Here’s one of my biggest regrets during the decade I spent as a military spouse: I didn’t prioritize saving for retirement. I got married pretty young (I was 25), and we had our whole lives in front of us. We traveled. We bought a house. We bought two cars. We furnished our house with nice things. Eventually we had children and we made sure they had nice things too. We even started saving for their college educations when they were born. And while we saved a little for retirement, it just seemed so far off.
I am writing this because this is a trap so many people fall into. I’m well-educated, and I paid off all my debt fast. My husband and I didn’t buy crazy things. But we somehow just never sat down and had the retirement conversation. And that money just got spent on other things.
Today, in my public relations career, I have worked for several major financial institutions. I know way more about retirement and finance than I ever did before. And I’ve realized how vitally important it is to consider your retirement when you’re younger. Why? Compound interest. The little bit you put in at age 25 becomes a lot by age 65. It’s such a simple concept, and it’s one a lot of people understand, but sometimes we all just need a reminder.
The military doesn’t have a 401(k), but it does have something similar: the Thrift Savings Plan. If you joined the military after Jan. 1, 2018, the government will automatically contribute 1% of your basic pay to your TSP even if you contribute nothing. If you do pay into the TSP, the government will match your contribution, up to a maximum of 5% of your basic pay.
Here are some saving for retirement tips:
Don’t fall into the trap of thinking, “I’ll be fine not saving because I plan on doing 20 years.” Or, “when I get out of the military I’ll make a lot more money and I’ll start saving then.” A lot can happen in 20 years. You shouldn’t count on reaching military retirement, and you can’t count on a higher-paying job afterward. Life happens.
Open an IRA
Contribute to your TSP and also open an IRA. A Roth IRA is appealing because you pay taxes upfront, instead of when you take the money out at retirement age. A traditional IRA is another option. If you can, try to put the full $6,000 (the most you can put in under age 50) every year. If you have one account for you and one for your spouse, that’s a contribution of $1,000 a month to reach the maximum of $12,000 total you can contribute each year. That may be too much for you to save right now, and that’s okay. Put in what you can. Don’t think that because you can’t put in the maximum you shouldn’t put in anything at all.
Match what the military pays into your TSP
Calculate 5% of your basic pay (what the government will match for your TSP) and make sure you’re putting in at least that amount each year into your TSP. That will maximize the money you make on it.
Split your raises with your retirement account
When you get a raise, commit to putting half of your raise amount into your retirement account. For example, if you get promoted and are making $1000 more a month, put $500 more a month into your retirement accounts (IRA or TSP) than you were before.
Let your computer do the legwork
Automate your contributions. I can’t stress how important this is. If you don’t, you will find other things to do with that money. Have your contributions deducted from your paycheck before they even hit your checking account.
Save for retirement. Plan for college.
Prioritize your retirement before children’s college accounts. You can’t get scholarships for retirement.
Use the 15% rule
Finance guru Dave Ramsey recommends saving at least 15% of your income for retirement. That’s a good guide if you’re wondering how much to aim for.
You may want to pay off debt first
There is different wisdom about waiting to save for retirement until you pay off your debt. Some experts advise you to save for retirement and pay off debt at the same time. Dave Ramsey suggests you pay off your debt first and then build up a $1,000 emergency fund. Do some research on what strategy you feel comfortable with.
Hands off your savings
Once you’ve deposited money into a TSP or IRA, don’t take it out! You will pay tax penalties and you will get yourself into the habit of thinking of it as “emergency money” instead of having a separate emergency fund in your savings account. Make it a rule never to touch the money once it goes in.
Budgeting is your friend
Make a budget. The only way to ensure that you will reach your goals is to write down exactly how much money is coming in every month and where it is being spent. Before you budget for food, clothes, entertainment, etc., budget for your savings. Whatever is left over is how much you can spend on the other stuff.
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