Why MilSpouses Should Save for Retirement
The Defense Department offers eligible service members retirement benefits to prepare for their transition, but it’s also just as important for military spouses to plan for their own retirement. With frequent relocations and job changes, it is often difficult for military spouses to consistently save for retirement. Here are some helpful insights and tips military spouses have found to save for retirement.
Reasons to save for retirement
- Retirement is probably the most expensive goal you’ll save for in life. And you can’t borrow for it like higher education or home purchases.
- Your spouse may have access to retirement savings through the Thrift Savings Plan (TSP) and a possible military pension, whether they’re covered under the Blended Retirement System (BRS) or the Legacy Retirement System, but it’s important for you to be saving as well. After all, more money for retirement is a good thing!
- Military spouses who are frequently unemployed or have a limited work history may qualify for reduced Social Security retirement benefits.
- Injury, illness, raising children and other life situations could interrupt your future earning and saving ability.
- You don’t know how long retirement will be. With longer life expectancy, you could need enough savings to last 30 years or more!
Strategies for retirement saving
It’s almost never too early — or too late – to start saving for retirement. With time and compound interest, even small contributions can really add up. Of course, larger contributions don’t hurt either and most retirement plans allow you to “catch up” by making additional contributions if you are turning age 50 or older.
If you are working, your employer may offer matching contributions to your retirement account. That’s free money you shouldn’t pass up, even if you don’t plan to stay long enough to fully vest in the account. Many employer retirement plans have a vesting schedule, so ask your employer or plan administrator to learn the details.
If you don’t have regular employment or access to an employer retirement plan, then consider saving in a Spousal Individual Retirement Account (IRA). You may be eligible for this type of savings if you don’t have taxable income, as long as your spouse did and you file a joint return with your spouse.
Types of retirement plans
Through retirement savings plans, the federal government provides great tax advantages to encourage you to prepare for retirement. However, different plans vary in the kind of tax benefits they offer, their contribution limits and withdrawal rules. Here are highlights of the most common retirement plans that many military spouses use to prepare for their future.
401(k)
401(k)s are offered by many employers as an employee benefit. The money you contribute may be invested into a variety of options, such as stocks, bonds, mutual funds and Exchange Traded Funds (ETFs). For 2022, the annual contribution limit is $20,500 ($22,500 in 2023). This can change each year so be sure to check with the IRS for any changes.
Traditional 401(k)s offer tax advantages right away by reducing your taxable income. For example, if you contribute $3,000 to your 401(k) in one year, your taxable income goes down $3,000. Also, your money grows tax-deferred until you withdraw it, typically starting at age 59 ½.
Roth 401(k)s offer tax advantages in the future. Using the same example, if you contribute $3,000 to your Roth 401(k) in one year, your taxable income is not reduced. However, your money grows completely tax-free and is typically eligible for tax-free withdrawals starting at age 59 ½.
Many employers encourage you to use their 401(k) by offering matching contributions. For example, they may match your contributions up to a certain percentage of your compensation.
When you leave a job, you can “roll over” your contributions to another company’s 401(k) or another type of retirement plan such as an IRA. This feature allows you to consolidate multiple retirement accounts when you change jobs. Since different 401(k) plans can vary greatly in management fees and investing options, rollovers may help you move your funds to investments that cost less and better fit your investment goals.
Learn more about 401(k)s and similar plans like 403(b)s and 457(b)s on the IRS website and check out the retirement calculator to determine how much to contribute.
Traditional IRA
A traditional IRA is an individual tax-deferred savings plan. Qualifying contributions may reduce your taxable income up to a certain limit.
Contributions may be invested into a variety of options, such as stocks, bonds and mutual funds. Your investment grows tax-deferred until you withdraw it — typically starting at age 59 ½. IRAs provide more flexibility by allowing you to choose your investment options.
In 2022, you can contribute up to $6,000 per year to a traditional IRA, or up to $7,000 if you’re age 50 or older ($6,500 and $7,500 respectively for 2023).
Learn more about traditional IRAs on the IRS website.
Roth IRA
Roth IRAs are similar to traditional IRAs. The big difference is you pay taxes up front on the money you contribute, but you may withdraw the money and all compounded growth tax-free at retirement – typically at age 59 ½. If you are in a very low tax bracket, you may pay low or no tax on your Roth contributions and enjoy tax-free withdrawals on the compounded growth. On the flip side, if you are in a high-income bracket, the amount you contribute to a Roth may be reduced or eliminated. These can change over time so be sure to check back as your income may fluctuate.
In 2022, you can contribute up to $6,000 per year to a traditional IRA, or up to $7,000 if you’re age 50 or older ($6,500 and $7,500 respectively for 2023).
Learn more about Roth IRAs on the IRS website.
SEP IRA
Simplified Employee Pension (SEP) is a type of retirement plan mainly for self-employed people or small business owners. A SEP plan allows employers to contribute to traditional IRAs set up for employees. It’s easy to set up and operate, has low administrative costs and flexible contributions.
In 2022, you or your employee may contribute up to 25% (or $61,000) of your income to your SEP account. Learn more about SEP IRAs on the IRS website.
The takeaway
It is just as important for military spouses to save for retirement as it is for their service members. To learn more about retirement savings options, make an appointment with a free personal financial manager or counselor at your nearest Military and Family Support Center.
MilSpouse Money Mission® is a Department of Defense resource that offers FREE personal financial education specifically geared toward spouses. There is a Money Ready guide for various stages of financial life, a MilLife Milestones section to help you through the big moments in your military journey, a blog, spouse videos, quizzes, calculators and more!
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Why MilSpouses Should Save for Retirement
The Defense Department offers eligible service members retirement benefits to prepare for their transition, but it’s also just as important for military spouses to plan for their own retirement. With frequent relocations and job changes, it is often difficult for military spouses to consistently save for retirement. Here are some helpful insights and tips military spouses have found to save for retirement.
Reasons to save for retirement
- Retirement is probably the most expensive goal you’ll save for in life. And you can’t borrow for it like higher education or home purchases.
- Your spouse may have access to retirement savings through the Thrift Savings Plan (TSP) and a possible military pension, whether they’re covered under the Blended Retirement System (BRS) or the Legacy Retirement System, but it’s important for you to be saving as well. After all, more money for retirement is a good thing!
- Military spouses who are frequently unemployed or have a limited work history may qualify for reduced Social Security retirement benefits.
- Injury, illness, raising children and other life situations could interrupt your future earning and saving ability.
- You don’t know how long retirement will be. With longer life expectancy, you could need enough savings to last 30 years or more!
Strategies for retirement saving
It’s almost never too early — or too late – to start saving for retirement. With time and compound interest, even small contributions can really add up. Of course, larger contributions don’t hurt either and most retirement plans allow you to “catch up” by making additional contributions if you are turning age 50 or older.
If you are working, your employer may offer matching contributions to your retirement account. That’s free money you shouldn’t pass up, even if you don’t plan to stay long enough to fully vest in the account. Many employer retirement plans have a vesting schedule, so ask your employer or plan administrator to learn the details.
If you don’t have regular employment or access to an employer retirement plan, then consider saving in a Spousal Individual Retirement Account (IRA). You may be eligible for this type of savings if you don’t have taxable income, as long as your spouse did and you file a joint return with your spouse.
Types of retirement plans
Through retirement savings plans, the federal government provides great tax advantages to encourage you to prepare for retirement. However, different plans vary in the kind of tax benefits they offer, their contribution limits and withdrawal rules. Here are highlights of the most common retirement plans that many military spouses use to prepare for their future.
401(k)
401(k)s are offered by many employers as an employee benefit. The money you contribute may be invested into a variety of options, such as stocks, bonds, mutual funds and Exchange Traded Funds (ETFs). For 2022, the annual contribution limit is $20,500 ($22,500 in 2023). This can change each year so be sure to check with the IRS for any changes.
Traditional 401(k)s offer tax advantages right away by reducing your taxable income. For example, if you contribute $3,000 to your 401(k) in one year, your taxable income goes down $3,000. Also, your money grows tax-deferred until you withdraw it, typically starting at age 59 ½.
Roth 401(k)s offer tax advantages in the future. Using the same example, if you contribute $3,000 to your Roth 401(k) in one year, your taxable income is not reduced. However, your money grows completely tax-free and is typically eligible for tax-free withdrawals starting at age 59 ½.
Many employers encourage you to use their 401(k) by offering matching contributions. For example, they may match your contributions up to a certain percentage of your compensation.
When you leave a job, you can “roll over” your contributions to another company’s 401(k) or another type of retirement plan such as an IRA. This feature allows you to consolidate multiple retirement accounts when you change jobs. Since different 401(k) plans can vary greatly in management fees and investing options, rollovers may help you move your funds to investments that cost less and better fit your investment goals.
Learn more about 401(k)s and similar plans like 403(b)s and 457(b)s on the IRS website and check out the retirement calculator to determine how much to contribute.
Traditional IRA
A traditional IRA is an individual tax-deferred savings plan. Qualifying contributions may reduce your taxable income up to a certain limit.
Contributions may be invested into a variety of options, such as stocks, bonds and mutual funds. Your investment grows tax-deferred until you withdraw it — typically starting at age 59 ½. IRAs provide more flexibility by allowing you to choose your investment options.
In 2022, you can contribute up to $6,000 per year to a traditional IRA, or up to $7,000 if you’re age 50 or older ($6,500 and $7,500 respectively for 2023).
Learn more about traditional IRAs on the IRS website.
Roth IRA
Roth IRAs are similar to traditional IRAs. The big difference is you pay taxes up front on the money you contribute, but you may withdraw the money and all compounded growth tax-free at retirement – typically at age 59 ½. If you are in a very low tax bracket, you may pay low or no tax on your Roth contributions and enjoy tax-free withdrawals on the compounded growth. On the flip side, if you are in a high-income bracket, the amount you contribute to a Roth may be reduced or eliminated. These can change over time so be sure to check back as your income may fluctuate.
In 2022, you can contribute up to $6,000 per year to a traditional IRA, or up to $7,000 if you’re age 50 or older ($6,500 and $7,500 respectively for 2023).
Learn more about Roth IRAs on the IRS website.
SEP IRA
Simplified Employee Pension (SEP) is a type of retirement plan mainly for self-employed people or small business owners. A SEP plan allows employers to contribute to traditional IRAs set up for employees. It’s easy to set up and operate, has low administrative costs and flexible contributions.
In 2022, you or your employee may contribute up to 25% (or $61,000) of your income to your SEP account. Learn more about SEP IRAs on the IRS website.
The takeaway
It is just as important for military spouses to save for retirement as it is for their service members. To learn more about retirement savings options, make an appointment with a free personal financial manager or counselor at your nearest Military and Family Support Center.
MilSpouse Money Mission® is a Department of Defense resource that offers FREE personal financial education specifically geared toward spouses. There is a Money Ready guide for various stages of financial life, a MilLife Milestones section to help you through the big moments in your military journey, a blog, spouse videos, quizzes, calculators and more!
