Reasons to contribute to TSP despite having a military pension

| October 3, 2014 | 0 Comments


Kisha A. Taylor
Federal Retirement Thrift Investment Board


The Thrift Savings Plan offers you the chance to save for additional retirement security at an extremely low cost.

But you may believe you don’t need to save for retirement because you’ll receive a pension after 20 years of service.

Truth is, your military pension alone may not be enough. Here are four reasons to contribute to the TSP.

1- Most Soldiers don’t stay 20. Only about 17 percent of those who join the military actually serve the full 20 years.

Twenty years is a long time, and if you leave the military before then, you won’t get anything. But the beauty of the TSP is that you can use time to your advantage.

Let’s say you’re an E3 and decide to save 5 percent of your basic pay in your TSP account. Your monthly contributions would be about $90.

If you left military service after only five years, you could already have almost $7,740*. In 20 years, that amount could grow to thousands more!

2- Your pension is half pay. Even if you do serve for 20 years, your pension will only be half your pay. If you stay for 20 years, you’ll get a monthly pension equal to roughly 50 percent of your basic pay.

Many financial planners estimate that retirees will need at least 80 percent of their regular income to live comfortably after they stop working. And remember that your pension would not include a housing allowance, utilities and subsistence allowance.

3- Tax-exempt combat pay. The Roth option could work for you, especially if you’re going to a combat zone. Any money you make while in a combat zone is tax-exempt.

So, if you contribute combat zone pay to the TSP’s Roth option, you will never pay income taxes on those contributions, and your earnings can also be tax-free if certain conditions are met**. Even if you aren’t going to a combat zone, Roth gives you the opportunity for tax-free growth.

4- You can take it with you. If you decide to leave military service before you’re eligible for a military pension, you can still keep your TSP retirement account. If you take a federal job, you’ll be able to continue making contributions to the plan.

Even if you don’t take a federal job, you can continue to manage your investments while your savings grow.

The Future. Whether you decide to retire from the military or your career goes in a different direction, you can invest in your future by investing with the TSP. It can mean the difference between a comfortable retirement and a difficult one.

(*Assumes a 6 percent annual rate of return, compounded monthly. **Roth earnings are paid tax-free if 1-You have reached age 59½, have a permanent disability or have died, and 2-Five years have passed since Jan. 1 of the year you made your first Roth contribution.)

Retirement planning

Visit myPay and choose the “Thrift Savings Plan” option to start saving. To estimate how much your account could grow over time, visit

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