Retirement Planning Template for Military

Military retirement differs from civilian retirement in ways that create both advantages and unique planning challenges. A service member who retires after 20 years under the legacy High-3 system receives 50% of the average of their highest 36 months of base pay - not total compensation (BAH and BAS are excluded from the pension calculation). An O-5 retiring at 20 years with a High-3 average of $10,000/month receives a $5,000/month pension. Under the Blended Retirement System (BRS), the multiplier is 40% at 20 years instead of 50%, but the government TSP match (up to 5% of base pay) and a possible continuation pay bonus partially offset the difference. Understanding which system applies and modeling the pension alongside TSP projections and second-career income is essential for realistic planning.

TSP management for military retirees parallels 401(k) planning in many ways but has distinctive features. The TSP's expense ratios are among the lowest available (roughly 0.04-0.06%), making it an exceptionally cost-effective accumulation vehicle. However, TSP withdrawals before age 59 and a half generally trigger a 10% early withdrawal penalty unless the member separated from service during or after the year they turned 55. For a service member retiring at 42, that creates a 13-year gap where TSP funds are not penalty-free accessible. Some retirees bridge this gap with pension income and second-career earnings, while others explore substantially equal periodic payments (72(t) distributions) to access TSP funds earlier. The Roth TSP option adds another dimension - contributions were taxed going in, so qualified withdrawals in retirement are tax-free.

VA disability compensation is a factor in military retirement planning that has no civilian parallel. A 50% disability rating provides roughly $1,075/month tax-free (2024 rate for a single veteran), while a 100% rating provides approximately $3,737/month. Because this income is not subject to federal or state income tax, its after-tax value is significantly higher than the face amount. For a retiree in the 22% federal bracket, $3,000/month in VA disability has the same purchasing power as roughly $3,850/month in taxable income. This tax-free income stream affects everything from withdrawal strategies for taxable accounts to Social Security claiming timing to Roth conversion planning.