How to Max Out Your Thrift Savings Plan
Recently, the military changed to a new retirement system known as the “Blended Retirement System” or BRSP. This retirement is derived from annuity for those who retire with 20 years or more of service, in addition to the Thrift Savings Plan (TSP). Essentially the TSP is a government 401(k) retirement account.
The TSP allows service members to invest in special US Treasury bonds (G Fund), the US bond market (F Fund), international stock markets (I Fund), and the US stock market (C and S Funds).
The Blended Retirement System uses the average of the service member’s highest 36 months of basic pay times 2% of their years of service. In addition to that, the service member will also receive an automatic 1% match of their basic pay from the government into their Thrift Savings Plan account. Below is an easy reference chart to use.
As one can see through matching Thrift Savings contributions the DoD (Department of Defense) allows you to save 10 percent of your base pay for retirement each year, while you only contribute 5% from your paycheck. That’s literally free money!
Note: You can always contribute more than 5% of your base pay. You just won’t get anymore matching after that.
Take it with you when you go
Five out of six service members have no retirement benefits prior to the Blended Retirement System. In the old military retirement system, that means that only 17 percent of service members stayed the full 20 years to earn a pension! This is highly beneficial to service members who opt to leave the service before putting in a full 20 years, as they still receive their retirement savings.
The Blended Retirement System allows service members to leave the military with an established retirement account, whereas the old system required service members to stay in the full 20 years.
With the blended plan, a service member would still have to stay for the full 20 years to receive the pension portion. However, they would still receive any Thrift Savings Plan contributions they put forth.
The Blended Retirement System also includes a mid-career continuation pay at 12 years of service. This is, in part, as a bonus incentive to entice service members to stay the 20 years to qualify for the monthly military retired pay. This can range from 2.5 to 13 times your monthly basic pay. Guard and reserve members receive 0.5 to 6 times their monthly basic pay (as if serving on active duty). The pay rate is dependent on retention needs, specialty skills, and hard to fill positions.
How much do I need to contribute to get the full match?
One can contribute a maximum of $18,500 in 2018. Take this number and divide by 12. This equals $1541.67 per month. Next, divide $1541.67 by your base pay to get a percentage of contribution. This number shows how much percent to contribute to your TSP each month to max it out.
Let’s say you are a brand new O-1 and your base pay is $3107.70.
$1541.67 / $3107.70 = 0.4960 x 100 = 49.6%
Since you can only contribute whole percentages, 50 percent is your number needed to max out your TSP. You would receive the full five percent match every month as well!
How much is the 5% match worth each month?
Blended Retirement System annual 5 percent match value:
Under the new Blended Retirement System, service members who are opting to leave the service before 20 years are at the most advantage. They will still receive a retirement based off of what amount is in their Thrift Savings Plan.
By contributing 5% or more of one’s base pay, there is free money on the table from the Department of Defense matching one’s contribution to 5%. This can equate to thousands of dollars for free each and every year depending on the rank of the individual.
Reference the charts above to factor in your own decision on either changing to the Blended Retirement System or how much you’d like to contribute each month to your Thrift Savings Plan.
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