This past summer, the Employee Benefit Research Institute rolled out its 34th annual Retirement Confidence Survey. I detailed some of the high-level findings in this article, including a positive correlation between military service and good retirement outcomes that's worth digging into.
The military's version of a civilian 401(k) -- called the Thrift Savings Plan, or TSP -- is likely a centerpiece of the success. According to the survey's findings, military-affiliated respondents -- both currently serving and separated or retired veterans -- were extremely likely to be participating in a workplace plan like the TSP.
Greater than a 90% rate across various income levels reported making contributions to their plan. That's solid and dovetails with the Thrift Savings Board's own statistics, which show 88% participation by military members covered by the Blended Retirement System (BRS). Overall, that's a good news story.
However, a large group of service members still aren't taking advantage of the TSP. According to the Federal Retirement Thrift Investment Board's May minutes, more than 22% of legacy uniformed services members and 12% of BRS members are not participating. A quick and inexact crunching of numbers, and I would put that figure at more than 400,000 non-participants.
That's significant. Why? Over the years, I've talked to a lot of folks who have chosen not to participate. Here are four themes driving that decision and why I think the rationale misses the mark:
1. Not Enough Time Remaining in the Military
Even if you have only a year or two left in the military, contributing to the TSP can still make sense. Why? First, you never know what the future holds. I've talked to people whose short-term plan to leave the military turned into decades of continued service. If that happens to you, you could miss out on years of contributions.
Second, even if you get out soon, you typically have the option of keeping the accumulated money in the TSP, rolling it over to your new employer's plan or transferring it into an individual retirement account (IRA).
In any of those scenarios, starting now allows you to build for the future.
2. Not Enough Money
If you're too short on funds to contribute to the TSP, revisit your spending plan. Most people can make changes to accommodate a small contribution. The TSP is a great tool to live a pay-yourself-first lifestyle. Because the contributions are deducted before the money hits your checking account, you'll save first without the temptation to spend. Starting small provides a building block for bigger contributions with future pay increases. Get your foot in the door.
3. Not Ready to Think About Retirement
OK, I get it. Retirement could be decades away. On a day-to-day basis, you're faced with more pressing issues. However, if you put off building for the future, you're ignoring one of your greatest allies: time. The power of compounding returns, or earning interest on your interest, can turn $50 or $100 monthly contributions into a six-figure retirement balance. Don't miss that opportunity.
4. Not Worried. I've Got Military Retirement
The monthly paycheck from the military is a great benefit, the kind of retirement pension that many American workers no longer receive. However, at 20 years of service, it still represents only half of your basic pay (no Basic Allowance for Housing, Basic Allowance for Subsistence or other allowances or pay).
Most recipients will need to supplement it through retirement savings. And beyond that, fewer than 20% of those who serve ultimately qualify for military retirement. Finally, to get the most from the new blended military retirement system, service members will need to contribute at least 5% to the TSP.
If any of these "nots" sound familiar, I hope these thoughts help you add the TSP into your financial plan.
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