Why Do Members Of The Military Not Invest In The Thrift Savings Plan?


This is a guest post by Hank Coleman. Hank Coleman is the founder of several personal finance blogs, including Military Money Might and Own The Dollar. He is a freelance writer, entrepreneur, and Captain in the United States Army. You can see more of his writing at Hank Coleman.net, and you can also follow him on Twitter.

Only 29% of Soldiers in the United States Army participate in the Thrift Savings Plan (TSP), federal government’s version of a 401k retirement plan. The numbers are not much better for the other branches of service either. According to recent statistics published by the Federal Retirement Thrift Investment Board (FRTIB), the board that administers the government’s defined contribution retirement plan, 38% of the Air Force, 33% of Marines, and 57% of the Navy participate in the program. But, why are the numbers so low?

They Already Get A Pension

Many members of the military believe that they do not need to invest in TSP in order to save for retirement because they will receive a pension when they reach a minimum of twenty years of service. With this thinking, servicemen and women are only thinking about a 50% solution though. And, most financial planners estimate that retirees will need 80% or more of their regular income replaced by investments and pensions during their retirement years. Retiring at twenty years of service with no additional retirement investments also does not take into consideration that members of the military retire a lot younger than most other retirees. Their expenses may not be as low as a regular retiree’s would be. Eighty percent will most likely not be enough money in retirement for someone who could be as young as 38 years-old retiring at twenty years of military service.

What If You Do Not Stay In The Military?

Another excuse, that many members of the military use, is that they do not plan to stay in the military until retirement. This is one of the best reasons to invest in TSP then. If you will not have a 50% pension, your need for income in retirement will obviously even greater. Between 15% and 20% members of military get out of the services each year. And, a very slim minority of people who have served make it to retirement and earn a 50% pension. The vast majority of people who have served in the military get out and find other employment. If you had money invested in the federal Thrift Savings Plan, you can roll that money into a traditional IRA or your new company’s 401k retirement plan. You can take your retirement nest egg with you after you leave the military instead of starting over from scratch.

They Think They Can’t Afford It

Many members of the military think that they cannot afford to save for retirement. Many are living paycheck to paycheck and feel that they cannot squeeze another dime from their budget. The problem is that you cannot afford NOT to save for retirement. The military pension alone is not enough to live off of in retirement and keep the same standard of living that a person enjoys while on active duty. So, in order to close the gap, members of the military have to invest for retirement. Investing just $100 per paycheck (twice a month) over the course of a twenty year military career will result in a nest egg of over $118,000 (assuming an 8% annual return). If a member of the military or a spouse starts small with just $25 per paycheck, he or she can work their way up to $100 and more before they even realize it. Using annual pay raises and raises from a new promotion are a great way to ramp up your investing when you think your budget is stretched to the limit.

There are many investment options available to members of the military for retirement such as the federal Thrift Savings Plan, but they have to take advantage of them if they want to close the gap between a pension and their needs during retirement. Relying on a military pension is not enough in order to survive and thrive in your Golden Years. Excuses as to why such a low percentage of members of the military are saving for retirement are nothing but that…excuses.

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