The military's version of a civilian 401(k) -- called the Thrift Savings Plan, or TSP -- is a solid way to build for the future. A greater appreciation of this, along with some help from the automatic enrollment of those covered by the Blended Retirement System, has more than doubled active-duty participation rates from under 40% just over 10 years ago, to over 80% today. That's a good news story.
However, it's not a complete victory. There is still a large group of service members who aren't taking advantage of this plan. After a quick and inexact crunching of numbers, I would put that figure of non-participants at around 300,000. Over the years, I've talked to a lot of these folks and have heard several recurring themes on why they are choosing to skip the TSP.
Here are some of the excuses I've heard repeatedly and why I don't think they should keep you from using the TSP to save for your and your family's future:
1. "I'm Getting Out Soon and Don't Have Enough Time."
Even if you only have a year or two left in the military, it can still make sense to contribute to the TSP. Why? First, you never know what the future holds. I've talked to people whose short-term plan to leave the military turned into decades of continued service. If that happens to you, you could miss out on years of contributions.
Second, even if you get out soon, you typically have the option of keeping the accumulated money in the TSP, rolling it over to your new employer's plan or transferring it into an individual retirement account (IRA). In any of those scenarios, starting now allows you to build for the future.
2. "I Don't Have Enough Money."
If that's the case, revisit your spending plan. Most people can make changes to accommodate a small contribution to the TSP. All you need to do is to visit myPay and sign up to get things started. The TSP is a great tool to live a pay-yourself-first lifestyle. Because the contributions are deducted before the money hits your checking account, you'll save first without the temptation to spend. Starting small provides a building block for bigger contributions with future pay increases. Get your foot in the door.
3. "Retirement, Are You Kidding Me?"
OK, I get it. Retirement could be decades away. On a day-to-day basis, you're faced with more pressing issues. However, if you put off building for the future, you're ignoring one of your greatest allies -- time. The power of compounding returns, or earning interest on your interest, can turn $50 or $100 monthly contributions into a six-figure retirement balance. Don't miss that opportunity.
4. "I've Got Military Retirement."
The monthly retirement paycheck from the military is a great benefit, the kind of retirement pension that many American workers no longer receive. However, at 20 years of service, it still represents only half your basic pay -- no Basic Allowance for Housing (BAH), Basic Allowance for Subsistence (BAS) or other allowances or pay. Most recipients will need to supplement it through retirement savings. And beyond that, less than 20% of those who serve actually qualify for military retirement. Finally, to get the most from the new blended military retirement system, service members will need to contribute at least 5% to the TSP.
If any of those excuses sound familiar, I hope these thoughts help overcome your objections. Keep on saving.
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