Why a retirement savings account is crucial for military members
Jennifer Nelson and her military airman husband, Nathan, always planned for their retirement and the unexpected — doing so helped when tragedy struck.
Nathan had less than a 1% chance of being in a catastrophic accident while serving in Afghanistan as an intel analyst, but it happened anyway, she said. Jennifer was at their home in Tacoma, Wash., and pregnant when she heard Nathan had been hurt, and immediately changed her life. She left her job and spent the next nearly three years out of work caring for him and their newborn. “My sole focus was now on getting Nathan back operating in a new normal and having this baby and figuring out what that looks like,” she said.
The couple are 5½ years post-injury. Nathan is quadriplegic, but the two of them are both back to work. And even during these tumultuous times, they didn’t neglect their future selves and focus on their finances — both the present, short-term and retirement. Properly planning for the future and managing money together was a goal they had created when they married 10 years ago. Having an emergency savings account helped. “We view it as a nonnegotiable,” she said.
Without an emergency savings account, a tragedy could deter anyone from having enough money to manage their day-to-day responsibilities and expenses, let alone save for retirement. Military families in particular need to stay on top of their finances, as they face challenges civilians do not have — such as eventually having to transition to regular civilian life, working in dangerous situations, and having to move from state to state, thereby forcing spouses to work inconsistently (if at all). Military families may also live in unsafe conditions. Military housing may come with rodents, mold and lead poisoning, according to a Reuters investigation, and they may also be waiting on repairs to make those quarters livable.
Just like the private workforce, servicemembers are mostly responsible for funding their retirement. The military changed its retirement benefit system, where servicemembers need to be more involved in planning for their futures. In order to get the defined benefit (otherwise known as a pension), servicemembers had to stay for 20 years — but that meant 81% of military members left with no benefit, according to the military.
Here are some financial management tips advisers suggest military families consider, especially when it comes to preparing for the future:
The military implemented a new program to save for retirement in 2018, which lowered the defined benefit income service members get upon retirement and automatically enrolled them in a defined contribution system, called the Thrift Savings Plan, which is similar to a 401(k) plan. Under the previous system, the Thrift Savings Plan was voluntary. “Before it was important to make contributions, now it is critical,” said George Reilly, a financial adviser at Safe Harbor Financial Advisors in Occoquan, Va. Military members may still get a pension, but it’s been reduced, which means the onus of saving for the future falls on their shoulders.
The new system has three parts: the Thrift Savings Plan, a defined benefit and a “continuation pay” bonus for those who stay past 12 years. The Department of Defense will match contributions, and after two years of service, military members are vested, which means all of their assets in their Thrift Savings Plan belong to them.
It’s important to balance an emergency savings account and a retirement savings account, just like the Nelsons, Reilly said. Like civilians, military members and their families need to prepare for the unexpected, whether they be life-threatening injuries or an expensive car repair while the serving spouse is away from home. “The recent government shutdown, even though it didn’t affect the Department of Defense but it did our brethren in the Coast Guard, showed the true impact of living paycheck to paycheck,” he said.
Military families may have to move from base to base across the country, which puts a strain on the nonmilitary spouse’s employment. These husbands and wives can’t keep a job for too long, which means their earnings potential is disrupted, they may be unemployed for long periods and they can’t save for retirement in their own employer-sponsored accounts.
Unemployment and underemployment were “significant challenges” for military spouses, according to a Hiring Our Heroes survey of almost 1,300 spouses of active duty members. The lack of employment opportunities could force families to leave the military, which could also hurt potential retirement savings.
Resources are available specifically to military spouses, through the Post 9/11 GI Bill for education programs and military branches’ job training assistance programs. The Department of Defense launched the Military Spouse Employment Partnership, which helps individuals prepare, find and begin careers. USAJobs.gov, a federal government jobs site, has an icon that represents opportunities open specifically to military spouses.
Many posts have personal financial counselors available to military members, said Michelle Buonincontri, a financial adviser in Anthem, Ariz. These professionals are available to family members as well, and will discuss saving for retirement, spending in retirement, managing credit and debt and what benefits are available to active duty and retired military members. They can also calculate how much money service members may need in the private workforce pretax to equal what they earned while serving, when they receive more tax breaks or live in states that do not tax military pay.
Also see: How much does financial independence cost? It depends on your retirement philosophy
For those who do not want to work with a financial adviser or counselor, there are online resources, including the Department of Defense’s Military OneSource. Consultants provide assistance in financial planning and management, elder care, adoption, personal health and wellness, as well as emotional stressors, such as parenting or marital issues.
Some creditors take advantage of servicemembers, whether they’re single or have families, because they know they have a steady income and their wages could be garnished. “They have a target on their back,” Buonincontri said. Military families may also lack financial literacy skills, and may risk spending more after deployment, such as buying a new car, or putting a down payment on a home.
Part of avoiding high credit card debt is planning, which is something the Nelsons have been adamant about, Jennifer said. Right now, they’re budgeting and comparing prices for landscaping. They’re balancing savings for that goal but also considering insurance for their car and home, especially because they live in a hurricane zone. “That’s the way we view savings,” she said. “Because those ‘what ifs’ can happen.”
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