Actions to Address Retirement Savings Shortfalls for Military Spouses

Spouses of service members face unique challenges in the workforce, including unemployment and relocations, that can make it difficult to save in retirement plans.

Patrick Beagle relocated four times in the first five years of his enlistment in the U.S. Marine Corps. With every move, his wife lost her job, and, ultimately, lost out on savings for retirement.

Now a certified financial planner (CFP), consultant and owner and president of WealthCrest Financial Services LLC, Beagle reflects on the hardships that spouses of military members face, especially when they’re trying to save steadily on their own. “They’re not able to get consistent employment because every time a military member has to transfer duty stations, in those cases, they end up giving up a job,” he says. “So how does a spouse get any consistency?”

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A recent Department of Defense (DOD) report found that a quarter of military spouses are unemployed—a rate roughly four times the national average of 6.3% in January. Military spouses often face other disadvantages—many are underemployed and earn less than they are qualified for, or earn nothing at all.

“Spousal unemployment in the military community is much, much higher than it is in the civilian world,” says Tara Falcone, a chartered financial analyst (CFA), CFP, Navy spouse and founder of financial empowerment company ReisUP. “When most retirement savings accounts such as IRAs [individual retirement accounts] or 401(k)s require you to have earned income in order to contribute to them, that in itself presents a barrier for military spouses to save and invest for retirement.”

Available Plans for Employed and Unemployed Spouses

Even if a military spouse finds a new job with every relocation, in many cases, their time with an employer does not meet the requirements to join a retirement savings plan, Beagle says. In cases like these, service members are encouraged to contribute to the federal Thrift Savings Plan (TSP), a government-backed tax-deferred retirement savings plan that automatically enrolls active-duty service members, but not their spouses.

Falcone says TSPs provide low fees for several available funds, in order to enable service members and their spouses to keep larger portions of their returns. If a spouse is not contributing to any retirement plan, Falcone suggests allocating a larger percentage of income to the TSP in order to meet appropriate savings levels for the future.

“Service members should be increasing the percentage of income they’re putting into the TSP, to ultimately make sure that they have enough to live off in retirement for both of them,” she continues. “That TSP is meant to cover you as a couple in retirement.”

However, Beagle notes that many entry-level service members have low wages and, therefore, rarely participate in TSPs or neglect to contribute to them so they can instead provide for their current needs. He encourages service members to enroll into a Roth TSP option, where they can contribute after-tax dollars during their lowest tax bracket years. “Even if the spouse is working, they’re going to be in the Roth window,” he explains. “They’ll probably be in the cheapest or in the lowest tax bracket they’ll ever be in in their life, in the military.”

Spouses who are working or earning income may contribute to an IRA or Roth IRA, Falcone adds. Or, if the spouse has not earned income themselves, active-duty service members can also contribute to a spousal IRA on their behalf. Military families may contribute directly to a TSP, an IRA up to the maximum amount allowed each year and a spousal IRA at the same time. “They can technically have three accounts—the TSP and then an IRA for both of the people in the marriage,” Falcone says.

Employer-Sponsored Benefits

Glenn Sulzer, a pension and employee benefits law analyst for Wolters Kluwer Legal and Regulatory U.S., says plan sponsors can suspend loan payments and offer hardship distributions to offset costs for military families. “A plan may provide for the suspension of an employee’s obligation to repay a plan loan during the period of the employee’s military service without risking disqualification or engaging in a prohibited transaction,” Sulzer explains. “However, a plan is not required to do so.”

Likewise, plan sponsors may offer hardship distributions for “an immediate and heavy financial need if it is made in order to pay for specified expenses,” Sulzer adds. Expenses incurred while a spouse is in the military, such as payments necessary to prevent eviction from a principal residence or to avoid foreclosure on a mortgage may entitle a spouse, as the primary beneficiary, to a hardship distribution.

It’s important to note these benefits only apply to qualified retirement plans for which a spouse would meet the criteria. Employers that do not provide such plans may consider automatic enrollment or other measures to ensure participation and, thus, access to the benefits provided, Sulzer says.

New Opportunities

As work environments become more flexible, Beagle imagines more employers will create “military spouse-friendly jobs” that allow employees to primarily work remotely, therefore making it easier for service member spouses to continue at one job. “It allows these workers to build that tenure to be qualified for the benefit programs that are available,” he says.

In the meantime, Beagle recommends employers change their rules regarding compensation practices. For example, because active-duty military spouses receive Tricare, a health care program of the U.S. DOD, employers can consider transferring the dollars they would spend on their employees’ health care costs to the retirement savings plan. “For most employers, the cost of health care benefits is huge,” Beagle says. “So, transfer those dollars if the spouse does not elect to have health care coverage.”