The time to plan for retirement finances is while still an active-duty family. The retirement path can present obstacles that many military spouses do not realize will be in their way. From uncertain job markets, questions of where to live, and fees for home purchases, insurance and utilities, expenses increase during military retirement.
Three steps to prepare for financial stability in retirement include investing a second income, saving deployment pay and setting up retirement accounts even for military spouses not employed full time. With financial planning, military families can make smart decisions to prepare for any loss of income that may occur during the transition to military retirement.
Steps for Financial Stability in Military Retirement
Invest a Second Income for Growth
Over half of military spouses have a job or earn income, in addition to their spouse’s pay, according to the Department of Labor. If a military family has two incomes, saving part or all of one income is a step to increase savings before retirement.
There is a time gap when the active duty pay ends and the retirement pay begins. If a new job has not been found before terminal leave ends, extra savings will ease any potential financial stress of this pay gap. Retirement transition checklists suggest having three to six months of expenses saved prior to separating from active duty.
A good goal is to save at least 10% of each income while on active duty. If possible, put extra into savings or an investment account if it is not needed for day-to-day expenses.
Save Deployment Pay
The extra pay a service member receives during deployments or field operations can be used to save more for the future. Many active-duty families live paycheck to paycheck. Extra deployment pay can feel like a financial holiday. Instead of celebrating the extra income by spending it, think about the future.
Save 50% of the extra pay to build up savings. Then some is enjoyed now and the rest is saved to bring enjoyment later. Depositing this extra pay into a brokerage account or high-interest rate CD can help earn even more.
Set up Retirement Accounts – Spouses Too
Both service members and military spouses can consider setting up a retirement account. Depositing a portion of pre-tax income into a retirement account is helpful for future financial stability. The servicemember can invest in the Thrift Savings Plan (TSP) or an Individual Retirement Account (IRA) while the military spouse can set up an IRA.
It can feel like giving up income, but after years of active-duty service, the amount of money saved will look and feel like a big accomplishment. It adds another layer of financial security to retirement life. There are multiple ways that early withdrawals can be made without tax penalty if they are used for qualifying purposes too.
If a military spouse earns income, whether through a full-time job or part-time work, a portion of the money can be saved in a retirement account as well. This can add significant financial growth to the overall retirement money picture.
Planning for the Unknowns Before Retirement
Retirement brings known challenges and new opportunities to the financial front. While pay is consistent during the active-duty years, make smart steps to maximize savings.
Military spouses can leverage income during the active-duty years to secure a financially stable retirement by implementing strategic savings and investment strategies. By proactively managing finances and maximizing savings opportunities, military families can pave the way toward financial freedom and security in retirement. Twenty years goes by quickly in the end.