How to Get Started with Retirement Planning: A Veteran’s Guide
Many veterans delay retirement planning, focusing instead on immediate needs. But is putting it off costing you more than you realize? Are you ready to secure your financial future and enjoy the retirement you deserve after serving our country?
Key Takeaways
- Calculate your estimated retirement income from military pensions, Social Security, and other sources using online tools like the Social Security Administration’s Quick Calculator.
- Open a Roth IRA through a brokerage like Vanguard and contribute the maximum amount allowed annually ($7,000 in 2026, plus $1,000 catch-up if you’re 50 or older).
- Contact a fee-only financial advisor specializing in veteran benefits to create a personalized retirement plan that considers your unique circumstances and goals.
Understanding Your Military Retirement Benefits
One of the biggest advantages veterans have when it comes to retirement planning is the potential for a military pension. Understanding how your pension works is the first step. Are you under the legacy retirement system, the High-3 system, or the Blended Retirement System (BRS)? Each has different rules for vesting, payout calculations, and survivor benefits.
The BRS, for example, includes a Thrift Savings Plan (TSP) with matching contributions from the government. If you’re enrolled in the BRS, you’ve already got a head start! Make sure you’re contributing enough to maximize those matching funds – it’s essentially free money. Many don’t realize that even after leaving the military, you can continue to contribute to your TSP as a civilian employee or through a rollover from another retirement account. The TSP offers low-cost investment options and can be a valuable tool for building your nest egg. For more strategies, see how to build wealth after service.
Social Security: A Critical Component
Beyond military pensions, Social Security will likely form another important pillar of your retirement income. Many veterans mistakenly believe that their military service doesn’t count toward Social Security benefits – this is false. You earn credits toward Social Security based on your earnings during your time in service.
The amount of your Social Security benefit will depend on your earnings history and the age at which you begin claiming benefits. You can estimate your future Social Security benefits using the Social Security Administration’s online calculator. Keep in mind that claiming benefits before your full retirement age (FRA) will result in a reduced monthly payment. For those born in 1960 or later, the FRA is 67. Delaying benefits beyond your FRA can increase your monthly payment even further. Don’t forget to unlock tax savings and benefits you’ve earned too.
Tax-Advantaged Retirement Accounts
Military pensions and Social Security are taxable income. That’s why leveraging tax-advantaged retirement accounts is so important. These accounts allow your investments to grow tax-free or tax-deferred, which can significantly boost your retirement savings over time.
- Traditional IRA: Contributions may be tax-deductible, and your investments grow tax-deferred. You’ll pay taxes on withdrawals in retirement.
- Roth IRA: Contributions are made with after-tax dollars, but your investments grow tax-free, and withdrawals in retirement are also tax-free.
Which is better? It depends on your current and projected future tax bracket. If you expect to be in a higher tax bracket in retirement, a Roth IRA may be the better choice. If you expect to be in a lower tax bracket, a Traditional IRA might be more beneficial. I had a client last year, a retired Army officer, who was surprised to learn that by converting some of his Traditional IRA to a Roth IRA over several years, he could significantly reduce his lifetime tax liability.
Investment Strategies for Veterans
Your investment strategy should be tailored to your individual circumstances, risk tolerance, and time horizon. As a general rule, younger veterans with a longer time horizon can afford to take on more risk, such as investing in stocks. Older veterans closer to retirement may prefer a more conservative approach, such as investing in bonds or a mix of stocks and bonds. Considering that many vets face unique challenges, it’s worth asking, “Vets: Financial Security After Service, Is It Possible?”
Consider diversifying your portfolio across different asset classes to reduce risk. This means investing in a mix of stocks, bonds, and real estate, as well as different sectors and industries. A financial advisor can help you create a diversified portfolio that aligns with your goals and risk tolerance. Here’s what nobody tells you: Don’t put all your eggs in one basket, especially not just because a buddy at the VFW recommended it.
Case Study: I recently worked with a 58-year-old retired Marine who had almost all of his savings in a single tech stock. He’d seen it perform well over the past few years and thought it was a sure thing. I convinced him to diversify his portfolio by selling some of the tech stock and investing in a mix of low-cost index funds and bond ETFs through Charles Schwab. Within a year, his portfolio was much more stable and less vulnerable to market fluctuations. His overall returns were actually higher due to the diversification.
Seeking Professional Financial Advice
Navigating the complexities of retirement planning can be overwhelming, especially when you factor in military benefits, Social Security, and tax-advantaged accounts. That’s where a qualified financial advisor can help. Look for a fee-only advisor who specializes in working with veterans and understands the unique challenges and opportunities they face. A fee-only advisor is compensated solely by their clients, which reduces the potential for conflicts of interest.
I strongly suggest finding an advisor who is a CERTIFIED FINANCIAL PLANNER™ professional. These advisors have met rigorous education and experience requirements and are held to a fiduciary standard, meaning they are legally obligated to act in your best interest. The CFP Board of Standards offers a tool to find a CFP® professional in your area.
Don’t wait until you’re on the doorstep of retirement to start planning. The sooner you begin, the more time your money has to grow. Even small steps, like contributing a little bit each month to a Roth IRA, can make a big difference over time.
What is the Blended Retirement System (BRS)?
The BRS is a retirement system that combines a reduced defined benefit (pension) with a defined contribution plan (Thrift Savings Plan). It requires service members to contribute to the TSP to receive government matching contributions and offers portability of retirement savings upon leaving the military after a certain period of service.
Can I contribute to a Roth IRA and the TSP at the same time?
Yes, you can contribute to both a Roth IRA and the TSP simultaneously, as long as you meet the eligibility requirements and contribution limits for each account.
How does military service affect my Social Security benefits?
Your earnings during military service are subject to Social Security taxes, just like civilian employment. These earnings are credited toward your Social Security record and can increase your future benefits.
What should I look for in a financial advisor specializing in veteran benefits?
Seek a fee-only advisor who is a CFP® professional and has experience working with veterans. They should understand military retirement systems, VA benefits, and the unique financial challenges and opportunities veterans face. Ask about their experience with military pensions and their knowledge of veteran-specific financial resources.
How often should I review my retirement plan?
You should review your retirement plan at least annually, or more frequently if you experience significant life changes, such as a job change, marriage, divorce, or the birth of a child.
Taking action today, even if it’s just a small step, is better than waiting. Start by estimating your current income and expenses, and then determine how much you’ll need to save to achieve your retirement goals. Don’t let another year pass without a solid retirement planning strategy in place. You served your country; now, let your money serve you, and secure your future with smart finance moves.
