The military provides a good number of benefits, one being the Thrift Savings Plan or TSP. The TSP is a employer-sponsored retirement program similar to 401(k) that is offered by civilian employers. Payroll deductions are invested into your choice of TSP funds, for use at retirement.
The TSP may be covered in basic training or soon after, but I don’t believe enough emphasis is put on it. Compounding interest is a wonderful thing. If you don’t know what that it is, it is the addition of interest to your money. You then earn interest on interest. It’s a beautiful thing. This is why you need to start your retirement saving early. Play with a compounding interest calculator to see how much more you’ll have if you start early.
- You can start contributing as little as 1% of your pay. If your monthly base pay is $2,500, 1% is only $25. You can start wherever you feel comfortable and what your budget can afford. No one will miss $25-$50 though. As your pay increases and you are promoted, up the percentage a little more. For 2016, you can contribute up to $16,000. Contribution amounts can easily be changed in MyPay.
- There are 2 types of TSP accounts, traditional and Roth. A traditional account deducts contributions from your paycheck before taxes, which lowers taxes in the year of contribution, but you pay taxes on the contributions and earnings when you withdraw (at retirement). A Roth account deducts contributions from your paycheck after taxes have been taken out, but both the contributions and earnings are tax-free when withdrawn.
- There are tax benefits to contributing as discussed above. Ask when you have your taxes done. If you do them yourself, any software will catch that you contributed and walk you through it.
- You can contribute from your base pay, bonuses, or special pays.
I’m a huge fan of saving and investing. Why shouldn’t you pay yourself first? A lot of people don’t see it like that though. They figure spending the money on things they want equals paying themselves. Don’t you want the option to retire early? Don’t you want to be able to travel at that time? Look into contributing and all the benefits (not that there is a downside).