As Military Media grows, we’ll be adding new sections and features. One of the most important, for our mission, will be focusing more on delivering accessible, interesting, and useful information about finances for active duty military, their families, veterans, and people considering joining the military.

The first piece, by guest contributor Michael Schneider, looks at the military’s new Thrift Savings Plan or TSP. If you remember it as a way to park up to park $10,000 and get a 5% or 10% return within a year (my memory of TSP circa 2007), it has changed, big time. Now it’s a very robust retirement savings mechanism that makes the military a far more attractive early-career option, even for people who are thinking of serving for just 5-10 years.

THE BIG STORY

Military Investing 101: TSP Basics

If you thought you knew about the military's TSP, think again.

US service members face financial challenges not seen by their civilian counterparts. Low pay, spousal unemployment, and frequent moves can all invite financial burdens for military families.

But there are still ways our soldiers, sailors, airmen and marines can bolster their finances. One of these methods is the Thrift Savings Plan or TSP. TSP is a retirement savings and investment plan available to federal government employees and uniformed service members that offers the same types of savings and tax benefits that many private corporations offer their employees under 401(k) plans, including both traditional and Roth options.

In addition, TSP is one component of the DOD’s new Blended Retirement System or BRS. Approximately 20% of service members reach 20 years of service and under the legacy retirement system this leaves the other 80% with no retirement benefits. The new Blended Retirement System provides greater financial flexibility for all service members. And with the TSP, the DOD will match up to a certain percentage of the money you put in, just like a civilian 401(k), more to follow on that later.

Who is eligible for TSP? “Service members who joined the service before 2006 will remain in the legacy retirement system, but those who joined after 2006 but before Jan. 1, 2018 had the choice to stay with the legacy system or opt into the BRS. Those who joined on or after Jan. 1, 2018 are automatically enrolled into the BRS.”

To check the status of your TSP contributions visit DFAS, MOL, or direct access for the Coast Guard. You could also visit your S1 or finance office, but they have been at lunch since 10am so good luck.

Why does it matter to me? Glad you asked! For too long, the DOD relied on a legacy retirement system and did not provide retirement benefits comparable to those available in the civilian job market. Statistically speaking, the majority of service members will not make it to 20 years of service. But now that majority can be financially prepared in a much greater way. Let’s start with the mechanics of how the TSP works. When you enroll, you can elect to contribute a percentage of your pay to your TSP account, and that amount will automatically be put into your account each pay period. Now for the good part, your service branch will match your contributions on the first 5% that you contribute! That means for every dollar you contribute, the DOD is contributing a dollar, up to 5% of your base pay. Let’s say you are a brand new Second Lieutenant with less than 2 years of service. Your base pay is $3,637.20, so you contribute $181.86 (5%) each month to your TSP, then the DOD will also contribute $181.86 each month. If you do not contribute 5% of your pay, you are telling the DOD you don’t want them to match - you’re losing an additional 5% of possible pay!

Now, there are certain considerations and limits to take into account with your TSP, such as what pay to use to fund your contributions and how much you can contribute - check out the TSP website for more information. Another important aspect when considering your TSP is the decision between a Roth or Traditional account, this boils down to when you will pay income tax on both your TSP contributions and your current earnings. There is not a one size fits all answer to this question but it is important to consider when planning your financial future.

Next, let’s discuss the actual investment options available to you within your TSP account. Your individual investment choices should be based on your investment horizon, or how long until you plan to use that money, and the amount of risk that is appropriate for your financial goals - these are important considerations and ones that you should speak with a financial advisor about. That being said, the TSP has great investment options that are similar to any typical brokerage. There are three types of options for investment, L or Lifecycle Funds, Individual TSP Funds, and if you meet eligibility requirements, Mutual Fund options.

L Funds are based on the concept of target-date funds, a “set and forget” method and are made up of different asset allocations that change over time. In essence, L funds become more conservative as they get closer to the target-date. Said otherwise, these funds look for growth assets when they are decades away from the target-date and slowly shift to less risky assets over time - theoretically growing your contributions over a time horizon and then safeguarding your balance as you approach retirement.

Individual funds offer exposure to broad sets of the market, including Government Securities, Fixed Income, International (MSCI EAFE Index), Common Stock (S&P 500 Index), Small Cap (Dow Jones U.S. Completion Total Stock Market). These funds are typical of what are available in any brokerage - they also have very low fees associated with them! Look here for webinars on individual funds.

Lastly, the mutual fund option may sound interesting, and could be the right match for your financial goals, but it is incredibly important to consider the fees associated with these types of investments. Mutual funds differ from the TSP lifecycle and individual funds in that mutual funds have higher fees for investors. These fees can add up to a considerable amount especially over a decades long time horizon, so please take note before investing!

The TSP Website has a great page on investing strategies and what to consider as you begin, or evaluate your current investment decisions and financial goals. You can’t go wrong starting early and being methodically consistent!

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HUMOR

This is not military humor, this is just a really classic piece of absurdist humor, and perfect for a Friday.