Despite all the benefits of military service, the fact remains that unless you are willing to commit a minimum of 20 years of service, you’ll leave the military without any retirement benefits. (For a better understanding of the benefits you will have see the VA website.)
It’s up to each of us, then, to build our own retirement nest egg. I’ve written earlier about a powerful tool, the Thrift Savings Plan, which was first made available to military members in 2001. The TSP allows you to contribute $16,500 per year before taxes are withheld. If you serve in a combat zone you can save up to $49,000 for 2010 (See the TSP website for details about contribution limits.)
I’ve also described the Roth IRA, or individual retirement account, which allows you to contribute post-tax money which grows tax free for life. Single people can invest $5,000 ($6,000 is over the age of 50), and married people can invest $10,000 ($12,000 if over 50) even if only one person has earned income. These accounts have some spectacular advantages, and most military families would be better off contributing the maximum to their Roth IRA before beginning to fund their TSP. (To learn more about Roth IRA’s visit saveandinvest.org, FINRA’s website.) Be disciplined about funding your IRA, though. Use automatic transfers from your checking or savings accounts, or sign up for allotments to fund your IRA. Too often, other priorities, like a post-deployment trip, Christmas shopping, or a snap purchase of a car or motorcycle, will push your retirement savings to the back burner, or worse, off the table completely.
So, once the Roth IRA is fully funded, and the TSP is maxed out, then you can begin to look at taxable accounts for additional savings. In addition, if college savings for your children is a goal, you have access to other savings tools, like educational savings accounts (ESAs) and 529 plans, which also allow you to save tax free for college. (FINRA also has some good information about these options.)
The bottom line is that military members who save money throughout their careers are much better prepared to transition to civilian life, whether they serve 4 years or 40 years. Consider this. If a second lieutenant who begins serving in 2010 saves 15% of her pay during a 4-year tour, and she earns 10% per year, she could have more than one-million dollars saved when she turns 65, even if she doesn’t save another dime the rest of her life! Start saving today.