Warren Buffett has said on multiple occasions that the secret behind his success has been the law of “Compound Interest.”
Servicemembers enrolled in the Blended Retirement System (BRS) have the same opportunity before them.
The maximum amount a servicemember can contribute to the Thrift Savings Plan (TSP) in 2019 was $19,000.00. There are changes occurring in 2020 to the TSP which may increase the amount that can be contributed as well as withdrawal timelines/rules.
In theory, a servicemember could not only contribute $19,000 over 20 years tax-free but also expect a retirement pension as well. An 18-year-old could retire at 38 after 20+ years with over $380,000 (assuming no interest) in savings and expect a military pension. However, the $380,000 in all but the worst investment accounts over 20+ years will have grown well beyond the savings-only sum. In the TSP, the worst of any fund performance over the lifetime of the fund has been 3.89%. Assuming 100% contribution in the worst-performing fund over 20-years, with an interest of 3.89% compounding annually the $380,000 would be approximately $621,888.
Having a military pension, over $650K+ in a 401K-account, and the ability to work in a second field from 38-65 years old, is a very impressive financial position to be in. Even if a servicemember serves the minimum of four years and contributes the maximum amount, they would still be approximately 22 years old and have $76,000 in a retirement account (assuming no interest).
However, recognizing few individuals max out their retirement accounts, even if a servicemember can only contribute a few thousand dollars the government will match a percentage of the retirement contributions. The percentage varies based off the level of contribution, however, even a four year discharged servicemember can safely assume to have close to $10,000 in a retirement account with the minimal amount of contributions from them individually at the time they exit the military. Assuming they exit the military at 22-years old and an average interest rate of 3.5% when they turn 65-years old they would have close to $50,000 in a retirement account. (If they contribute nothing to the account from 22-65 years old.)
