Thrift Savings Plan | The Military’s 401k

The Thrift Savings Plan is the military's #401k. Here's what you need to know. | Rose Colored Water

Disclosure: This page may contain affiliate links. To learn more, read our full disclosure policy.

Note: I am not a financial guru and all information here is based on information I found on the internet and have heard at my job. Take it for what it is.

Many people believe serving in the military for 20 years means guaranteed retirement. As of right now, if you serve twenty years or more on Active Duty, you will receive half of your base pay every single month after until the day you die. It’s a pretty sweet gig, especially if you grew up poor like me, and the word “retirement” wasn’t in your vocabulary.

But that retirement money isn’t guaranteed. Military retirees are living longer, and some of those retirement payments start at ages 38-50. That’s a long time for the government to be giving people $2000-$5000 a month. That doesn’t include the disability payments a veteran also receives. Between funding the VA and military retirements, the government is putting a lot of money into our retired troops. I’m not saying people who gave their life to the military do not deserve that money. They absolutely do. But…

The military is only as rich as its government.

The Thrift Savings Plan is the government's version of a #401k. Government employees like #military members and postal workers can use it to #invest and build their #retirement. | Rose Colored Water #AirForce

Many military members do not plan for retirement. They just assume they will serve for 20 years and be fine. This is foolish thinking. Only 17% of Active Duty military make it to retirement.

We are given so many great options for investing in our own retirement that has nothing to do with how much money Uncle Sam will give us IF we hit the 20 year mark.

A Thrift Savings Plan (TSP) is just like a 401k.

As far as I know, a TSP is the exact same as a 401k. Originally, the TSP was simply a way for federal employees to invest in their retirement. It is a retirement vehicle, giving federal employees a way to invest their hard-earned dollars and receive the same tax breaks that people in the civilian sector do. However, the TSP is not only available as a Traditional {401k} option, but as a Roth too.

The difference between a Roth and Traditional TSP are that investing in the Roth option does not give you a tax break. It invests your after tax dollars so that you don’t have to pay taxes on it later in life. The Traditional option uses your pre-tax dollars to invest, which you can deduct on your yearly taxes. However, when you begin to withdraw your money during retirement, you will pay taxes on that money.

Overall, I invest a bit in both options. I can deduct some from my yearly taxes, but I also use some of my post tax dollars to invest in my Roth TSP.

TSP fees are low.

One of the biggest benefits of the TSP is that the fees are very low. Plus, the contribution limits are the same as a regular 401k. They’re also planning to make a TSP match. Because I don’t want to get the information wrong, I’ll directly quote USNews:

Another more recent benefit of the TSP is that some employees can get an employer match from the government if they contribute up to 5 percent of their base pay to the plan. The first 3 percent of your pay that you contribute to the plan is matched dollar-for-dollar, while the next 2 percent is matched with 50 cents for each dollar you contribute. That’s basically free money, so you don’t want to miss out on it.

However, one thing to note about claiming the TSP match is that it could reduce your pension. Military members who joined the service between January 1, 2006 and December 31, 2017 get a choice to remain in the current pension system or combine a TSP match with a reduced pension. People who join the military in 2018 or later will automatically be part of the new system.

Ultimately, they are changing the system because as I mentioned above, the current retirement system is breaking our federal government’s bank. It isn’t sustainable. While the current pension rate is 50% of your base pay, the new pension rate under the Blended Retirement System will give you 40% of your base pay. It’s not a huge drop, and you will still earn a return on your TSP.

I have the option to take the match and reduce my pension (if I stay in 20 years), or I can forego the match and continue saving in my TSP, but also have the opportunity to earn the full pension.

Will I stay in for 20 years?

I am unsure. Most enlisted do not make it to the 20 year mark. If I’m a statistic, it would be smarter for me to take the match for the time that I am in. However, it could still be more beneficial for me to take the match even if I did plan to stay in 20 years. I would still receive 40% of my base pay for life, and have a lot of cash in my TSP too.

I don’t have to make up my mind yet, but this post is to let you know that there are options for military members. You have retirement options that don’t depend on dedicating 20 years to service. We have a fairly good option compared to our civilian counterparts.

Something to think about if you’re considering enlistment.

6 thoughts on “Thrift Savings Plan | The Military’s 401k

  1. For someone who has been in a relatively short time and is uncertain about staying in for 20, like yourself, I’d probably recommend taking the match. Until about a 10 months before I left active duty, I thought I’d be in for the long haul. Things changed and I got out just before the nine year mark. Now, I’ll still most likely end up with a reserve retirement eventually, but that’s a different subject altogether.

    What I do know is that I contributed to my TSP with no match the entire time I was on active duty, though I didn’t max contributions (not even close). Meanwhile, for the two years I worked for a civilian company, I contributed enough to my 401k get the full match (a generous 8%). During this time, the value of my 401k caught up to my TSP. The matching contributions make a huge difference and they will continue to grow for 30+ years!

    I may be in the minority, but I think the new military retirement system will be beneficial for the vast majority of new recruits and those who are given the option to switch and only have a few years or less TIS. Those on the more senior end of the TIS cutoff have a much tougher choice and may be better off sticking with the old system.

    1. You make a very solid point. Matches can make a large difference. Even a little is better than nothing. I am definitely considering switching over because I want that match more than I want the idyllic idea that I’ll stay in for 20 years and get this great retirement pension. And even with the match, you still get a large retirement – 40%. That’s only 10% less than what you’d make with the regular retirement. The answer seems clear to me as a newer airman.

  2. Andy and I have been thinking/talking about if he will switch to the new blended system and I think we have decided he will. Like you said, not everyone makes it to 20 years, so we would rather just not take a chance on getting a larger pension. Plus, the cost of living where I’m from in KY is very low so we could make it on a smaller pension.

    1. Exactly. I really think the match is the way to go, even if you THINK you want to do 20 years. You just never know what will happen.

  3. Another important thing to think about is after death benefits . Unless you enroll in SBP when you retire, you spouse will not continue to receive retirement pay if you die. Whereas if that money were in a 401k/ TSP it could be willed to your spouse, children, or whomever. All investments a limited gambles and nobody knows what the tax rules will be like further down the road.

    1. That is a really great point! Thanks for sharing that. A 401K/TSP definitely has more options available for your spouse and children.

Tell me what you think!