Four Reasons to Contribute to the TSP—Despite Having a Military Pension

By Kisha A. Taylor, Writer/Editor, Federal Retirement Thrift Investment Board

The Thrift Savings Plan offers you the chance to save for additional retirement security at extremely low cost. But you may believe you don’t need to save for retirement because you’ll receive a pension after 20 years of service. Truth is, your military pension alone may not be enough. Here are four reasons to contribute to the TSP. (To start saving, visit myPay and choose the “Thrift Savings Plan” option.)

1. Only about 17 percent of those who join the military actually serve the full 20 years. Twenty years is a long time—and if you leave the military before then, you won’t get anything. But the beauty of the TSP is that you can use time to your advantage. Let’s say you’re an E-3 and decide to save five precent of your basic pay in your TSP account. Your monthly contributions would be about $90. If you left military service after only five years, you could already have almost $7,740*. In 20 years, that amount could grow to thousands more!

2. Even if you do serve for 20 years, your pension will only be half your pay. If you stay for 20 years, you’ll get a monthly pension equal to roughly 50 percent of your basic pay. Many financial planners estimate that retirees will need at least 80 percent of their regular income to live comfortably after they stop working. And remember that your pension would not include a housing allowance, utilities, and subsistence allowance. Your TSP savings could help cover these new expenses. To get an idea of how much you will need to save, check out our “How Much Should I Save?” calculator under Planning & Tools at tsp.gov.

3. Our Roth option could work for you–especially if you’re going to a combat zone. Any money you make while in a combat zone is tax-exempt. So if you contribute combat zone pay to the TSP’s Roth option, you will never pay income taxes on those contributions, and your earnings can also be tax-free if certain conditions are met**. Even if you aren’t going to a combat zone, Roth gives you the opportunity for tax-free growth. Just sign into myPay, choose the “Thrift Savings Plan” option, and you’ll be able to choose whether you want to make “Roth” or “traditional” contributions.

4. You can keep it with you. If you decide to leave military service before you’re eligible for a military pension, you can still keep your TSP retirement account. If you take a Federal job, you’ll be able to continue making contributions to the Plan. Even if you don’t take a Federal job, you can continue to manage your investments while your savings grow.

Whether you decide to retire from the military or your career goes in a different direction, you can invest in your future by investing with the TSP. It can mean the difference between a comfortable retirement and a difficult one. To start saving, visit myPay and choose the “Thrift Savings Plan” option. To estimate how much your account could grow over time, visit our “How Much Will My Savings Grow?” calculator under Planning & Tools at tsp.gov.

* Assumes a 6% annual rate of return, compounded monthly.

 ** Roth earnings are paid tax-free if 1) you have reached age 59½, have a permanent disability, or have died, and 2) five years have passed since January 1 of the year you made your first Roth contribution.

  

Tip of the Day

  • Written by Guest Blogger | September 30, 2014

    Participate in the Thrift Savings Plan (TSP) - a retirement savings and investment plan for Federal employees and members of the Uniformed Services. It offers the same types of savings and tax benefits that many private corporations offer their employees under 401(k) plans. More info at tsp.gov

Saver Stories View all »

Making Savings a Part of Marriage

Written by Super User | November 26, 2010

Capt. Rob Eckhardt is the first to admit that he hasn’t always been responsible with money. But less than 10 years after a rocky start to saving, Eckhardt reports that he and his wife are free from credit card debt, have a down payment on a home, and are saving regularly for retirement. And, as the Military Saves representative for his Air Force squadron, he’s helping others make similar progress.

Read more...

One Sailor's Course to Financial Freedom

Written by Super User | November 26, 2010

We all know its not easy to get out of debt once you in over your head. But it can be done with the sound advice and support that the Military Saves program offers. I am a testament to that. I was a recently divorced, single mother. Like many people I had credit card debt, a car loan, bad credit, and a low income job that never seemed to be enough to put food on the table.

Then I decided I'd had enough of living paycheck to paycheck and worrying about money all the time.

Read more...

A Plan for Success

Written by Super User | April 26, 2012

I’m Staff Sergeant Robert Zuniga and I have been an active duty Air Force medic for eight years. I plan on staying in long enough so that I can retire at 20 years. I have always been interested in personal finance and would like to share how it IS possible for me and my stay-at-home wife and two kids to not only save and invest a ton of money but also have a lot of responsible fun as well on 'low' enlisted pay. You CAN do it too!

First off, we write down our goals and separate wants from needs.

Read more...