Plan to Retire

Retirement may be decades away for you and your spouse — or maybe it’s just around the corner. Either way, it's never to early or too late to start saving for your future.

Investing now for retirement offers two essential tools for accumulating the most money possible: Compound interest and long-term growth.

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Plan-to-Retire-8
Primary Text Separator for Milspouse Money Mission, Financial Education for Military Spouses
Primary Text Separator for Milspouse Money Mission, Financial Education for Military Spouses

Plan To Retire

Retirement may be decades away for you and your spouse — or maybe it’s just around the corner. Either way, it's never to early or too late to start saving for your future.

Investing now for retirement offers two essential tools for accumulating the most money possible: Compound interest and long-term growth.

Primary Text Separator for Milspouse Money Mission, Financial Education for Military Spouses
Military Spouses - Financial Planning - Measure Progress

Plan to Retire 301

Why Start Now?

 

If you are trying to evaluate whether to begin investing for the future now, consider these facts:

  • The sooner you begin, the more money you may be able to accumulate.
  • You cannot foresee how long you will be able to work. Injury, illness or other difficulties could interrupt your future earning and saving ability.
  • You do not know how long retirement will be. With longer life expectancy, you could need enough savings to last 30 years or more.

Get Help Saving for Retirement.

While it’s important you start saving now for retirement, you might not have to do it alone. Here are a few, sometimes overlooked, ways to help build your retirement:

  • Take advantage of employer retirement benefits. One of the fastest ways to grow your retirement balance is by taking advantage of employer contributions to your account. Make sure you save enough to get as much of your employer match as you can. Also, pay attention to your company’s vesting schedule which determines whether you get to keep your employer contributions should you leave the company.
  • If your spouse is covered under the Military’s Blended Retirement System (BRS), make sure they are contributing at least 5% to their Thrift Savings Plan (TSP). Once again, this strategy might be overlooked by many Service members. Here’s why: Most Service members covered under the BRS automatically have 3% withheld from their paychecks to be contributed into their TSP — and that’s a good thing. However, their branch of service will match up to 5% of their contributions after two years of service. To take full advantage of this match, a service member must request an increase to their TSP through mypay.dfas.mil.
  • The Saver’s Credit (aka, the "Retirement Savings Contribution Credit") is a lesser-known, highly advantageous tax credit the IRS offers to incentivize low- and moderate-income taxpayers to make retirement contributions to an IRA, 401(k), 403(b), 457(b), or any other IRS recognized retirement account. The amount of the credit is 50%, 20% or 10% of your retirement plan, or IRA, or ABLE (Achieving a Better Life) account contributions, depending on your adjusted gross income (reported on your Form 1040 series return). The maximum credit amount is $2,000 ($4,000 if married, filing jointly). To learn more about this visit IRS.gov and search for "Saver’s Credit."
  • Help yourself! Set up automatic contributions to a retirement account and increase your savings after every pay raise or promotion!

 

Individual Retirement Accounts (IRAs)

 

These tax-advantaged accounts are not Soldier at laptopinvestments on their own, but they “house” investments. Money in an IRA can be used to purchase investments such as mutual funds, individual securities, certificates of deposit (CDs), or annuities.

The tax treatment of contributions and distributions will vary depending on the type of IRA being used. A Personal Financial Counselor on your installation can help determine which IRA you should consider.

Traditional versus Roth IRA:

  • With a traditional IRA, you may be able to deduct your contribution from your taxable income, thus reducing current federal income taxes. This depends on your income, your tax filing status, and if you or your spouse are covered by a retirement plan at work. While your money grows, taxes are deferred. You will be subject to ordinary federal income taxes when you withdraw the money, generally at retirement.
  • With a Roth IRA, you cannot deduct your contribution from your income for federal income tax purposes. However, your contributions can always be withdrawn tax-free and qualified withdrawals of earnings are free of federal income tax. If you withdraw earnings before the account has been open at least five years and before age 59½, you are generally subject to federal income taxes and a 10% penalty on the amount of earnings withdrawn. Earnings withdrawn before five years but after age 59½, are generally subject to federal income taxes but no penalty.
  • If you're not working, see IRS Publication 590-A for more information on Spousal IRA contributions and limits. For more information about IRA distributions see IRS Publication 590-B, Distributions from Individual Retirement Arrangements (IRAs), available at irs.gov.

Plan to Retire: Thrift Savings Plan (TSP)

Service members have another tax advantaged option — the government-sponsored TSP, which generally works like a 401(k) plan offered by some civilian employers.

  • With the exception of those receiving tax-exempt combat pay and those age 50 or older who may be able to contribute more, $19,500 is the maximum contribution allowed in 2020.
  • Both traditional and Roth account options are available.
  • A variety of mutual fund options are available as described below, but to learn more about TSP options, visit TSP.gov.

 

TSP Investment Options

You may allocate your monthly contribution to any or all of the following funds. You can also transfer money in your account between funds.

  • G Fund: Government Securities Investment Fund: Invests in short-term, non-marketable Treasury securities.
  • F Fund: Fixed Income Index Investment Fund: Invests in a mix of U.S. government, corporate and mortgage-backed bonds. Attempts to match the performance of the Barclays Capital U.S. Aggregate Bond Index.
  • C Fund: Common Stock Index Investment Fund: Invests in stocks of large and medium-sized U.S. companies. Attempts to match the performance of the Standard & Poor’s 500 Stock Index.
  • S Fund: Small Capitalization Stock Index Investment Fund: Invests in stocks of small and medium-sized U.S. companies. Attempts to match the performance of the Dow Jones U.S. Completion Total Stock Market (TSM) Index.
  • I Fund: International Stock Index Investment Fund: Invests in stocks in developed countries outside the United States. Attempts to match the performance of the Morgan Stanley Capital International EAFE (Europe, Australasia, Far East) Stock Index.
  • L Funds: Lifecycle Funds: Group consists of L Income, L 2020, L 2030, L 2040 and L 2050. Each fund invests in a mix of the G, F, C, S and I funds with the mix automatically getting more conservative as the target date approaches.

Plan to Retire: Roth TSP

The TSP also offers a Roth TSP option using the same investment choices. The details of this feature are:

  • Unlike the Traditional TSP where contributions are made with pre-tax money, Roth TSP contributions are made with after-tax money, meaning there is no upfront tax savings for Roth contributions. However, when money is withdrawn from the Roth TSP in retirement, it is typically tax-free as long as a few criteria are met.
  • You pay no federal income taxes on withdrawals from the Roth TSP as long as you are at least 59½ years of age and five years have passed since Jan. 1 of the calendar year you first started making Roth TSP contributions.
  • Unlike a Roth IRA, there are no income restrictions on contributions to the Roth TSP.
  • Roth TSP contributions are subject to the same limit as traditional TSP contributions. The $19,500 elective deferral limit for 2020 is the maximum total contribution allowed across all TSP account types, whether you contribute to traditional, Roth or both. However, those age 50 and older and those serving in designated combat zones can contribute more than the annual elective deferral limit.

Your service member has several options when he or she separates from military service.

  • Leave your money in the TSP.
  • Withdraw all or part of your money.
  • Transfer or roll the money over to a Traditional or Roth IRA.
  • Transfer or roll the money over to an eligible employer plan.

More Videos on Retirement

Military Spouses - Financial Planning - Measure Progress

Plan to Retire 301

Why Start Now?

 

If you are trying to evaluate whether to begin investing for the future now, consider these facts:

  • The sooner you begin, the more money you may be able to accumulate.
  • You cannot foresee how long you will be able to work. Injury, illness or other difficulties could interrupt your future earning and saving ability.
  • You do not know how long retirement will be. With longer life expectancy, you could need enough savings to last 30 years or more.

Get Help Saving for Retirement.

While it’s important you start saving now for retirement, you might not have to do it alone. Here are a few, sometimes overlooked, ways to help build your retirement:

  • Take advantage of employer retirement benefits. One of the fastest ways to grow your retirement balance is by taking advantage of employer contributions to your account. Make sure you save enough to get as much of your employer match as you can. Also, pay attention to your company’s vesting schedule which determines whether you get to keep your employer contributions should you leave the company.
  • If your spouse is covered under the Military’s Blended Retirement System (BRS), make sure they are contributing at least 5% to their Thrift Savings Plan (TSP). Once again, this strategy might be overlooked by many Service members. Here’s why: Most Service members covered under the BRS automatically have 3% withheld from their paychecks to be contributed into their TSP — and that’s a good thing. However, their branch of service will match up to 5% of their contributions after two years of service. To take full advantage of this match, a service member must request an increase to their TSP through mypay.dfas.mil.
  • The Saver’s Credit (aka, the "Retirement Savings Contribution Credit") is a lesser-known, highly advantageous tax credit the IRS offers to incentivize low- and moderate-income taxpayers to make retirement contributions to an IRA, 401(k), 403(b), 457(b), or any other IRS recognized retirement account. The amount of the credit is 50%, 20% or 10% of your retirement plan, or IRA, or ABLE (Achieving a Better Life) account contributions, depending on your adjusted gross income (reported on your Form 1040 series return). The maximum credit amount is $2,000 ($4,000 if married, filing jointly). To learn more about this visit IRS.gov and search for "Saver’s Credit."
  • Help yourself! Set up automatic contributions to a retirement account and increase your savings after every pay raise or promotion!

 

Individual Retirement Accounts (IRAs)

 

These tax-advantaged accounts are not Soldier at laptopinvestments on their own, but they “house” investments. Money in an IRA can be used to purchase investments such as mutual funds, individual securities, certificates of deposit (CDs), or annuities.

The tax treatment of contributions and distributions will vary depending on the type of IRA being used. A Personal Financial Counselor on your installation can help determine which IRA you should consider.

Traditional versus Roth IRA:

  • With a traditional IRA, you may be able to deduct your contribution from your taxable income, thus reducing current federal income taxes. This depends on your income, your tax filing status, and if you or your spouse are covered by a retirement plan at work. While your money grows, taxes are deferred. You will be subject to ordinary federal income taxes when you withdraw the money, generally at retirement.
  • With a Roth IRA, you cannot deduct your contribution from your income for federal income tax purposes. However, your contributions can always be withdrawn tax-free and qualified withdrawals of earnings are free of federal income tax. If you withdraw earnings before the account has been open at least five years and before age 59½, you are generally subject to federal income taxes and a 10% penalty on the amount of earnings withdrawn. Earnings withdrawn before five years but after age 59½, are generally subject to federal income taxes but no penalty.
  • If you're not working, see IRS Publication 590-A for more information on Spousal IRA contributions and limits. For more information about IRA distributions see IRS Publication 590-B, Distributions from Individual Retirement Arrangements (IRAs), available at irs.gov.

Plan to Retire: Thrift Savings Plan (TSP)

Service members have another tax advantaged option — the government-sponsored TSP, which generally works like a 401(k) plan offered by some civilian employers.

  • With the exception of those receiving tax-exempt combat pay and those age 50 or older who may be able to contribute more, $19,500 is the maximum contribution allowed in 2020.
  • Both traditional and Roth account options are available.
  • A variety of mutual fund options are available as described below, but to learn more about TSP options, visit TSP.gov.

 

TSP Investment Options

You may allocate your monthly contribution to any or all of the following funds. You can also transfer money in your account between funds.

  • G Fund: Government Securities Investment Fund: Invests in short-term, non-marketable Treasury securities.
  • F Fund: Fixed Income Index Investment Fund: Invests in a mix of U.S. government, corporate and mortgage-backed bonds. Attempts to match the performance of the Barclays Capital U.S. Aggregate Bond Index.
  • C Fund: Common Stock Index Investment Fund: Invests in stocks of large and medium-sized U.S. companies. Attempts to match the performance of the Standard & Poor’s 500 Stock Index.
  • S Fund: Small Capitalization Stock Index Investment Fund: Invests in stocks of small and medium-sized U.S. companies. Attempts to match the performance of the Dow Jones U.S. Completion Total Stock Market (TSM) Index.
  • I Fund: International Stock Index Investment Fund: Invests in stocks in developed countries outside the United States. Attempts to match the performance of the Morgan Stanley Capital International EAFE (Europe, Australasia, Far East) Stock Index.
  • L Funds: Lifecycle Funds: Group consists of L Income, L 2020, L 2030, L 2040 and L 2050. Each fund invests in a mix of the G, F, C, S and I funds with the mix automatically getting more conservative as the target date approaches.

Plan to Retire: Roth TSP

The TSP also offers a Roth TSP option using the same investment choices. The details of this feature are:

  • Unlike the Traditional TSP where contributions are made with pre-tax money, Roth TSP contributions are made with after-tax money, meaning there is no upfront tax savings for Roth contributions. However, when money is withdrawn from the Roth TSP in retirement, it is typically tax-free as long as a few criteria are met.
  • You pay no federal income taxes on withdrawals from the Roth TSP as long as you are at least 59½ years of age and five years have passed since Jan. 1 of the calendar year you first started making Roth TSP contributions.
  • Unlike a Roth IRA, there are no income restrictions on contributions to the Roth TSP.
  • Roth TSP contributions are subject to the same limit as traditional TSP contributions. The $19,500 elective deferral limit for 2020 is the maximum total contribution allowed across all TSP account types, whether you contribute to traditional, Roth or both. However, those age 50 and older and those serving in designated combat zones can contribute more than the annual elective deferral limit.

Your service member has several options when he or she separates from military service.

  • Leave your money in the TSP.
  • Withdraw all or part of your money.
  • Transfer or roll the money over to a Traditional or Roth IRA.
  • Transfer or roll the money over to an eligible employer plan.

More Videos on Retirement

Primary Text Separator for Milspouse Money Mission, Financial Education for Military Spouses

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