Military Families: Don’t Miss Out on Recent Changes to Your Financial Benefits

by guest blogger Kimberly Lankford, author of Kiplinger’s Financial Field Manual: A Personal Finance Guide for Military Families

This year is a particularly good time for military families to review their personal finances. Why now? People who joined the military between 2006 and 2017 had to make a big decision last year: whether to stay with the traditional retirement plan or switch to the new blended retirement system. And now that you’ve made your choice, it’s up to you to make the most of your options.

Know Your Retirement Benefits

If you chose to remain in the traditional retirement plan (or if you joined the military before 2006), then you will receive a generous pension if you stay in the military for at least 20 years. You’ll receive lifetime income of at least 50% of your base pay every year for life, or up to 75% of your base pay if you remain in the military for 30 years.

If you opted into the new blended retirement system, or if you joined the military in 2018 or later, you’ll still receive a pension if you stay in the military for 20 years or longer. But it will be smaller: 40% of your base pay if you stay for 20 years or 60% if you stay for 30 years. You’ll receive extra money, however, in your Thrift Savings Plan. The Department of Defense will automatically contribute 1% of your base pay to the TSP after 60 days of service, and it will match your TSP contributions for the next 4% of your pay, which can continue for up to 26 years of service. You can keep the entire balance in the TSP – including the government contributions – as long as you remain in the military for at least two years.

But if you’re in the blended retirement system, you need to take some extra steps to receive the maximum benefits: You have to contribute 5% of your pay each year to the Thrift Savings Plan to receive a full match from the Department of Defense. Try to contribute at least enough money to receive the full match each year. After all, this is free money that can go a long way toward boosting your savings.

And if possible, it’s a good idea to invest even more in this tax-advantaged plan to help save for your future. You can contribute up to $19,000 to your TSP in 2019 (up to $25,000 if you’re 50 or older).

If you’re in the traditional retirement system, you won’t receive matching TSP contributions from the Department of Defense. Yet you can still benefit from contributing to this low-cost, tax-advantaged retirement plan. While you’ll receive lifetime retirement pay only if you remain in the military for 20 years, you can keep all of the money that is growing tax-deferred in your TSP no matter when you leave the military. (Note: You’ll have to pay a 10% early-withdrawal penalty if you withdraw money from the TSP before age 59½, unless you leave your job after age 55.)

Take Advantage of Other Benefits, Too

Servicemembers also have access to many other special financial benefits. If you’re deployed and receiving tax-exempt pay while serving in a combat zone, you can contribute up to $56,000 to the TSP for the year. Any tax-free pay from deployment that goes into the TSP can also be withdrawn tax-free. Deployed servicemembers can also invest up to $10,000 in the military’s Savings Deposit Program and receive 10% annual interest while deployed and for up to three months after you return.

You also can receive low-cost life insurance, a tax-free housing allowance, access to home loans that don’t require a down payment, and special legal protections and income-tax benefits. You can also qualify for valuable education benefits from the GI Bill that can pay for college for yourself, or can be transferred to your spouse or children if you stay in the military long enough.

You can learn how to make the most of these financial benefits – and how to protect yourself from new scams that target military families — in the newest edition of the Financial Field Manual. You’ll also learn about financial planning for deployment and how to prepare your finances for the transition to civilian life.  Check out the Financial Field Manual.