We’re all looking forward to retirement. Whatever retirement means to you, we all know it’s better than having to get up before dawn to start another day’s work. That’s where a Military TSP comes in. This savings plan is perfect no matter if you’re just retiring from military life to get a civilian job or retiring from the military and workforce all at once, you lucky dog.
Whether you’re looking forward to sipping gin and juice on a tropical island somewhere or you want to settle in the countryside far away from civilization, you need to have a plan. And once you get there, you need to know how to cash out.
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- What Is TSP?
- Military TSP Options
- Thrift Savings Plan Fees
- Thrift Savings Plan Matching
- Thrift Savings Plan Contribution Limits
- Thrift Savings Plan Retirement
- How Do I Access My Thrift Savings Plan?
- Thrift Savings Plan Withdrawal
What Is TSP?
So, maybe you have a TSP built up, but you’re not sure exactly what that entails. Your TSP is a Military Thrift Savings Plan, and it’s very similar to a civilian’s 401(k). You don’t have to pay any taxes on your TSP as you’re investing, so it’s a much better option than some other investment plans.
A TSP is offered not only to military members but also to all other federal employees.
So if you have a spouse looking into government work, make sure they know to take advantage of their TSP just like you are. If someone in your family is looking for any work at all, nudge them towards a federal job so they can take advantage of a TSP, too. (Maybe you can even convince them to pay you a small finder’s fee for letting them know about this investment plan.)
We’ll go into more detail about plan options, accessing your money, and how you can use it for retirement below.
Military TSP Options
There are over a dozen kinds of Military Thrift Savings Plans. They’re separated into Lifecycle Funds, usually called L Funds, and Individual Funds. You can learn more about the risks, allocations, and expense ratios for each Military TSP option here.
If you know the plan you have but don’t know what it does or why you have that particular one, we have some insight for you.
- L Income – low growth, high preservation of assets
- L 2025 – moderate growth, moderate preservation of assets
- L 2030 – moderate to high growth, low preservation of assets
- L 2035 – moderate to high growth, low preservation of assets
- L 2040 – high growth, low preservation of assets
- L 2045 – high growth, low preservation of assets
- L 2050 – high growth, very low preservation of assets
- L 2055 – high growth, very low preservation of assets
- L 2060 – high growth, very low preservation of assets
- L 2065 – high growth, very low preservation of assets
If you’re the gambling sort, you’re probably signed up for any one of the last half of L Funds. If you’re the “play-it-safe” kind, you may want to stay at an L 2030 or above.
- G Fund – preservation of capital, generation of short-term U.S. Treasury securities
- F Fund – matching performance of Bloomberg Barclays U.S. Aggregate Bond Index
- C Fund – matching performance of the Standard and Poor’s 500 Index
- S Fund – matching performance of the Dow Jones U.S. Completion Total Stock Market Index
- I Fund – matching performance of the MSCI Europe, Australasia, Far East Index
Thrift Savings Plan Fees
Though your Military TSP investments aren’t taxed as you’re putting money in, you’ll still be charged a usage fee for the TSP provider’s services. The U.S. Department of Labor’s Employee Benefits Security Administration lays it all out for us in true legal fashion. If you’re like us and all that jargon goes straight over your head, read on to see what your usage fees will entail in layman’s terms.
The total amount of fees for a Military TSP is calculated to be somewhere between .49% and .6% of your investment, on average.
These are different for every individual depending on any optional features or other plan benefits you choose to take part in.
This will be the money you pay for people to click-clack on their keyboards every day doing things like recordkeeping and overseeing legal services.
This is the amount that you pay for someone to manage your investments. The current investment fee for a Military TSP is set to increase by .076% between 2021 and 2022.
Thrift Savings Plan Matching
Matching for a Military TSP is a little different than a civilian’s 401(k) matching. For a civilian, their employer will usually either match a certain amount or they won’t. For your Military TSP, if you opted in to have your contributions matched at the very beginning of your service, here’s how the matching should look.
The first 3% of your contributions were matched in their entirety. The next 2% were matched at half.
After you contribute 5% of your limit, your agency no longer matches the contributions you make.
If you were a member of a Blended Retirement System and you began service after January 1st, 2018, then you will have only received matching contributions after two years of service.
Thrift Savings Plan Contribution Limits 2022
For 2022, the maximum contribution limit for your Thrift Savings Plan funds is $20,500, which is a considerable increase from 2021’s contribution limit of $19,500.
However, if you’ve dragged your feet until now and are just getting started with your Military TSP at age 50 or older, we’ve got good news. Procrastination pays! You’ll be able to contribute an extra $6,500 per year on top of the base $19,500 so that you can play catch-up with your younger, non-procrastinating counterparts.
If you’re looking for more specifics based on your plan and how much you’ve been contributing thus far, tsp.gov has an amazing Thrift Savings Plan calculator that we recommend checking out.
Discover more ways to save: 5 Ways to Build Wealth With Military Pension & VA Disability (2022 Edition)
Thrift Savings Plan Retirement
Looking at the amount of money you can save per year with a Military TSP, it’s pretty obvious to see how NOT having a TSP can break your retirement.
TSPs closely compare to civilian retirement plans. Take the TSP C Fund, for example. In Q1 2021, it was sitting at a 5.33% return. The similar S&P plan from the 401(k) sat at 6.17% for the same quarter. That’s only a difference of .84%. When you combine that with the TSP’s lower interest rates and plethora of other benefits, a TSP fares better for military members in the long run.
You’d be stupid not to put as much money as you possibly can into your Military TSP, especially towards the last few years of your service.
Imagine you joined the military at age 18 and signed up for a Military TSP your very first year. Maybe you served 15 years before leaving the service.
Now imagine you contributed just HALF of the maximum contribution every year during your service. If you’re not keeping up or you’re not math-savvy (who can blame you), that’s a total of $146,250 you will have already saved up for retirement by age 33. (This is minus any fees or taxes, depending on your plan, options, and what you do with your money.)
Of course, you have another 29-30 years before complete retirement from the workforce, so just think of how much more you can save up before then. You’re gonna be one of those grandparents you always hated seeing going on cruises every other month with all your extra savings.
Don’t get too ahead of yourself! Find out how you can spend wisely on our trending blog: Life After the Military: 7 Secrets to Not Go Broke & Keep $ in Your Pocket
How Do I Access My Thrift Savings Plan?
You can access your Military TSP online at tsp.gov. You’ll first need your account number, which can be sent to your mailing address if you’ve lost it (looking at you, Steve) or don’t have access to it. They’ll also have you set up a username and password for easier access next time you want to get into your account.
We’ve had a lot of people coming to us and asking about the existence of a rumored Thrift Savings Plan app. Sadly, there is not an official app currently available where you can access your Military TSP information or request withdrawals. The official Thrift Savings Plan website, in fact, warns against mobile apps due to their lack of security.
If you need to access any information regarding your Military TSP, play it safe and stick with the official website.
Thrift Savings Plan Withdrawal
We’re gonna say this once and never again, so to everyone in the back, SHUT UP and listen!
DO NOT WITHDRAW MONEY WHILE YOU ARE IN SERVICE.
This can seriously mess up the future of your Military TSP, as it permanently and irrevocably reduces your savings.
If there is some kind of disaster that occurs and makes this impossible, you can withdraw money regardless. Just know that this withdrawal is permanent, and you cannot put money back in to replace what you took out. If you’re less than 59 years of age, you can also be charged with a 10% early withdrawal penalty. The IRS doesn’t care that it’s your money; they’ll charge you to use it anyway.
You also have the option to borrow against your TSP. That would basically be you loaning yourself money, which you’d then have to pay back with interest (the rate is currently 1.5%). To do so, you must have at least $1,000 of your own contributions in your TSP.
When borrowing, you can get a loan for general or residential purposes. A general loan is one that can be used for any purpose, requires no documentation, and has a repayment term of 1-5 years. A residential loan can only be used to purchase your primary residence or construct a primary residence. It also requires documentation and has a repayment term of 1-15 years.
When you’re transitioning and ready for retirement, you have several options for withdrawing your savings.
First is the installation payment. You can choose to receive checks on an annual, quarterly, or monthly basis.
Next are single withdrawal payments. Here, you take out what you need when you need it.
Finally, there are payments based on your life expectancy. With this method, your retirement provider will calculate the amount you need to receive based on your life expectancy and the total amount of money in your account.
No one method is better than the rest. It’s all dependent on your lifestyle and how hard you plan on partying come your official retirement day.
So, are you ready to retire? We’re sure you are! Before closing this chapter, make sure you’ve done all the extra research you can and decide what plans and payment options really work for you and the life you envision yourself having after retirement.
If you’re a Military TSP expert and have any tips for those about to leave the service, we’d love to see them in the comments below!