Knowledge Hub
TSP & Retirement
Your complete guide to the Thrift Savings Plan (TSP) and military retirement systems. Last updated: July 2024
1) TSP Fundamentals: Your Military 401(k)
What It Is
The Thrift Savings Plan (TSP) is a government-sponsored retirement savings and investment plan, similar to a civilian 401(k). It allows you to invest pre-tax (Traditional) or post-tax (Roth) money for retirement.
Why It Matters
The TSP is the primary vehicle for building wealth for your retirement. Its extremely low expense ratios (fees) make it one of the best retirement accounts in the world. Consistent contributions are the key to a secure financial future.
Who Qualifies & How It Works
- All uniformed service members, including Guard and Reserve, are eligible to contribute to the TSP.
- You choose a percentage of your pay to contribute each pay period via MyPay.
- You select which funds to invest in (e.g., C, S, I, F, G, or Lifecycle 'L' funds).
- Under the Blended Retirement System (BRS), the government matches your contributions up to 5% of your basic pay.
- The money grows tax-deferred (Traditional) or tax-free (Roth) until you withdraw it in retirement.
Actionable Steps
Log Into Your TSP Account
Visit TSP.gov to register your account. Here you can view your balance, change contributions, and allocate your investments.
Contribute at LEAST 5%
If you are in the Blended Retirement System (BRS), you must contribute at least 5% of your base pay to receive the full government match. Not doing so is leaving free money on the table.
2) The Blended Retirement System (BRS)
What It Is
BRS is the current military retirement system for members who joined on or after January 1, 2018. It combines a reduced pension (defined benefit) with government matching contributions to your TSP account (defined contribution).
Why It Matters
BRS gives you government retirement money even if you don't serve a full 20 years. After just 2 years, the government's automatic 1% contribution and any matching funds are yours to keep, providing a portable retirement benefit.
Who Qualifies & How It Works
- All members who entered service on or after Jan 1, 2018. Members who joined before then had the option to opt-in.
- Automatic 1% Contribution: After 60 days of service, DoD automatically contributes 1% of your basic pay to your TSP, even if you contribute nothing.
- Up to 4% Additional Match: DoD will match your contributions dollar-for-dollar for the first 3% you contribute, and 50 cents on the dollar for the next 2%. To get the full 5% match, you must contribute 5%.
- Reduced Pension: If you complete 20 years of service, you receive a pension of 2.0% x (years of service) x (average of your highest 36 months of basic pay).
- Continuation Pay: A one-time cash bonus paid around the 12-year mark in exchange for an additional service obligation.
Actionable Steps
Verify Your Contributions on MyPay
Log into MyPay and ensure you are contributing at least 5% of your pay to the TSP to get the full match. Set it and forget it.
Choose Your TSP Allocation
Don't leave your money in the default G Fund. Consider a Lifecycle (L) fund or a mix of C, S, and I funds appropriate for your age and risk tolerance.
3) The Legacy 'High-3' System
What It Is
The High-36 or 'High-3' system is the legacy retirement plan for members who entered service before January 1, 2018, and chose not to opt into BRS. It is a pure defined-benefit pension plan.
Why It Matters
This system offers a larger pension for a full 20+ year career compared to BRS, but provides no government TSP contributions and no benefit if you separate before 20 years.
Who Qualifies & How It Works
- Service members who entered the military before January 1, 2018, and did NOT opt into the Blended Retirement System (BRS).
- Pension Formula: 2.5% x (years of service) x (average of your highest 36 months of basic pay).
- No Government TSP Contributions: Unlike BRS, there is no automatic 1% or matching contribution from the government. Your TSP is funded entirely by your own contributions.
- Cliff Vested at 20 Years: You receive no pension benefit unless you complete a full 20 years of active service.
- Example: A member retiring at 20 years receives 50% of their high-3 basic pay (2.5% x 20). A member retiring at 30 years receives 75% (2.5% x 30).
Actionable Steps
Verify Your Retirement Plan
Your retirement plan (BRS or High-36) is listed on your Leave and Earning Statement (LES). Confirm it is correct.
Contribute to TSP Aggressively
Since there is no government match, your personal TSP contributions are even more critical for building a nest egg alongside your pension.
FAQ & Glossary
Frequently Asked Questions
Glossary
- TSP
- Thrift Savings Plan. The 401(k)-style retirement account for federal employees and service members.
- BRS
- Blended Retirement System. The current military retirement plan combining a pension and TSP matching.
- High-3
- The legacy pension system providing 2.5% of your highest 36 months' basic pay per year of service.
- Vesting
- The point at which you have ownership of employer contributions. In BRS, you are vested in government TSP contributions after 2 years of service.
Conclusion
Understanding your retirement system is a long-term strategic advantage. For those in BRS, contributing at least 5% to the TSP is non-negotiable to capture the full government match. For those in the legacy High-3, aggressive personal TSP contributions are essential to build a nest egg to complement your powerful pension. Regardless of your system, the TSP is your primary tool for wealth creation; using it consistently and effectively from the beginning of your career is the single most important step you can take toward a secure retirement.
Disclaimer
The information provided is for educational purposes only. Military pay and benefit regulations are subject to change. Always consult official sources and a qualified financial professional before making decisions.