as of January 2018, and the changes will mean that many more service members will leave service with substantial retirement savings. Though not everyone is pleased with everything about the new system, overall, this is good news for the military population, more of whom will now have a nest egg in their later years.

But let’s not forget: that money belongs to the member who serves. Of course, as long as the couple remains married, and the service member is still alive, all should be fine there. But in the event of divorce or the member’s death, things look quite different.

Divorce

Most military spouses are female, and past studies have found that military wives earn less and spend less time in the workforce than civilian women, meaning they may have very little in the way of retirement savings of their own. It’s important to know that after a divorce, ex-spouses are not automatically entitled to the service member’s retirement pay. However, exes may be awarded a portion of the pay (up to 50%) by a court in the divorce order.

Death

After the death of a service member, retirement pay stops. If the family has elected to pay into the Survivor Benefit Plan, which is similar to life insurance, families can receive up to 55% of the service member’s retirement pay monthly for life, in exchange for a monthly premium. However, remember, this is only 55% of that pay! Benefits will reduce significantly.

Planning Ahead

No one wants to plan ahead for these eventualities, but since they do happen, it’s very important for spouses of service members to set aside funds of their own. If nothing else, they will be an excellent source of supplemental income in the years to come, and will make both members of a couple feel secure and cared for. And in some cases, spouses who find themselves on their own will need this money. So, what are some options for military spouses wanting to save for retirement?Traditional or Roth IRA—It’s a great idea for both spouses to fund an IRA, but if the spouse does not have any other retirement funds in his or her names, this becomes a priority. Families should try to fully fund a low-cost IRA every year when possible. IRAs are great because they are so easily automated and are extremely portable. However, you can’t contribute that much per year ($5500, or $6500 if over 50).

1. Prioritize jobs with retirement accounts—This may be difficult or impossible for spouses who must work part-time or in other less regular jobs, but employer-matching funds are a key benefit whenever they can be found!
2. Spouses should try to contribute the max amount when possible, especially if “catching up” after years of not owning a plan. This can be done even if the military spouse is contributing to the maximum to TSP.
3. Consider a self-employment retirement account. If the nonmilitary spouse has self-employment income, he or she has a couple of options:
   1. Simplified Employee Pension (SEP), to which he or she can contribute as much as 25% of net earnings (up to $54,000). These are the easiest to set up.
   2. A solo 401K, to which he or she can contribute as much as 100% of earnings (up to $18,000, or $24,000 if age 50 and over). This may be best if the spouse is not earning much.
   3. The advantage of these plans is that they lower your taxable business income while also creating a retirement nest egg.A SIMPLE IRA. Though perhaps more typically used for small businesses, these plans are easy to set up and workers can contribute 100% of self-employment income up to $12,500.

Every military couple should take the time to put aside retirement savings for both members. Fortunately, there are multiple options that make this fairly easy. This wise financial choice ensures financial security for the future, come what may.