Investing for Retirement Beyond Your Military Pension

Thinking about life after serving our country? A military pension is great, but what about investing for retirement outside of a military pension? The truth is, even with a guaranteed check coming in every month, you’ll want more money working for you.

Most people don’t realize that pensions alone might not cover all the lifestyle expenses you’ve dreamed about. Your pension replaces a portion of your income, but it won’t replace everything. That’s why investing for retirement outside of a military pension is so important.

Let’s talk about how much you should actually be saving and where that money should go.

Table of Contents:

• Understanding Your Military Pension
• How Much Should You Save Beyond Your Pension
• Investing for Retirement Through the Thrift Savings Plan
• Opening an IRA for Additional Savings
• Choosing the Right Investments
• Understanding Investment Risks and Resources
• Planning for Required Minimum Distributions
• What Happens to Your Pension After You Die
• Building Wealth Outside Traditional Retirement Accounts
• Avoiding Common Investing Mistakes
• Taking Advantage of Military-Specific Benefits
• The Role of Social Security in Your Retirement
• Understanding Pension Security
• Preparing for Healthcare Costs in Retirement
• Checking Your Benefits Eligibility
• Conclusion

Understanding Your Military Pension

Your military retirement pay depends on several factors. The years you served, when you enlisted, your disability status, and the type of retirement plan all affect your monthly benefit amount.

Some service members entered under the High-3 system. Others joined after 2018 and fell under the Blended Retirement System. Understanding which category you fall into is the first step in your financial planning journey.

Either way, your pension provides a foundation but not the whole picture. The average military pension might replace 40 to 50 percent of your final pay.

That leaves a gap. You’ll need to fill that gap through other retirement savings and investment options.

One thing to keep in mind is that military retirement pay is fully taxable. VA disability benefits are not, but your pension checks will get hit by federal income taxes.

Also, your military retirement pay stops when you die unless you’ve signed up for the Survivor Benefit Plan. This plan costs money but protects your spouse and dependents.

How Much Should You Save Beyond Your Pension

Financial experts often recommend saving 20 to 25 percent of your income for retirement. But does that rule still apply when you have a military pension coming your way?

The answer depends on what your retirement looks like. If your pension will replace 50 percent of your income, you need less from personal savings.

However, if you want to retire early or live a more comfortable lifestyle, saving 25 percent is still smart. Some military retirees finish their 20 years in their early 40s.

That means decades before Social Security kicks in. You’ll need money to bridge that gap and maintain your standard of living.

Think about your goals. Do you want to travel? Buy a vacation home? Help your kids with college?

These dreams require cash beyond what a pension provides. Saving more now gives you options later and contributes to your total net worth.

You might even retire a few years earlier than planned. The financial cushion you build through consistent saving can make that possible.

Investing for Retirement Through the Thrift Savings Plan

The Thrift Savings Plan (TSP) is your best tool for investing for retirement. It’s the military version of a 401(k) and it comes with some serious benefits.

If you’re under the Blended Retirement System, the government matches your contributions. They automatically put in 1 percent of your pay even if you contribute nothing.

But if you contribute at least 5 percent, they’ll match it dollar for dollar up to that amount. Around 85 percent of TSP participants contribute at least 5 percent to get the full match.

That’s free money you can’t afford to pass up. The TSP offers several fund options including stock funds, bond funds, and target date funds.

You can choose how aggressive or conservative you want to be. Younger service members can afford to take more risk with stock-heavy portfolios to seek higher returns.

As you get closer to retirement, shifting some money into bonds makes sense. The fees in TSP are extremely low compared to most retirement plans.

That means more of your money stays invested and grows over time. Managing your tsp account actively can significantly impact your final balance.

The TSP funds are broken down into specific letters that represent different asset classes. The G Fund offers government securities that never lose value, while the C Fund tracks the S&P 500 index.

There is also the S Fund for small to mid-sized companies and the I Fund for international stocks. For those who want a “set it and forget it” approach, the lifecycle fund (L Fund) adjusts your allocation automatically based on your target retirement date.

For more details, visit TSP.gov or contact a financial counselor at your installation.

Opening an IRA for Additional Savings

The TSP is great but it has contribution limits. For 2025, the annual contribution limit for an individual retirement account (IRA) allows you to save even more outside your employer plan.

If you’re 50 or older, you can contribute catch-up amounts to boost your balance. An IRA gives you more investment choices than the TSP.

You can invest in individual stocks, bonds, mutual funds, and exchange-traded funds. A Roth IRA is popular among military personnel because it offers tax-free growth.

You pay taxes on the money now, but withdrawals in retirement are completely tax-free. That’s a big deal if you expect to be in a higher tax bracket later.

A traditional IRA gives you a tax deduction today but you’ll pay taxes on withdrawals. Both types have their benefits depending on your situation and current taxable income.

Another excellent option for married couples is a spousal IRA. This allows a working spouse to contribute to an IRA for a non-working spouse, effectively doubling your household’s tax-advantaged savings capacity.

For those who run a side hustle or small business, a SEP IRA or Solo 401(k) might be appropriate. This type of account often allows for higher contribution limits based on business income.

You can research different investment products like stocks, bonds, ETFs, and mutual funds on the .

Choosing the Right Investments

Picking investments can feel overwhelming. There are thousands of mutual funds and ETFs to choose from.

Start by thinking about your timeline. If retirement is 20 years away, you can handle more risk and potential volatility.

Stock funds will bounce around but they typically grow more over time. If you’re within 10 years of retirement, you might want a mix of stocks and bonds.

Bonds are more stable and provide income. Target date funds automatically adjust your portfolio as you age.

They start aggressive and gradually shift to conservative investments. These funds are easy and take the guesswork out of rebalancing.

Pay attention to fees. High fees can eat into your returns over decades.

Use mutual funds and ETFs. Index funds tend to have lower fees than actively managed funds.

They simply track a market index like the S&P 500. Many investors prefer index funds because they’re simple and cost-effective.

Your investment strategy should align with your personal risk tolerance. A financial planner can help determine the right mix for your goals.

Understanding Investment Risks and Resources

All investments involve some level of risk. Stocks can lose value quickly during market downturns.

Bonds are safer but offer lower returns. The key is finding a balance that matches your comfort level through proper risk assessment.

Diversification helps manage risk. Don’t put all your money in one stock or one sector.

Spread it across different types of investments. If one area struggles, others might do well.

Before investing, do your homework. You can check if a company has registered its securities with the SEC by using the EDGAR database or calling the SEC at 800-732-0330.

Also, realize that certain high-yield or complex offers might be risk products unsuitable for standard retirement planning. You don’t want to lose money on speculative bets meant for your golden years.

Investor.gov offers a huge library of educational resources on investing for retirement, different products, and how markets work. Free financial counseling is available through Military OneSource at 800-342-9647.

They can help you create a plan that fits your goals. You can also visit the Office of Financial Readiness at www.finred.usalearning.gov for more tools.

Planning for Required Minimum Distributions

Once you hit age 73, the IRS requires you to start taking money out of most retirement accounts. These are called required minimum distributions or RMDs.

You’ll have to withdraw a certain percentage each year based on your age and account balance. If you don’t take out enough, you’ll face a hefty penalty.

The good news is that Roth IRAs don’t have RMDs during your lifetime. That makes them a flexible option for people who might not need the money right away.

Traditional IRAs and TSP accounts do have RMDs. You can use Investor.gov’s RMD Calculator.

Planning ahead helps you avoid surprises. You don’t want to get stuck with a big tax bill because you forgot to take your distribution.

When you withdraw funds to satisfy an RMD, that money is usually taxed as ordinary income. Properly managing these withdrawals is crucial for maintaining financial peace.

What Happens to Your Pension After You Die

Your military retirement income stops when you pass away unless you’ve enrolled in the Survivor Benefit Plan. This plan costs a percentage of your pension but it allows eligible beneficiaries to continue receiving income.

Your spouse would receive 55 percent of your pension for life. The cost is 6.5 percent of your pension payment.

Some people skip this plan because they’ve built up enough savings elsewhere. Others feel it’s worth the peace of mind.

Think about your family’s financial situation. If your spouse depends on your pension, the Survivor Benefit Plan might make sense.

Alternatively, some retirees purchase private life insurance as a replacement. Estate planning with a qualified attorney can help you weigh these options.

You can also name children or other dependents as beneficiaries under certain conditions. Talk through your options before making a decision.

Building Wealth Outside Traditional Retirement Accounts

Retirement accounts are important but they’re not the only way to build wealth. Some service members invest in real estate to create passive income.

Rental properties can provide monthly income and long-term appreciation. Others start side businesses or invest in taxable brokerage accounts.

Taxable accounts don’t have contribution limits or early withdrawal penalties. You can access the money anytime without the restrictions of an individual retirement account.

However, you’ll pay taxes on any gains. Capital gains taxes apply when you sell investments for a profit.

Still, having money outside retirement accounts gives you flexibility. You might want to buy a house, start a business, or help a family member.

Having accessible cash makes those goals easier to reach. Consider using high-yield savings accounts or a credit union certificate of deposit for safer, short-term goals.

You should also maintain a checking account with enough buffer to handle monthly bills. Keeping your operational cash separate from your long-term savings plan helps with organization.

Avoiding Common Investing Mistakes

One of the biggest mistakes is not starting early enough. Time is your greatest asset when it comes to compound growth.

Even small contributions add up over decades. Another mistake is trying to time the market.

Nobody can consistently predict when stocks will go up or down. Staying invested through ups and downs usually works out better.

Don’t chase hot stocks or get caught up in fads. Stick to a solid plan and stay disciplined.

Also, watch out for high fees and bad advice. Some financial advisors charge commissions that eat into your returns.

Look for fee-only advisors who work in your best interest. If you need help, seek out a credentialed investment professional or financial professional.

Finally, don’t forget to rebalance your portfolio periodically. As some investments grow faster than others, your asset allocation can shift.

Rebalancing keeps you on track with your original contribution plan. Be wary of carrying high-interest credit card balances, as the interest you pay often outweighs investment gains.

Taking Advantage of Military-Specific Benefits

Military members have access to benefits that civilians don’t. The Servicemembers Civil Relief Act offers protections like reduced interest rates on loans.

You can also get free financial counseling through your installation. Many bases offer classes on budgeting, investing, and home buying.

The VA provides education benefits that can help you or your family members go to college. Education can lead to higher income and better career opportunities.

Don’t overlook these resources. They’re part of your overall compensation package.

Check your credit report annually at AnnualCreditReport.com to make sure everything looks correct. Good credit helps you qualify for better interest rates on loans.

A high credit score is essential for securing favorable terms on mortgages or auto loans. Utilizing these retirement benefits and financial protections is key to long-term stability.

The Role of Social Security in Your Retirement

Social Security will likely be another income source in retirement. Your benefit amount depends on your earnings history and when you start claiming.

You can start taking Social Security as early as age 62 but your benefit will be reduced. Waiting until age 70 gives you the maximum monthly payment.

Most people claim somewhere in between. Your military pension won’t reduce your Social Security benefit.

The two are separate. You can collect both at the same time.

Social Security provides a cost-of-living adjustment most years. That helps your benefit keep up with inflation.

Combined with your pension and personal savings, Social Security adds another layer of financial security. You can estimate your future benefit at ssa.gov.

Understanding Pension Security

Government and military pensions are generally more secure than private sector pensions. While fewer than 13 million private sector workers have pensions, there are over 20 million government employees in the US.

The vast majority have pension plans. Nearly one million Americans receive income from the PBGC because their private pensions failed.

But the PBGC doesn’t cover government or military pensions. Your military pension is backed by the full faith of the US government.

That makes it extremely reliable. Still, relying solely on any single income source is risky.

Building your own retirement savings gives you control and flexibility. You’re not at the mercy of policy changes or budget cuts.

Preparing for Healthcare Costs in Retirement

Healthcare is one of the biggest expenses in retirement. As a military retiree, you’ll have access to TRICARE.

TRICARE provides health coverage for you and your family at a lower cost than civilian insurance. However, there may still be out-of-pocket expenses.

Some retirees supplement TRICARE with additional coverage. Medicare becomes available at age 65.

You can use TRICARE along with Medicare for more comprehensive coverage. Don’t underestimate healthcare costs.

They tend to rise faster than general inflation. Having extra savings gives you a cushion for unexpected medical bills.

This is where a robust savings plan becomes critical. You might even consider a Health Savings Account (HSA) if you have eligible high-deductible coverage in your post-military career.

Checking Your Benefits Eligibility

Before you make any big moves, verify exactly what you are entitled to. You can access your retirement money and benefits information through the myPay portal operated by DFAS.

It is vital to review your Statement of Service to correct any errors regarding your time in service. Errors here can affect your final pension calculation.

You should also verify if you were automatically enrolled in the Blended Retirement System or if you remained in the legacy High-3 system. This status dictates your matching contribution rules in the TSP.

Utilize retirement resources provided by the VA to check eligibility for disability compensation. VA disability pay offers distinct tax advantages since it is not taxed as income.

Log in regularly to review your benefit plan details. If you need to access retirement documents or tax forms, these portals are your primary hub.

Reviewing these accounts helps you assess your total personal financial picture. Knowing exactly where you stand prevents surprises when you decide to hang up the uniform for good.

Conclusion

Investing for retirement outside of a military pension is the best way to secure your financial future. While your pension provides a strong foundation, it may not be enough to cover all your dreams and needs.

By utilizing the Thrift Savings Plan, opening Roth IRAs, and exploring other investment avenues, you can build substantial wealth. It requires discipline, but the reward is true financial peace.

Start today by evaluating your current savings rate and exploring new investing resources. Your future self will thank you for taking control of your financial destiny beyond the pension check.