Military Saves Week: Day 4, Save For Retirement!
by johnnyc2id on Feb 28, 2019

February 25th to March 2nd is Military Saves Week, designed to help promote personal saving and reducing debt. Each day of the week will have a special focus and today’s focus is saving for retirement!
Day 1’s Blog, Save With a Plan!
Day 2’s Blog, Saving Automatically!
Day 3’s Blog, Save For the Unexpected!
Of course, for those service members that qualify for a retirement pension, that pension will be a main part of your retirement income plan, but it should not be your only source of income in retirement. In this article, we will talk about two other ways to save for retirement while serving in the military; the Thrift Savings Plan (TSP) and IRAs.
When it comes to the military and saving for retirement, at the core of your plan will need to be the Thrift Savings Plan (TSP). The TSP is the military’s version of a 401K, and for those service members enrolled in the Blended Retirement System, it even comes with government contributions. Investing in the TSP is easy. You elect to begin making contributions to the TSP right from your My Pay account. Your contributions are then invested in one (or all) of five different funds; the G (Government) Fund, the F (Fixed Income) Fund, the C (US mid to large sized company stocks) Fund, the S (US mid to small company stocks) Fund, and the I (International stocks) Fund. The TSP also offers a Lifecycle Fund, which is a professionally managed mix of all five funds, tailored to your retirement age. Your contributions go directly from your paycheck to the TSP, based on the deferral percentage you select in My Pay. Those contributions can be to a traditional TSP account (pre-tax) or a Roth TSP account (post tax). Your contributions do not have to be one or the other, you can elect a portion go to both a traditional and a Roth. The difference in the two contributions are in the way they are treated from a tax standpoint. A traditional contribution is pre-tax, meaning your taxable income for the year will be lowered by the amount of the contribution. The contribution then stays in the TSP, deferring any taxes owed, until you withdraw that money, at which time you will owe income taxes on the contribution and any earnings that the contribution made. On the other side the Roth contributions are post-tax, meaning those contributions will not lower your taxable income in the year that they are made. However, when the Roth contributions are withdrawn from your TSP account, they will not be taxed, nor will any earnings on those contributions. There is a limit on how much you can contribute to a TSP in a calendar year and for 2019, that limit is $19,000. The TSP also has some great benefits for service members who are in a tax-exempt income zone.
The third rung of your retirement income plan can be an Individual Retirement Arrangement, most commonly referred to as an IRA. An IRA, like the TSP, can be a traditional or a Roth account. With an IRA, you can invest your money in almost anything, but most commonly they are made up of Mutual Funds and ETFs. An IRA can be a great addition to the TSP in your retirement savings plan, as they give you a little more flexibility and options when it comes to investment choices and withdrawals. That said, they also tend to charge more than the TSP when it comes to on-going account maintenance. The IRS puts contribution limits on IRAs as well, and for 2019, that limit is $6,000.
Both TSPs and IRAs are portable retirement accounts, which means, even if you leave your current job, the account remains yours. Now, if you aren’t in an active pay status for the federal government, you can’t contribute to the TSP, but the money that is in there is always yours. Ideally, you contribute to a TSP and an IRA, but if that is not in your budget, I would start by using the TSP, as the simplified choices and low expenses make it a great place for you to start building up your retirement income plan. With commitment and discipline, whether you qualify for a military pension or not, regular contributions to a TSP and IRA can help give you a solid foundation to ensuring a healthy financial retirement. The best day to start saving for retirement was yesterday, so if you didn’t start yesterday, do the next best thing and start today! Take advantage of all the resources that the Military Saves Website provides by clicking here. I have also added some great websites below to get you some more information on the TSP. Good luck and get saving!