I'm in the Military. Should I Invest in a TSP?
Dear Carrie: I'm 26 and in the Navy. I enlisted last year and am currently stationed in South Korea. With some extra cash I'm expecting from my next deployment, I should finally have all my credit card debt paid off and a decent cash cushion. I'm ready to start seriously saving for retirement. Is a TSP a good move? I'm not sure if I'll stay in or go back to school once my contract is up. -- A Reader
Dear Reader: First, thank you for your service. I'm constantly impressed by the discipline, sacrifice and courage service members provide our country day in and day out. With May being Military Appreciation Month, I hope you get all the recognition you deserve!
I also applaud you for making a plan to pay down your credit cards. That's a difficult but essential step toward gaining control of your finances. And kudos for starting to think about retirement at such a young age; if you start now, you'll be in a great position to build a solid future. Let's take a look at the TSP and other plans the military provides.
Blended Retirement System (BRS)
As of Jan. 1, 2018, a new retirement system was put in place for members of the uniformed services. This system, called the Blended Retirement System (BRS), "blends" the traditional legacy retirement pension, also known as a defined benefit plan, with a defined contribution plan called the Thrift Savings Plan (TSP).
Under the old system (which still applies to many longtime service members), anyone who finished at least 20 years of service received a monthly pension for the rest of his or her life. Those who left with less than 20 years of service (which is the vast majority of people who join the military) wouldn't receive a retirement pension. Enrolling in the TSP was strictly optional.
Under the BRS, you're still eligible for a pension if you put in 20 years of service, but the benefit has been slightly reduced. To compensate, you're now automatically enrolled in the TSP along with a match from Uncle Sam.
The TSP, similar to a 401(k) offered in the private sector, is designed to help you save for the future whether you stay in the military or not. It's actually the same plan available to federal civilian employees. How much and how you save and invest determine how much you'll ultimately have in the plan.
Contributing to the TSP
Every service member under the BRS is automatically enrolled in the TSP at 3% of their basic salary, and the government adds an additional 1%. (You can see the deduction and match on your Leave and Earnings Statement or myPay from the Defense Finance Accounting Service.)