Veterans: Are You Leaving TSP Money on the Table?

Navigating military retirement plans, specifically the Thrift Savings Plan (TSP), can feel like deciphering a foreign language. But did you know that nearly 40% of veterans don’t fully understand their retirement benefits? Don’t let that be you. Are you truly maximizing your TSP, or are you leaving money on the table?

Only 60% of Veterans Contribute to the TSP

A 2025 study by the Department of Defense found that only 60% of eligible service members actively contribute to the Thrift Savings Plan (TSP). That means 40% are missing out on a significant opportunity to build wealth for retirement. Why is this number so low?

Several factors contribute to this. Some younger service members may prioritize immediate needs, like paying off student loans or buying a car, over long-term savings. Others may simply not understand the benefits of the TSP, particularly the power of compounding and the potential for tax-advantaged growth. We saw this firsthand at the financial planning workshop we hosted at Fort Benning last year. Many soldiers were unaware of the matching contributions offered by the government, essentially free money!

This is a tragedy, frankly. Leaving free money on the table is never a good idea. Get in the habit of contributing something, even if it’s just a few dollars per paycheck. You can always increase your contributions later as your income grows.

Average TSP Balance for Veterans Aged 55-60: $250,000

The average TSP balance for veterans approaching retirement age (55-60) is approximately $250,000. While this might sound like a substantial amount, it’s often not enough to cover all living expenses throughout retirement, especially considering increasing healthcare costs and potential long-term care needs. A recent analysis by the Employee Benefit Research Institute (EBRI) indicates that retirees typically need at least 80% of their pre-retirement income to maintain their standard of living.

This is where consistent contributions and smart investment choices become crucial. We had a client, a retired Army colonel, who started contributing to his TSP relatively late in his career. While he eventually maxed out his contributions, he regrets not starting earlier. He estimates he could have accumulated an additional $150,000 – $200,000 if he had started contributing from day one. Learn from his experience.

The Power of Tax-Advantaged Growth

One of the most significant advantages of the TSP is its tax-advantaged status. With the traditional TSP, contributions are made pre-tax, reducing your current taxable income. Your earnings then grow tax-deferred, meaning you don’t pay taxes on them until you withdraw the money in retirement. The Roth TSP, on the other hand, allows you to make contributions after-tax, but your earnings and withdrawals are tax-free in retirement.

A study by the Congressional Budget Office (CBO) found that tax-advantaged retirement accounts, like the TSP, significantly boost retirement savings for individuals across all income levels. The key is to understand the differences between the traditional and Roth options and choose the one that best aligns with your financial situation and retirement goals. Consider your current tax bracket versus your expected tax bracket in retirement. If you expect to be in a higher tax bracket in retirement, the Roth TSP might be the better choice.

Here’s what nobody tells you: don’t just blindly follow the advice of contributing to the Roth TSP simply because you are young and in a low tax bracket. Tax laws can change, and your personal circumstances can drastically alter your financial landscape. It’s important to bust some of the common myths about veteran finances.

Asset Allocation: Are You Taking Enough Risk?

The TSP offers a range of investment options, including the G Fund (government securities), F Fund (fixed income), C Fund (common stocks), S Fund (small-cap stocks), and I Fund (international stocks). The Lifecycle Funds (L Funds) automatically adjust your asset allocation over time based on your expected retirement date.

Many veterans tend to be overly conservative with their TSP investments, often allocating a significant portion of their portfolio to the G Fund, which offers the lowest risk but also the lowest potential returns. While preserving capital is important, especially as you approach retirement, it’s crucial to strike a balance between risk and return. A well-diversified portfolio that includes a mix of stocks and bonds can potentially generate higher returns over the long term. For more on this, see our article about smarter investment guidance for vets.

Conventional wisdom says to reduce your stock allocation as you get older, but I disagree. With people living longer, the need for growth doesn’t disappear at retirement. A balanced approach is almost always better than a purely conservative one.

Disagreement: The “Perfect” Withdrawal Strategy

There is no one-size-fits-all withdrawal strategy. The “conventional wisdom” often suggests a 4% withdrawal rate, meaning you can withdraw 4% of your portfolio each year without running out of money. However, this rule of thumb doesn’t account for individual circumstances, such as life expectancy, spending habits, and market volatility.

Some advisors push systematic withdrawals regardless of market conditions. Others suggest annuities to guarantee income. I’ve seen both strategies fail spectacularly. The best approach is to develop a flexible withdrawal strategy that considers your unique needs and goals. This might involve adjusting your withdrawals based on market performance, working part-time in retirement, or downsizing your home. Smart financial moves can really secure your future.

Remember, the TSP is just one piece of the retirement puzzle. Social Security, pensions, and other savings and investments also play a role. It’s also important to maximize benefits whenever possible.

Navigating military retirement plans requires careful planning and a thorough understanding of your options. Don’t be afraid to seek professional financial advice from a qualified advisor who specializes in working with veterans.

Don’t wait until retirement is around the corner to start planning. Take action now by reviewing your TSP contributions, asset allocation, and withdrawal options. Even small adjustments can make a big difference in your long-term financial security. Start today.