The Thrift Savings Plan offers customers the chance to save for additional retirement security at extremely low cost. But some may believe they don’t need to save for retirement because they receive a pension after 20 years of military service. The truth is that a 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.)
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 an E3 decides to save 5 percent of his or her basic pay in a TSP account. The monthly contributions would be about $90. After leaving the military service after only five years, the veteran could already have almost $7,740. In 20 years that amount could grow to thousands more.
Even after 20 years of service, the pension will only be half of the retiree’s 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 a pension does not include a housing allowance, utilities or a subsistence allowance. TSP savings could help cover these new expenses. To get an idea of how much is needed to save, check out TSP’s how much should I save? calculator.
The roth option may work for some customers – especially if they are preparing for service in a combat zone. Any money earned while in a combat zone is tax-exempt. So when contributing combat zone pay to the TSP’s roth option, customers will never pay income taxes on those contributions and the earnings can also be tax-free if certain conditions are met**. Roth also gives all customers the opportunity to grow their investments tax-free. Just sign into myPay, choose the thrift savings plan option and choose whether you want to make roth or traditional contributions.
Also, a TSP is transferable beyond military service. Even if servicemembers do not retire, they can still keep their TSP retirement account. Federal civilian employees can continue making contributions to their plans. 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 and tools at www.tsp.gov.
- Assumes a 6 percent 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 Jan. 1 of the year you made your first Roth contribution.