4 Reaons to Contribute to the TSP‚ÄîDespite 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‚Äôt need to save for retirement because you‚Äôll 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 ‚ÄúThrift Savings Plan‚Äù option.)
1. Only about 17% of those who join the military actually serve the full 20 years.. Twenty years is a long time‚Äîand if you leave the military before then, you won‚Äôt get anything. But the beauty of the TSP is that you can use time to your advantage. Let‚Äôs say you‚Äôre an E3 and decide to save 5% 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‚Äôll get a monthly pension equal to roughly 50% of your basic pay. Many financial planners estimate that retirees will need at least 80% 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 ‚ÄúHow Much Should I Save?‚Äù calculator under Planning & Tools at tsp.gov.
3. Our Roth option could work for you ‚Äì especially if you‚Äôre 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‚Äôs 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‚Äôt going to a combat zone, Roth gives you the opportunity for tax-free growth. Just sign into myPay, choose the ‚ÄúThrift Savings Plan‚Äù option, and you‚Äôll be able to choose whether you want to make ‚ÄúRoth‚Äù or ‚Äútraditional‚Äù contributions.
4. You can keep it with you. If you decide to leave military service before you‚Äôre eligible for a military pension, you can still keep your TSP retirement account. If you take a Federal job, you‚Äôll be able to continue making contributions to the Plan. Even if you don‚Äôt 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 ‚ÄúThrift Savings Plan‚Äù option. To estimate how much your account could grow over time, visit our ‚ÄúHow Much Will My Savings Grow?‚Äù 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 59¬Ω, 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.