A Time Traveler’s Guide to Retirement

by Steve Georgoulakis, CFP® on Wednesday October 04, 2023
Posted in Category: Retirement, Saving
Tagged with : ,

Astronaut on a foreign planet in front of spacetime portal light.

Over the years, we’ve all learned some valuable lessons from watching sci-fi movies, but none as important as the sacred rule of time travel: never alter a single thing when journeying back in time. Even the smallest change could impact your future forever!

Which got me to thinking, what if we apply this “Hollywood” logic to real-world financial planning? Imagine making a small, somewhat insignificant change today and it impacts your retirement positively forever.

Believe it or not, investing a little more for retirement right now could result in thousands of additional dollars in the future. This is especially true for Service members covered by the Military’s Blended Retirement System (BRS).

As a reminder, for members covered under the BRS, contributing 5% of base pay to the Thrift Savings Plan (TSP) unlocks full matching benefits from their branch of Service, resulting in a 10% total contribution.

TSP Contributions under the Blended Retirement System

Your service puts in:
You put in: Automatic (1%) Contribution Service Matching Contribution And the total contribution is:
0% 1% 0% 1%
1% 1% 1% 3%
2% 1% 2% 5%
3% 1% 3% 7%
4% 1% 3.5% 8.5%
5% 1% 4% 10%
More than 5% 1% 4% Your contribution +5%

Surprisingly, approximately 1 in 5 Service members covered under BRS are not taking full advantage of this great benefit and free money. A likely explanation for this statistic lies in a change to automatic contribution rules, which increased automatic savings rates from 3% to 5% for participants who joined the military after Oct. 1, 2020. The bottom line, if you joined the service before this date, you have to manually increase your TSP contribution rate.

So, how significant can a 1% or 2% boost in retirement savings be? Let’s use a few reasonable assumptions, crunch the numbers, and find out if life imitates art.

Suppose CPL America (E-4) raises his TSP contribution rate from 3% to 5%. I’ll spare you the mathematical acrobatics, but using the DoD’s Blended Retirement Calculator, he could amass approximately $500,000 more in retirement assets by age 65, assuming steady promotions over an additional 20 years of service.

Even for a new Service member (E-1), increasing their contribution rate from 5% to 6% could result in approximately $100,000 more in retirement assets by age 65.

While these stories are fictitious, the math and dollars could be very real. Keep in mind, this “butterfly” effect of saving a little more for retirement isn’t limited to BRS participants, or even Service members. Depending on which studies you want to believe, approximately 1 in 3 Americans leave employee matching funds on the table each year. That’s a lot of free money being left on the sidelines, and there isn’t a time machine to go back and collect it!

So, what’s the moral of this story? A seemingly “insignificant” increase in retirement contributions can be remarkably powerful in the future. Of course, saving a little more is easier said than done. Here are a few ways to ease the transition:

  • Save when it’s easy. An annual military pay increase is a great time to boost retirement contributions. Saving money you aren’t used to spending is one of easiest ways to save more.
  • Save when you promote. Making rank is a perfect time to make an increase in your retirement savings.
  • Save when major expenses end. Redirect funds from concluded expenses like car payments or child care toward retirement savings.
  • Save when you earn a bonus. Continuation Pay, bonuses, and times of higher income like deployment can make saving for retirement easier.

Discover more about saving for retirement, and you can even crunch your own retirement numbers using this calculator. Just don’t break the space-time continuum while you’re at it!