The question isn’t at what age I want to retire, it’s at what income.
Imagine this. It’s 2034, you’ve applied to retire in 365 days, and you can finally fill out the DD Form 2656 determining how you’ll get paid on retirement.
Sounds like a dream, right?
…but it’s only 2022.
Ouch, that’s so many years to wait. We get it. And we’re here to help.
That custom built forever home on a big piece of property in south Georgia or beachside palm tree oasis is floating just right on your horizon, but first, you have to build the financial boat to get there.
So, our question to you is, how are you contributing towards your retirement savings today to make your retirement dreams a reality tomorrow?
We introduced the idea of paying down your mortgage in our last article ‘Best Way to Maximize Your 2023 Military Pay Raise’ but we have another idea for you.
When was the last time you thought about your Thrift Savings Plan (TSP)?
With the proposed 2023 military pay increase of 4.6% beginning in January PLUS the average 12.1% BAH increase announced on December 14, you could be putting a much larger chunk of your pay towards retirement. And since this is unplanned for, “new” money to you, you won’t even miss it in the monthly budget.
Let’s talk about some of the nitty gritty details…it can be a little confusing.
There are two key points to remember about the TSP.
1. The annual dollar amount contributed can’t exceed the IRS limit which changes each year. For 2023, the IRS limit is $22,500, although you can contribute up to $61,000 to the TSP if you serve in a combat zone.
2. Under the Blended Retirement System, if you aren’t contributing enough to reach the limit where the federal government matches your contributions, you’re losing out on free money. That’s kind of like walking by a $100 bill on the sidewalk and waving to it as it blows away in the wind. Don’t do that!
The government will match your contributions up to 5% of your basic pay.
That means if you’re contributing 3%, they’ll contribute 3%. If you’re contributing 9%, they’ll contribute 5%. Make sense?
Savings in Action
In 2022, an O-3 with over 4 years TIS makes $6,185.40 a month in base pay. If they contributed $309.27 a month, 5% of their base pay, the government would match another 5% making the total contribution a month 10% or $618.54.
Take that same O-3 with a military pay increase of $285 in 2023. By contributing an extra $285 on top of the previous $309.27, that’s almost $11,000 contributed towards their future in just one year! And that’s not even adding in the BAH increase.
For you, the exact amount will depend on whether or not you’re contributing via Roth or traditional IRA. So, check your current contribution structure and use the Retirement Income Modeler on the TSP Website to determine savings goals specific to you.
We know socking away money can be less exciting than spending it now but try to remember that every bit you save today counts towards that dream you have five, ten, or fifteen years from now. Don’t let that perfect forever home slip away!
The content of this blog post is for informational purposes only. This post is not intended to give tax or investment advice. Please consult a qualified financial advisor for tax or investment advice.
