Military service offers plenty of benefits for former or active members, including tuition assistance and health insurance benefits.

Unfortunately, one area where veterans must figure it out for themselves is their retirement planning. While social security and pensions are available, these are often not enough to keep up with the rising cost of living and don’t allow veterans to retire at an early age.

Several programs and strategies are available to active and former personnel that can aggregate during their time in the service and beyond it to help them save for retirement.

Let’s explore seven tips for veterans to maximize their retirement savings, including investment strategies, TSPs, and self-directed IRAs for veterans, so that you have enough money to retire early or comfortably.

When you invest in tax liens, earnings come from the interest applied to the lien

 

1. Start Saving As Soon as Possible

Setting aside money for a retirement plan in your early 20s will allow you more time to contribute to your account to grow that nest egg faster. This strategy lets you put your money to work for you, earning compound interest on investments, such as stocks and bonds.

Best of all, retirement accounts under a Roth structure, such as an IRA or TSP, enjoy tax-free earnings. That means every dollar you accrue in a retirement account over 30+ years of saving will never be taxed.

Some strategies to increase your monthly savings for retirement include:

  • Lowering your spending.
  • Paying down high-interest debt.
  • Budgeting a few hundred dollars monthly for retirement.
  • Earning multiple streams of income.

2. Maximize Military Benefits

Leverage military benefits, such as your Tricare health insurance plan and tuition assistance, to help you set aside additional money to place in your retirement account. Many veterans are surprised to learn that they also qualify for additional benefits, such as low down payment VA loans and life insurance assistance, that help them pocket additional income for retirement.

3. Evaluate Different Retirement Plans

Now that you have a strong savings plan in place, it’s time to allocate retirement funds to the appropriate retirement account. Below are three popular retirement accounts you can leverage for retirement.

Thrift Savings Plan

The Thrift Savings Plan (TSP) is an exclusive retirement savings and investment program for federal employees, including military personnel. Most plans allow for matching contributions of the first 5% of your pay by the agency or service you work for. TSPs also have some of the lowest managing fees of any retirement plan and can be structured in a traditional or Roth account.

  • Tax Benefits: Earnings and contributions may be taxed using pre- (traditional) or after-tax dollars (Roth). The former means all contributions and earnings are taxed upon withdrawal, while the latter allows for tax-free withdrawals after a certain age.
  • Withdrawal Age: 59 ½
  • Matching Contributions: Yes
  • Costs: Low (Typically Annual)
  • Contribution Limits:  $22,500 (+$7,500 catch-up contributions for individuals 50 and older)
  • Managing Entity: Federal Retirement Thrift Investment Board (FRTIB)
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Traditional and Roth IRAs

Similar to TSPs, individual retirement accounts (IRAs) allow you to invest money in your retirement account in the stock market using pre- or after-tax dollars. Roth accounts utilize after-tax dollars, which allows you to withdraw earnings tax-free, while traditional IRAs are taxed at withdrawal but can be deducted from your annual taxes.

  • Tax Benefits: Earnings and contributions may be taxed using pre- (traditional) or after-tax dollars (Roth). The former means all contributions and earnings are taxed upon withdrawal, while the latter allows for tax-free withdrawals after a certain age.
  • Withdrawal Age: 59 ½
  • Matching Contributions: No
  • Costs: Average (Typically Annual)
  • Contribution Limits: $6,500 (+$1,000 catch-up contributions for individuals 50 or over)
  • Managing Entity: Depository

Self-Directed IRA

A self-directed IRA (SDIRA) is a traditional or Roth IRA managed by a custodian, which enables you to invest in alternative assets.

Unlike other retirement plans, SDIRAs allow you to invest in assets, such as real estate flipping, rental properties, gold, cryptocurrency, promissory notes, private equity, P2P lending, and much more. Best of all, the process of rolling over a TSP to an SDIRA or an IRA to an SDIRA is not taxed and is often conducted for free by your custodian.

  • Tax Benefits: Earnings and contributions may be taxed using pre- (traditional) or after-tax dollars (Roth). The former means all contributions and earnings are taxed upon withdrawal, while the latter allows for tax-free withdrawals after a certain age.
  • Withdrawal Age: 59 ½
  • Matching Contributions: No
  • Costs: High (Annual, Maintenance, or Transactional)
  • Contribution Limits:  $6,500 (+$1,000 catch-up contributions for individuals 50 or over)
  • Managing Entity: Custodian

4. Diversify Your Investments

While the stock market generates solid returns, it can be extremely volatile and untrustworthy to rely on for retirement. Instead, SDIRAs allow you to generate passive income using diverse investment strategies, such as real estate wholesaling or private lending.

Many of these investment strategies help diversify your portfolio and have a higher potential for returns.

If you’re looking to accelerate your path to retirement via real estate or other lucrative investment strategies, consider a self-directed IRA.

5. Don’t Rely on Social Security Benefits Exclusively

Social Security benefits are a cornerstone of retirement income for many individuals. While veterans do get an extra credit added to their wages for social security, it’s often not enough to keep up with rising costs and inflation.

Therefore, it’s important to set aside extra money, even if it’s 10-15% of your pre-tax income toward retirement.

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6. Factor in Healthcare Costs

Fidelity estimates the average individual will need $350,000 set aside to cover the cost of health insurance during retirement.

Evaluate your options for healthcare coverage, including VA benefits, Medicare, or supplemental insurance, and set aside extra funds that may need to cover unforeseen expenses. HSAs are a great tax-advantaged savings account that lets you set aside money for health-related expenses, which can be critical to establishing alongside your retirement account.

7. Seek Professional Financial Advice

Retirement planning can be complex, especially considering your unique veteran status. Consulting with a qualified financial advisor specializing in veterans’ retirement can provide tailored guidance and peace of mind.

Even custodians that manage IRAs and specialize in veteran assistance can help you make the right financial decisions for retirement.

Explore all of your options for retirement and try to make a plan as soon as possible so you have the best shot at achieving your financial goals in retirement.

FAQs

Can I receive both VA benefits and Social Security benefits?

Yes, you can be eligible for and receive both VA benefits and Social Security benefits simultaneously.

What’s the importance of diversifying investments?

Diversification helps spread risk and potentially increases returns by investing in various asset classes.

Is it advisable to retire early or delay retirement for higher benefits?

The decision to retire early or delay retirement depends on individual factors. Consider your financial needs and health when making this choice.

Can I pass on my remaining TSP funds to my heirs?

Yes, TSP funds can be inherited, but tax implications and distribution rules may apply. Consult a financial professional for guidance.

What happens to my healthcare benefits after I retire from the military?

You may be eligible for continued healthcare benefits through TRICARE or the VA healthcare system. Research your options to ensure continuous coverage.