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When you chose a career in the military, you knew it would come with sacrifices. Maybe you’ve spent a lot of time away from your spouse or missed major milestones in your child’s life. Yet, you serve your country well—even when it means putting yourself in the line of danger.
Of course, your spouse makes sacrifices too. Multiple deployments bring the stress of uncertainty and single-handedly tending the home front, while frequent moves can make it difficult for your spouse to develop a career of their own.
Military life isn’t easy, that’s for sure. If anyone deserves to simply enjoy life in retirement, it’s you.
A Confidence Crisis
Everyone knows the military takes care of its own. If you retired today, your pension would cover anywhere from 40–102.5% of your salary, depending on how long you’ve served and which plan you chose. That can certainly get your golden years off to a good start, but relying on it as your only source of income can be a slippery slope.
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Why? Because you’re putting your future in uncertain hands. As defense leaders stress the need to “slow the growth” of military pay and benefits, research shows a growing concern among service members when it comes to retirement. According to the Military Times, recent changes proposed by the Pentagon could reduce lifetime military pension payments by as much as 10%.
You shouldn’t have to sacrifice the retirement lifestyle of your dreams because budget cuts put a dent in your future. Take control with these three steps.
Build Up Your Defense
Before you invest anything, make sure you’ve set a solid foundation first. That means kicking debt to the curb and having three to six months of expenses in your emergency fund.
Why are these steps so important? Because you can move forward faster once you start investing. Without debt to weigh you down, you free up more of your income—your biggest wealth-building tool. And a fully stocked emergency fund will keep you from dipping into your nest egg if the A/C goes out or you lose your job.
Launch an Offensive Strategy
Once you’re debt-free with a healthy emergency fund, you’re ready to invest 15% of your household income into tax-favored retirement plans. Just think what you could do with a nest egg over and above your military pension! If your plans to retire from the military fall through, personal investments provide a much-needed safety net for your future.
As a service member, you have the option to fund a Thrift Savings Plan (TSP), the federal government’s version of a 401(k). While a TSP offers the advantage of tax-deferred growth, you have limited investment options and don’t get a match from the military. That’s why Dave recommends skipping your TSP and investing in a Roth IRA first.
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A Roth IRA is funded with after-tax dollars, so the money you invest grows tax-free. When you retire, your withdrawals are also tax-free. With thousands of mutual funds available to choose from, you can put the best performers to work for you. Spread your investment evenly across the four categories Dave recommends: growth, growth and income, aggressive growth and international.
Roth IRA contribution limits are currently $5,500 ($6,500 if you’re 50 or older). If you reach your Roth IRA limit but still haven’t invested your full 15%, go back and fund a Roth TSP using the following guidelines:
—60% in the C Fund, a common stock fund modeled after the S&P 500 that generally does whatever the stock market does
—20% in the S Fund, a small-cap fund which offers an aggressive, high-risk investment that can give a higher rate of return
—20% in the I Fund, an international fund made up of overseas companies
Other TSP funds are available, but Dave recommends staying away from them. Stick with the 60-20-20 breakdown above, and you should be fine.
Call in Extra Support
Why settle for a decent retirement when you can have a great one? Work with a financial advisor you can trust to help you retire with confidence. A true investing pro will take time to explain all of your options so you can make an educated decision about your future.
Even Dave—a seasoned investor—knows the value of an experienced pro when it comes to growing his investments. If you’re looking for advice you can trust, we can put you in touch with an advisor in your area who Dave recommends.