Question:
My nephew is an ensign in the Navy, and soon will be a Navy SEAL. He is not aware of a Retirement Plan available to Navy SEALs in particular, or to Naval Officers in general. Is there a qualified Retirement Plan, such as a 401(k) available?
Answer:
Whether you plan to make a career of serving in the military or just plan to serve one enlistment, here are some tips to help you make the most from your service, and build a solid foundation for the rest of your life.
Retirement
20+ Years of Service
The most notable benefit of serving in the military is the retirement plan. Currently, if an individual serves on active duty for 20 years, the government offers between 40-50% of his pay for the rest of the veteran’s life. The actual percentage is based on the retired pay multiplier the individual selects. Service beyond 20 years increases the monthly benefit by a fixed amount per additional year of service. Usually, this amount is 2.5% per year. Imagine graduating high school at 18, enlisting in the military, serving 20 years, earning a college degree, a master’s degree, and retiring with half pay, and medical and dental coverage for life by the time you are 38. Not only should you be very marketable, you should have time and plenty of opportunities to start a new career wherever you choose!
More on Military Retirement Pay
Thrift Savings Plan
The Thrift Savings Plan (TSP) is the government’s version of a 401(k) retirement plan. Service members can elect as much pay as desired to be taken from their monthly paycheck, including incentive pays, and deposited into a TSP account. The annual limit is set by the IRS on contributions. This amount is $17,000 for non-deployed personnel. Individuals deployed in a tax exclusion area are subject to different rules, and can elect up to $50,000 in contributions to their TSP account per year. The money contributed is tax deferred and reduces taxable income for the current tax year. Utilizing the TSP is important for many reasons. By setting an automatic contribution, the money is never deposited into your account and never missed. Since you contribute a percentage of your pay, as your pay increases so does the contribution up to the $17,000 limit. Another huge advantage of the TSP is the extremely low expense ratios. For 2010, the most recent data available, it was 0.025%, meaning it cost $0.25 for every $1,000 invested in the plan. Additionally, if you have another type of retirement account after service, such as, a 401(k) plan, and separate from that company, you can roll that plan into your TSP account provided the money is pre-tax money and certain other conditions are met.
More information on Thrift Savings Plan
Allotments
Similar to having money taken from each pay check and deposited into a TSP account, the military will allow you to set up an automatic payment, called an allotment. The allotment is subtracted from your monthly wages. An allotment is similar to a bank’s bill pay service. The difference is the allotment is paid at one time, but the money is evenly divided between your semimonthly paychecks. For example: A $600 allotment for your rent is paid May 1st, but your take-home pay will be reduced by $300 on the 1st and 15th. Since the money is not deposited into your account for you to spend, you never miss it. This is the perfect way to start saving for retirement early, and establish solid saving habits. Set up an allotment of $100 a month to a Roth IRA account. As your salary increases, the allotment can be raised, so that you contribute more to your Roth IRA.
More information on Allotments
Henssler Financial salutes all who have served in the armed forces. If you or someone you know is enlisting and would like to speak with a financial adviser about how to take advantage of the military benefits offered, call Henssler Financial at 770-429-9166, or e-mail us at experts@henssler.com.
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