Are You a Military Spouse? It's Time to Talk Retirement

New changes to the military retirement system means service members and their families have an important decision to make. Get the scoop on what's changing and tips to make the right decision.

Laura Adams, MBA,
January 30, 2018
image of veterans and military spouses ready for retirement
Among taboo topics, personal finance ranks high on the list--even above religion, politics, and death. The reasons for our uncomfortable relationship with money range from a lack of education on the topic to embarrassment about money woes.
But Americans can't afford to shy away from money discussions, especially when it comes to retirement. According to an Economic Policy Institute study from June of this year, nearly half of families don't have retirement accounts. This is especially important for military families.
In 2018, the military’s retirement system will face its biggest overhaul since World War II. Although, the military’s “old” defined benefit retirement system was generous, it only provided benefits after 20 years of service. For the 83% of service members who left early, they received no benefit.
Current service members and their spouses have a tough but important decision to make this year: enroll in the new system or stick with the old one. Here are some tips to help you choose the right retirement option. 

What's the new blended retirement system for the military?

First, it's important to know if the changes to the military retirement system will affect your family. Service members with less than 12 years of service as of December 31, 2017 can choose to enroll in the new blended system or keep the old one. If the service member has served for over 12 years, they're grandfathered into the legacy system.
The new blended retirement system has three parts:
  • A defined contribution plan that vests at two years (similar to a 401 (k))
  • A continuation bonus at around 12 years of service
  • A defined benefit pension at retirement after 20 or more years
With the new plan, the government provides a 1% contribution after 60 days of service, and automatically enrolls service members to contribute 3%. Service members can decrease their contribution or increase it to 5% and receive a 5% match from the government.

How can military families weigh their retirement options?

Deciding which retirement choice to make is a personal decision and should be evaluated carefully. Discuss your financial goals openly and as a family. While many people join the military and intend to serve until retirement, that doesn't always happen.
If the service member in your life is sure that he or she will stay until retirement, the current defined contribution plan may be the best choice. Staying the full 20 years means receiving retirement pay that's 20% higher than it would be under the new system. Leaving early means you'll have no retired pay and no matching contributions from the governement.
If the service member in your life plans to leave the military before the required 20 years, the new blended retirement system is more beneficial. If your family choses this option, make a goal to contribute 5% so you get the highest government match. Too many Americans report not knowing how much they should save for a comfortable retirement. This plan encourages service members to take responsibility for their own retirement instead of relying solely on a pension.

How can military familes improve their financial lives?

While planning for retirement is an essential part of your financial health as a couple or family, don't forget about managing your day-to-day expenses. Budgeting can be a challenge, especially for military families who are asked to relocate frequently.
Building an emergency saving fund of at least three to sixth months of living expenses is a wise goal. Start small by putting a percentage of each paycheck into a separate savings account.
With this important change, military spouses and families should be ready to discuss their goals and then make the best choice for their retirement. Talking about money can be difficult, but it's critical for your financial future.
This article was written by military spouse, Brittany Benassi, CFP, who is a financial planner at AAFMAA Wealth Management and Trust. 

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