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How Military Service Members Can Prepare For Retirement

an elderly couple looks over their retirement funds together

Life in the military is full of surprises, changes, and occasional challenges – a PCS move across the country or the world, a deployment, or something else. But the one thing that shouldn’t be challenging is planning for retirement.

Planning for retirement and maximizing the benefits offered to those in the military can make a huge difference when it comes to your quality of life in the future. Keep reading to learn more about military retirement options, the common types of plans available, and how to maximize your savings.

Understanding Military Retirement Options

Planning for retirement isn’t easy -- whether you’re in the military or a civilian. But for those who are in military careers, it can be even more confusing.

This is partially because every service member’s career and journey are different. There are typically three different categories of military retiree recipients:

  • Active component: Retirement eligibility after 20 years of service.
  • Reserve component: Retirement eligibility after 20 years of creditable service based on a points system, typically from age 60.
  • Disability retiree: You don’t need to have served 20 years, but you must be found unqualified for further service due to a permanent, stable disability.

Other factors that may influence your retirement pay are your length of service, type of retirement, year you entered service, and more.

But on top of understanding which type of military retiree recipient you are, there’s also the fact that the military has made many changes to the types of retirement plans offered over the years. You may have heard of the High-3 Retirement system, Redux, TSP, BRS, and more. Your familiarity with these types of plans may also depend on when you began your military service.

Many of those who would have contributed to a High-3 plan are likely to already be retired -- as it was designed for those who began their service between September 1980 and July 1986. The Redux plan is no longer available for service members to opt into, and it has faded in popularity.

With the Thrift Savings Plan (TSP) and Blended Retirement System (BRS) being the two most popular options, we’ll take a look at these plans and how they work.

How the Thrift Savings Plan (TSP) and Blended Retirement System (BRS) Work

In order to understand how these two retirement systems work, let’s start with the Thrift Savings Plan (TSP).

The TSP is a government-run retirement account that is essentially a 401(k) like many civilians have in their corporate jobs. Within the TSP, you can invest your money in either stocks or government securities -- and you can even get a match from the government, the administrator of the account.

Similarly to a 401(k), you can contribute any percentage of your pay to your TSP account. However, there are limits on the total dollar amount you can contribute in a year -- in 2022, that limit is $20,500. However, if you’re over age 50, you can contribute an additional $6,500 each year.

Other benefits of the TSP include:

  • Automatic payroll deductions
  • A diversified choice of investment options
  • Your choice of tax treatments for your contributions -- either traditional (pre-tax) contributions with tax-deferred investment earnings, or Roth (after-tax) contributions with tax-free earnings at retirement if you satisfy the IRS requirements
  • Low administrative and investment expenses
  • A variety of distribution options in retirement

So where does the Blended Retirement System play into this? Well, as its name suggests, the BRS is all about blending the TSP with the annuity provision for those who retire after 20 years of service.

If you choose the BRS, you’ll receive:

  • Matching Thrift Savings Plan contributions
  • Mid-career retention bonuses
  • A monthly annuity for life after 20 years of service. The annuity is based on a calculation of 2% per year served. The legacy retirement annuity is based on 2 ½% per year served.

Strategies to Save for Retirement

With these retirement plans, you play an active role in contributing to your retirement account, setting yourself up for a financially secure future. That’s why it’s important to be aware of the strategies you can use to save for retirement.

First, the best time to start contributing to your retirement account was 10 years ago, five years ago, or yesterday. But the second best time is right now. Remember that by making an investment in the account starting right now -- even if it’s a small amount -- your funds will have the potential to grow into something even greater years down the line. The more time you have on your side, the better. Get started today!

Second, be sure to contribute to your retirement account regularly. You can set up automatic payroll deductions, which means the money comes out of your account without you even seeing it. That way, you don’t have to worry about remembering to make your contributions -- it’s doing it automatically for you, so you’ll never forget. This is also helpful because when you never see that money, you’re less likely to miss it.

Third, try to contribute enough to meet the matching eligibility requirements if you can. When you put money into your retirement account and are able to get a matching contribution, it’s almost like getting free money. If you’re not contributing enough to get the full match, you’re unfortunately not taking advantage of all that’s being offered to you.

Knowing how much your retirement account can grow over time, it’s worth it to ensure that contributing enough to your retirement account is part of your monthly budget.

You can also talk to your advisor* about turning your Premier Money Market account or Certificate of Deposit into a Traditional IRA, Roth IRA, or SEP IRA plan.

Armed Forces Bank Understands Military Families

Through all of life’s milestones, Armed Forces Bank is committed to serving military families.

We’re here for your banking needs.

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*Consult with a tax advisor regarding the deductibility of interest.