Funding Your Military Retirement: 3 Ideas You Must Know
With the cost of retirement rising everyday, saving for your golden years is more important than ever if you want to live comfortably and free from financial stress when you retire.
Yet saving money for the long-term isn’t always easy. Fortunately, the government and military lenders offer several retirement savings plans that will fit any military member’s unique goals and needs – whether you’re newly enlisted with a 40-year savings horizon or you’re already on your second enlistment and a little late to the savings game.
Deciding which retirement savings plan is right for you really just depends on how many years you have to save and how much money you’d like to invest. The following are some possibilities you might want to consider for funding your retirement.
1. The pension system.
The U.S. military pays a pension to service members who have served 20 years or more. If you have been enlisted for at least 20 years, or you plan to be with the military for that amount of time, this is one of the best retirement options available. In order to calculate how much you will receive for your retirement, start by averaging together the last five years of basic pay (do not include BAH or specialty pays). Multiply this number by two. Then, multiply that number by .01. Finally, multiply the number by the total number of years that you’ve been on active duty. This will give you your first-year pension payment. Keep in mind, this amount will be adjusted each year for inflation, and pension payments are subject to taxes.
2. Thrift savings plan.
If you do not want to serve for 20 years or more years, you can choose to save for retirement via the government’s Thrift Savings Program. All service members are allowed to contribute to this program at any point during their career. TSPs function very similarly to civilian 401(k) in that money is invested pre-tax, and you can choose which type of investments your money will be placed in. Investment options include government bonds, corporate bonds, and a variety of domestic and foreign stock funds. Recently, a new option was added where you can choose to have a professional allocate your money based on when you expect to retire. Keep in mind that you’re not given a match to any funds that you place in a TSP account. Furthermore, while all deposits are made pre-tax, taxes are owed on any withdrawals. The only exception to this is money that is deposited while in a combat zone. Since this money is not taxed, withdrawals of this money are also not taxed.
3. Roth IRAs.
A Roth IRA is a type of retirement plan that contains a variety of investments, including stocks, bonds, and mutual funds, and offers tax-free withdraws provided that your meet certain conditions. With a Roth IRA, you can deposit up to $5,000 per year of post-tax money into your account and withdrawal of these deposits can be made at any time without having to pay tax penalties. This is a popular option for service members since it can also be used as an emergency fund, as well as a retirement account. If you choose this option, funds can also be withdrawn to purchase a home.
Saving for your retirement requires setting up a plan that best meets your needs and being diligent about saving — but with the right amount of discipline and proper planning, you will reach your retirement savings goals and be able to enjoy your golden years without worry.
What are your ideas on how to save for a military retirement? How are you planning for your own retirement? We’re interested in hearing your thoughts and stories!