Planning for Retirement? See What the Army Can Offer
People join the Army for many reasons – family tradition, career development, advanced education, traveling the world, or any combination of these goals. Regardless of why you joined, or where you have ended up, the Army offers many financial benefits that could enhance your experience both in and out of service.
For decades, one of the more commonly known advantages to serving in the military has been some variation of a retirement benefit. In the past, the Army offered the Legacy Retirement System, otherwise known as the High-3 System. This retirement system required a minimum of 20 years in service to qualify for the defined benefit annuity – a set monthly payment to the service member – calculated based off the average of the highest 36 months of base pay earned. While this High-3 System provided an amazing benefit to service members during retirement, it required a minimum of 20 years of service, so it was an "all-or-nothing" style retirement system. This meant that Soldiers who decided to change career paths or enter an early retirement could not rely on the High-3 System.
Now Soldiers have access to the Blended Retirement System – a comprehensive financial planning device aimed at providing retirement benefit opportunities to all Soldiers, without the 20-year commitment. Since 2018, BRS continues to offer financial planning to those that do not plan on making a career in the military, while still providing significant retirement benefits to those who do. This retirement system focuses on the Thrift Savings Plan (TSP), a federal defined contribution plan that mimics a 401(k) in the private sector, offers several low-cost investment opportunities, and provides contribution matching. Under the BRS, the Department of War offers up to a 5% contribution match, meaning you can contribute 10% of the value of your monthly base pay while only investing 5% of your check. Since 2018, Soldiers have been automatically enrolled in a TSP investment account and contribution amounts can be managed through their myPay accounts.
For those who decide to leave before 20 years of service, the TSP can be rolled into a new qualified retirement account. Traditionally, this would mean moving your TSP earnings to a Traditional IRA, or an eligible 401(k), and building your retirement in whatever profession you continue with outside of the military.
Additionally, for those who decide to build a career out of their service, between 7 and 12 years of service with a commitment of 4 or more years, the Blended Retirement System offers a Continuation Pay benefit. This taxable bonus can be taken in one lump sum distribution, contributed directly to a TSP to decrease tax liability by taking it in retirement, or split it into four yearly distributions to manage tax liability.
It's important to know that the TSP isn't the only investment avenue towards reaching retirement. If you're unsure about how long you will be in service, and plan on taking it assignment-by-assignment, or contract-by-contract, there are many investment opportunities on the market. Investments can be made into qualified or unqualified account types. The main distinction between the two is whether the investments are made before or after being taxed, and each holds their own unique benefits.
Qualified accounts are funded with pre-tax monies, and commonly include 401(k)s, Traditional IRAs, SEP/SIMPLE IRAs, some Roth IRAs, and 403(b)/457(b) accounts. Non-qualified accounts are funded by after-tax monies, and commonly include brokerage accounts, checking and savings accounts, and custodial accounts. It's important to discuss with a financial advisor what investment accounts fit your financial needs and risk tolerance.
The Army is a melting pot of people, with each Soldier on a different walk of life. However, regardless of the path each Soldiers is on, they all have the opportunity to build their retirement and prepare their financial futures through the many avenues the Army has to offer. It's never too late to start planning.
Cadet Jessica Nelson, Fort Bliss Legal Assistance Office