Retirement planning as a U.S. armed forces member is slightly different than for those in the civilian sector. This is because armed forces members are eligible to retire after 20 years of service, which means they can retire much younger than the average worker in the United States. However, with this younger retirement age comes unique strategies and challenges, so you need to make sure you are on track for reaching your retirement goals.
Why you need to contribute to a military retirement plan
Saving for retirement as an armed forces member needs to be a priority. You may be tempted to pass on contributing to your retirement savings because you can qualify to receive a pension after 20 years of service. However, the reality is that many service members never reach 20 years of service.
Changes in your personal goals, health issues, or layoffs could mark the end of your military career sooner than you imagined. For that reason, it is important to have a flexible strategy for reaching your retirement goals regardless of how long you are able to serve.
How to save for your military retirement plan
Everyone’s retirement saving strategy looks a little different depending on individual circumstances and goals. As a government employee, you are eligible to contribute to a Thrift Savings Plan (TSP) along with a 401(k) and an individual retirement account (IRA).
Of these plans that you choose to use, you should make sure you are making contributions. Especially if you are eligible for the Blended Retirement System (BRS). Under the BRS, your TSP contributions are matched after two years of service. If you contribute 5% of your pay toward your TSP, BRS will match 4% plus an automatic 1% contribution, resulting in a matching contribution of 5%.
You are eligible to contribute up to $19,500 to your TSP as of 2021 plus an additional $6,500 if you are age 50 or older. Many financial professionals recommend pacing your contributions throughout the year. Contributing too much too early in the year could cut off your matching dollars for the remainder of the year.
Additional thoughts about your military retirement plan
Let’s assume a person enters the armed forces at 18. If they serve for 20 years, they are eligible to receive pension at 38. However, at this age, they would still be ineligible to withdraw from a TSP or 401(k) without receiving an early withdrawal penalty.
If you do not plan on serving beyond 20 years until you reach your retirement age for your TSP or 401(k), you should have a strategy in place for generating income. This might be as simple a solution as finding a job in the civilian sector after retiring from the military. Or, you might contribute to other wealth-generating avenues over the years so you may not need to work after retiring.
For example, you might want to contribute to investment accounts, bonds or certificates of deposit (CDs), so you can grow wealth that you will have access to when you are finished with your 20 years of service.
Talk to a ProVise CFP® professional about your military retirement plan
At ProVise Management Group, our CERTIFIED FINANCIAL PLANNER™ professionals can get to know you and your current financial circumstances, goals, risk tolerance and personal values to help you develop a plan that works for you. We can also create a written plan for you at a fiduciary standard of care. All our written plans come with an unconditional money-back guarantee. If you are unhappy with your written plan, you can return it to us, and we will refund 100% of the fee paid.
Are you ready to talk to a professional about your military retirement plan? Contact ProVise today to schedule a complimentary consultation.