« click here for more Investing
The Best Valentine: Financial Security For Life
By Meredith Leyva
Spring 2004
"Don't worry. I'll take care o' 'ya, honey." No, it's not Anthony Soprano talking to his wife. It's the military husband who relies on the military system and his own retirement savings to care for his spouse when he is gone.
But how reliable is that strategy? The average woman lives seven years longer than her husband - often in dire poverty. That's because most couples drain their personal savings when the husband gets sick in order to care for his health and become eligible for Medicaid benefits. When he dies, the wife is left with no money and no one to provide physical care for her.
Contrary to popular belief, Social Security and veterans' benefits do not provide much added financial support for military widows, and these government programs may get worse. Social Security merely provides a minimum foundation of protection, and never was intended to pay for all retirement needs. Furthermore, the average military widow receives only about $6,000 per year in death benefits from the Veterans' Administration.
Social Security may be headed for bankruptcy, and proposed reforms require individuals to save for their own retirement using government-monitored Personal Savings Accounts (PSAs). Similar to the Thrift Savings Plan, the PSA system would mandate that individuals place a percentage of their FICA tax into one of several government-monitored investment plans run by private investment companies. The remaining FICA tax would go toward supporting the Social Security Trust Fund, which increasingly would be used as a safety net for the poorest retirees.
At worst, Social Security may not survive in its current form for you or your wife's retirement. At best, Social Security as it exists today simply does not provide enough income to retire with any semblance of dignity.
Finally, because military wives relocate frequently, often they cannot keep a job long enough to pay much into Social Security or receive retirement benefits such as a 401(k) plan. That means most wives don't have any significant savings for retirement.
What's a devoted husband to do?
The most important legacy a military husband can provide a spouse is her own Individual Retirement Account, or IRA. This is a tax-free savings account for her retirement, and the amount of money invested in it each year should equal or surpass the servicemember's own savings, up to the maximum contribution of $3,000 per year.
IRAs leverage the magic of compound interest. For example, if you invest $100 per month in an IRA and earn eight percent interest annually, that eight percent gets reinvested with your $100 monthly payments and results in $324,180 in 40 years. That may seem like a lifetime, but that's the key: investing your money throughout your lifetime until you retire. An individual starting to save for retirement at age 30 has 40 years until his or her retirement date at about age 70.
An IRA is easy to set up. Ask your colleagues and friends who they use as a financial advisor and do your research to find a reputable one. You'll recognize the names of major companies such as Charles Schwab, but many excellent smaller companies provide equally sound financial advice. If you can't find a broker who will take you as a client, check out your base credit union.
When you open the account, set up a direct deposit that sets aside a certain amount of your paycheck each month for investment. If you're able, also set up your own IRA to make sure you'll have plenty of money for your own retirement. Once the account is set up, all you have to do is sit back and watch the magic of compound interest grow your investment during your lifetime.
Your financial advisor should discuss the amount of income you will need for retirement - and therefore how much you will need to save - but most couples need at least 70 percent of their pre-retirement income in order to live comfortably in retirement. In other words, if you make $50,000 at age 66, you probably will need $35,000 per year to live comfortably when you retire at age 67. Some of that retirement income may come from military retirement benefits and survivor's benefits, but you will need to determine exactly how much in order to plan the amount you need to save to make up the difference.
You may have other needs in retirement, such as caring for children or grandchildren - another good reason to get the advice of a professional financial advisor when planning for your retirement.
Husbands, you will receive a lifetime of gratitude for your wisdom and foresight by spending an hour to set up your wife's IRA. After all, what better gift for a husband to give than a lifetime of financial security!
# # #
Meredith Leyva is the founder of CinCHouse.com (www.cinchouse.com) and the author of "Married to the Military: A Survival Guide for Military Wives, Girlfriends and Women in Uniform."
Related articles:
How Much Is Enough For Retirement?
Financial Planning Pays Off: Choosing a Financial Planner
Finance Your Future Today: Getting Started on Retirement Planning
Make The Move From Saving To Investing: Stocks, Bonds, Mutual Funds