The Beginner’s Guide to TSP

A primer on one way for military members to save for retirement.

TSP — the “Thrift Savings Plan.” Once a janky way to keep oneself from spending $10k on deployment and picking up a free $1,500 on the back end, TSP has become the primary way to save for retirement. What is it? How does one get started? Is it worthwhile?

Put plainly, TSP is one part of the military’s retirement plan. Alongside the pension one can earn during one’s career, TSP makes up the BRS or “Blended Retirement System.” More people get a retirement benefit from their service, and retirees have some control over what they retire with beyond a regular tax-free annuity.

To answer the last question next — is it worthwhile — yeah. While it can be a little frustrating for a junior enlisted soldier or junior officer to tie up 5% of a salary that’s already pretty small, there’s a drastic difference between putting away nothing (the government will contribute 1% of your paycheck to retirement whether you contribute anything or not) and putting away 5% (matched by the government, for a total of 10%).

When you sign up, you’re automatically enrolled in TSP — if you joined before 2020 the number was 3%, if you’ve joined since, it’s 5%.

Someone who enlists in the military with no expectation of making it a career, for three years, and puts nothing else away can expect to walk away with $840 free dollars in their TSP account. Their officer counterpart who commissions into the military and saves none of their salary during their 4 year commitment will leave the military with $2,328 in their TSP.

If that enlisted service member left the military after 3 years and stashed the full 10% of their base pay each month, their TSP account would have over $8,500 instead — about 10 times more (not surprisingly, given 10 is 10 times greater than 1. That’s math). Leaving that cash invested and untouched, with an annual rate of return of 5% — a low-end estimate — by the time that service member reaches 60 and can take their money out, the principle ought to have grown to over $45,000.

Even in 2059, 35 years from now, $45,000 will be a nice piece of change.

For that junior officer who served 4 years and left while getting the maximum 10% each month? They’d leave the service with about $21,600 in their TSP fund. 35 years later they’d be looking at over $119,000 — money that could go toward a grandchild’s education, or a condo, or just about anything.

So what’s the most effective way to use the TSP? Assuming you go with the maximum contribution there are three choices.

#1 The Roth TSP

Where you put after-tax income away, and can then take it out once you’re retired, tax free.

#2 The Traditional TSP

Where you put pre-tax income into the account, and you can take it out when you retire, subject to capital gains tax (~15-20%, depending on where you are).

Roth — pay taxes now. Traditional — pay taxes later.

#3 Both (Roth & Traditional)

If against all odds somehow you can afford it. Why not? You can stash up to $23,000 per year. And the more you save earlier, the more you’ll have when you retire.

You have some options with where to stash your retirement. The first and easiest is — let the military automatically assign that for you. They rebalance portfolios daily, and it’s in their interests to do as good a job as possible, both for your funds, and so they can brag to their arrogant and annoying finance buddies down at the Yale Club squash courts. Trust me, the odds you could do better than they can at pickin’ winners is extremely low.

But you don’t want to listen to me, you don’t trust those slick-talking Wall Street types. You’re going to pick your own funds. You can do that! Don’t care for risk? Pick a fund with conservative returns of between 4-5%. Typically finding an ETF that tracks the S&P 500 is your best bet. Want to live dangerously? Dump that hard-earned money into funds that can return over 20% and watch it boom (or bust).

However you want to play it — the new TSP has a lot of options. And whether you’re in the military for a short stint to serve your country before getting on with work and a life or you’ve decided to make it a career, putting money away early and often will make your later life a lot easier. It’s one more way that service sets troops up for success.

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