The federal government's Thrift Savings Plan is a great tool to help you build retirement savings in a tax-advantaged account. And if you're in the Blended Retirement System, the government match of the first 5% of your contributions can really boost your balance.
But when the budget is tight, it feels hard to send that money to your retirement account. And whose budget isn't tight right now? The United States is experiencing higher inflation than most of us can remember.
Thankfully, the military's compensation structure has several built-in ways to make it easy to increase your TSP contributions on a regular basis. You do have to start somewhere. Obviously, if you are in the BRS, you want to be contributing at least 5% to your TSP account to get the full government match.
But even if you are in the legacy retirement system, you should strive for at least a 5% contribution. It's your future!
Then you gradually increase your contributions in a painless way. One day you'll realize that you're really saving a lot. Here's how:
Annual Changes to the Pay Chart
Every year, Congress adjusts the military pay chart. This year, the military received a 4.6% increase, though it can be higher or lower. This increase in your pay is a great time to add a little bit more to your TSP without feeling like your pay went down. At the end of December, increase your TSP contribution by 1% or 2%.
Time-in-Service Pay Increases
The military pay chart includes regular time-in-service pay increases. These happen at even-numbered years of service (two, four, six etc.), plus a special one at three years of service. These are other great times to bump up your TSP contributions 1% or 2%. Your paycheck will still get bigger, so it won't hurt at all. But you'll be making progress toward long-term financial stability. Win-win!
Promotions
The third painless time to increase your TSP contributions is when you receive a promotion and therefore a pay increase. Again, take this increase in pay as an opportunity to increase your TSP contributions.
What This Looks Like in Practice
Let's say you're an E-4 who has been serving for 4.5 years. You're contributing 5% of your base pay to TSP to get the government match. At your $2,915-per-month basic pay, that means you are contributing $146 per month to your TSP account. That's a great start.
Then, you get promoted to E-5. Your base pay increases to $3,199 per month. If you kept your contribution rate at 5%, you'd now be contributing $160 per month to TSP. But instead, you increase your contribution rate to 7%. Now you're adding $224 per month to your account, and you're still bringing home more money.
Then, the next year, the military gets a 4% pay increase. Your base pay increases from $3,199 per month to $3,327. So you increase your TSP contribution by another 2%, for a total of a 9% contribution. You're now contributing $299 per month to TSP. You've doubled your TSP contributions in less than a year, and you're still bringing home more money.
Then, let's say you pass six years of service. That raises your pay to $3,561 (using today's pay tables, times that 4% increase we imagined you got). Increase your TSP contribution another 2%, and your total contribution is now 11% of your income. You're putting $392 per month into your long-term savings, and you haven't even felt the difference in your take-home pay.
It's magical.
The military pay chart and pay increases are systematic, logical and clear. Take advantage of them to grow your financial security in a painless way. You'll be glad you did.
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