Financial fitness hinges in part on taking advantage of the right "equipment."
I've always been a huge fan of the Thrift Savings Plan, the military's version of a 401(k). As a Reservist and civilian financial planner, I signed up when it first became available to the military back in 2001. It wasn't nearly as user-friendly back in those days. There were only a couple of times a year when you could sign up or change what you were contributing. But as a financial planner, I knew it was a great way to save for retirement.
Fast-forward nearly 20 years, and I find myself encouraging those in uniform to take advantage of the TSP. It can make a huge difference. Over the last couple of decades, I've seen service members accumulate hundreds of thousands in this valuable retirement plan. It's an easy, inexpensive and tax-advantaged tool to save for retirement.
To keep track of what's happening with the plan, I follow the meeting minutes of the organization that runs the plan, the Federal Retirement Thrift Investment Board.
While reviewing a recent set of minutes, I came upon a few nuggets of information that I wanted to share:
Withdrawal options have changed. Before Sept. 152019, TSP participants were limited to a single, non-periodic withdrawal. So unless you wanted to access your money via some sort of periodic payment, you were out of luck if you had already made a withdrawal. A lot of the folks I've worked with over the years have plenty of monthly income -- military and government pensions, corporate pensions, Social Security -- and weren't really interested in another stream of income. Instead, every now and then they wanted to be able to pull out a lump sum to fund a trip, buy a car or make a gift. That's now a possibility. So one of the biggest reasons to pull your money from the TSP when you separate from service is now gone.
The military is taking advantage of Roth TSP. Nearly 40% of uniformed participants are using the Roth TSP. That dwarves the 16% of government civilians doing the same. I think that makes a lot of sense, especially when you consider the military's younger demographics -- combined with the fact that service members don't have to pay taxes on the combat zone pay they contribute to their Roth TSP.
Two-factor authentication utilization is on the rise. The TSP has slowly implemented a two-factor authentication sign-on procedure. This added layer of security reduces fraud and eventually will be mandatory. Get on the security train.
Military participation still lags. Bad news first: Only 63% of eligible uniformed services personnel participate in the TSP as compared to 91% of government employees covered by the Federal Employees Retirement System. Good news: That level of participation represents more than a 20% increase over the last five years. I'd anticipate that number continuing to rise as more and more folks enter the service under the Blended Retirement System.
Many are leaving money on the table. A whopping 14% of BRS-covered members, around 80,000, are not contributing to the TSP. Many of them could be forgoing up to 4% of matching contributions. Ask around, and help spread the word: "Let no matching dollar go uncaptured!"
No matter where you are in your career or what your plans may be, consider making the TSP a centerpiece of your plans for a financially fit retirement.
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