In the Military? Try These Tactics to Save For Retirement

The average American will need to have between $1 and $1.5 million stashed away for retirement. And given that the average U.S. soldier doesn’t make an extraordinary amount of money, putting together a retirement plan—and starting early—is incredibly important.

“As an investment advisor we see all too often the consequences of those who have not saved often and early enough to build up for retirement,” Eric Nager, an investment advisor with Southern Capital Services, and a retired lieutenant colonel in the U.S. Army Reserve tells Stash.

Whether you plan to re-enlist until you hit retirement age, or transition to the civilian world as soon as your enlistment is up, it’s a good idea to start planning for retirement right now.

Why is it so important? You can’t expect your pension to support you for the rest of your life. If you qualify for one at all, you’ll likely to need more than you think.

Whether you’re an E-1 private or a 4-star general, here’s what you can do now to start planning for retirement.

1. Start saving, and stop spending

The most significant thing you can do (whether you’re in the military or not) is to put a budget together and control your spending.

“Many enlisted military (members) join straight from high school and have little to no experience with a budget or tracking their spending,” says Eric Jorgensen, a 20-year U.S. Navy veteran, and director of financial planning at Maryland-based Turning Point Financial.

“Many of us purchased sports cars, putting us into a position where we were living paycheck to paycheck.” 

“When I was active duty the Thrift Savings Plan [The military’s 401(k) equivalent] didn’t exist, and commands didn’t spend much time educating us about finance,” Jorgensen says.

As a result, many of his colleagues overspent, which put them in a position of living from paycheck to paycheck. Get a grasp on your spending habits, and start planning for the long-term sooner rather than later.

2. Maximize and take advantage of your benefits

Military members can access a number of benefits that aren’t available to civilians. So if you’re currently enlisted, or a veteran, it’s worth familiarizing yourself with what’s available.

The Servicemembers Civil Relief Act, for example, offers financial protections for those who are deployed, including stopping repossessions and preventing evictions.

There are also federal programs that help with tuition assistance, home loans from the Department of Veterans Affairs, and high-interest savings accounts while members are deployed. The Department of Defense’s Savings Deposit Program is one example, that’s a savings account offering interest rates up to 10%.

3. Consider signing up for military retirement plans

Just like in the private sector, the military has savings and retirement plans that soldiers can opt into. And you don’t want to forget about those.

The main plan is the Thrift Savings Plan, which is similar to a 401(k) for service members.

“While the choices in [TSP] are not outstanding, mostly limited to index and target date funds, it is still a way for service members to put away a portion of their earnings on a pre-tax basis,” Nager says.

The military, traditionally, had a pension system that kicked in after 20 years of service. But as of the beginning of 2018, that system has been revamped into the Blended Retirement System, which, as you may have guessed, blends the old pension system with the BRS. The BRS adds a contribution requirement to the pension system.

4. Think beyond your enlistment

The vast majority of servicemembers will leave the military at a relatively young age, typically in their early to mid-twenties. That means there’s an awful lot of “life” left before retirement, and that soldiers will need to find employment outside of the military.

You’ll need to consider your financial needs beyond enlistment. Even if you’re still eligible for the military’s pension plan, you’re likely going to need to continue earning money to save for retirement. The net value of a pension is roughly $200,000 for an enlisted soldier, and $700,000 for an officer, which isn’t enough to cover the average expected retirement.

Most soldiers don’t spend decades in uniform, and only around 20% end up qualifying for a military pension. So, like civilians, members of the military can make the most of their earnings by saving and investing early and often.

It may also be a good idea to begin contributing to an IRA, in addition to your TSP.  Your money can grow tax-deferred and offer you another valuable nest-egg for your later years.