Is your military pension enough for your retirement?
Many servicemen concentrate more on their current activities than worry about military retirement. They join the military force hoping that they will retire after 20 years of service with a pension for life. However, stats say that less than 18% stay in service that long to qualify for a military pension.
While many companies offer their employees phased-out pensions plans, servicemen get nothing in pension if they leave their jobs before they complete 20 years.
If you do complete 20 years of service, you’ll get a pension amount that is 50% of your base pay. For each additional year, you serve your pension increases by 2.5%.
While this may seem like a generous retirement scheme, it may not be enough money to take care of you and your spouse in retirement. You can use the military retirement calculator available online to check whether the military retirement pension amount is enough for retirement.
Regardless of whether you stay for 20 years in service or not, whether you have a pension or not, it is essential that you save on your own.
While you are in the military, you can take advantage of these special investing programs and tax breaks to supercharge your savings.
Here is how you can save for your retirement when your military pension is not enough
- Blended Retirement System: The government has introduced a new military retirement system on January 1, 2018, which is designed keeping in mind the servicemen who don’t stay in service for 20 years. This is called the Blended Retirement System (BRS).Anyone who joins the military from January 2018 gets automatically enrolled in BRS. The BRS allows you to choose a Thrift Savings Plan (TSP), a pension only, or both with a reduced pension.
- Thrift Savings Plan: Thrift Savings Plan is similar to a 401(k) plan. It is a great place to start saving. 1% of your base pay automatically is contributed to a TSP. You can also contribute another 4% to get a total 5% match.The TSP has valuable tax advantages. Irrespective of how much you can afford to invest, you can tax breaks now or build up tax-free income for the future. You can choose between a traditional TSP, where you make the contributions with pre-tax income, a Roth TSP, where you contribute after paying the income tax, or a combination of both.TSP has very low costs. For every $1,000 you invest, you pay only 40 cents.
- Tax-Free Earnings From a Roth IRA: A Roth IRA can be a great supplement to your retirement savings. You do not get a tax break for Roth contributions, but you can enjoy tax-free withdrawals in retirement.If you are a deployed service member, you have an advantage – while you are in the combat zone, if your pay is tax-free, the money that goes into Roth IRA is also tax-free. Moreover, the earnings that you withdraw in retirement also are tax-free.You can invest the maximum in both a Thrift Savings Plan and a Roth IRA in the same year. Finally, if your spouse doesn’t have an income, you can contribute to an IRA on his or her behalf.
If you need guidance on how to safeguard your financial future and supercharge your military retirement savings, call (866) 639-0066.
Rick Pendykoski is the owner of Self Directed Retirement Plans LLC, a retirement planning company based in Goodyear, AZ. He has over three decades of experience working with investments and retirement planning, and over the last ten years has turned his focus to self-directed ira accounts and alternative investments. If you need help and guidance with traditional or alternative investments, call him today (866) 639-0066.