Active-duty military members are eligible for retirement after 20 years of service. While there can be financial benefits for continuing to serve. Deciding to leave service after 20 years isn’t uncommon. For some, it gives them an opportunity for a second-act career. Letting them move into a new field, or is simply a chance to take their skills into the civilian world. However, for others, the goal is to fully enter retirement after 20 years of service. Something that is challenging but technically possible. If you want to retire at 20 years – either completely or partially – after 20 years of military service. Here are some financial tips that can help.
Estimate the Value of Your Retirement Regularly
First and foremost, military couples need to understand what they will receive as retirement pay after 20 years of service. Depending on the active-duty member’s enlistment date. They are most likely covered by one of three plans: The High 36 Retirement System, the CSB/REDUX Retirement System, or the Blended Retirement System.
Each retirement system calculates retirement pay differently. Military couples should spend time using a military retirement calculator to estimate the value of the retirement pay regularly. That way, they can approximate how much will be received each month.
It’s important to note that even the amounts shown by a calculator may not completely align with how much a veteran will receive after 20 years of service. Every retirement system can have an annual cost of living adjustment (COLA). The exact nature of which varies depending on the retirement system – causing the number to shift. However, it will give couples enough of a baseline for some solid planning.
Additionally, if you have a Thrift Savings Plan (TSP) as part of the equation, things can get more complex. TSP withdrawals are governed like regular IRAs as far as when withdrawals can happen tax-free. If you leave service after the age of 55. You qualify for the Rule of 55 and can make withdrawals without paying the penalty. If you leave the military before that time. You have to wait until your 59 ½ to make penalty-free withdrawals.
Get Your Full Thrift Savings Plan Match
The TSP option available to many active-duty military members works similarly to an investment account. While that means it doesn’t come with a defined benefit. It can potentially lead to a higher income amount than going strictly with the pension approach.
If you have a TSP as part of your military retirement plan. Make sure you capture the full match. Depending on the retirement system. You can get up to 5 percent as a match if you contribute at least 5 percent of your base pay. That means you’re stashing the equivalent of 10 percent of your income for retirement without actually having to send that much of your pay to the account.
Look Beyond Retirement Accounts
If the goal is to completely retire after 20 years of active-duty military service, relying solely on retirement accounts for savings may not work. People can enlist in the military any time between the ages of 17 and 35. That means, after 20 years of service, some may be eligible for military retirement when they are just 37 years old. Even on the higher end of the spectrum, with 20 consecutive years of military service, the oldest someone would reach eligibility is 55 years old.
That means that traditional retirement accounts aren’t viable as income sources immediately upon becoming eligible for military retirement. For example, for IRAs and 401(k)s, the person typically needs to be at least 59 ½ years old to use those accounts as income without having to deal with early withdrawal penalties.
While investing in traditional retirement accounts can be a good move for the long-term, if the goal is to retire from the workforce once they leave the military, you’ll potentially need other income sources. As a result, it can be wise to save and invest using different methods, like traditional brokerage accounts, CDs, and other investment vehicles.
Consider Other Employment
One of the nicest parts of military retirement income is that, after you’ve served at least 20 years, you potentially start receiving it once you leave service. If you have a pension portion, you’re getting a specific amount of money each month for the rest of your life, allowing it to serve as a safety net.
For many veterans, this is an opportunity to take their professional life in a new direction. It can mean remaining in a similar field. For others, it’s a chance to reinvent their career and do something new.
Depending on the value of your retirement, full-time, part-time, or freelance options may work. With the latter two, you may get more flexibility or better work-life balance, allowing you to more easily enjoy your post-military life. However, if you go with a full-time job, it could be a chance to really bolster your savings. That way, when you do decide to step away from working, you’ll have more cash available to support your post-workforce lifestyle.
Do you have any other financial tips that can help military newlyweds retirement at 20 years? Share your thoughts in the comments below.
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