Reviewing the announcement from Government Executive discussing the TSP, I took note of the military participation rate, quoted at 49.5% of active duty military personnel. This compares with 84.9% of government civilian personnel who usually receive matching contributions to their Thrift Savings Plan Accounts.
Military members are not eligible for matching funds, but as I’ve mentioned in this space previously, it takes 20 years of active service to be vested in this retirement plan. Military members, particularly junior personnel who are not yet certain if they will remain in the service for at least 20 years, should take the positive step today of saving a portion of their military pay in the Thrift Savings Plan.
Why is the participation rate so low? The first factor is that you actually have do take a few steps to sign up for the TSP. Federal Civilian employees are automatically enrolled and must opt out. This simple change dramatically increased the participation rate, of course. The automatic enrollment is a low 3% of pay, but this modest savings can grow as the pay increases come over time.
I have posted previously about adding the annual cost of living increases to the TSP savings. As many of you know we received a 1.4% increase last year and the President has suggested a 1.6% increase for 2012. If you added those increases to the 2010 initial deduction of 3% of military pay, you’d be at a respectable 6% of the initial sum within 3 years. If you continue to use this technique over time, you’ll find that you have a significant retirement account as you leave the military whether it is after a 4 year tour, or a 30 year career.