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Tips for investing money and building wealth throughout your military career

Lyle D. Solomon Avatar
retirement investing
U.S. Navy photo by Mass Communication Specialist 3rd Class Jordan Ripley

To create the post-military lifestyle of your dreams, you should be investing and saving money wisely throughout your career. You may prepare for an enjoyable military retirement with some planning that goes far beyond the figures on your retirement check. Start saving early and throughout your career. You might be surprised by the figures you come up with for a 20-year military career. You have many options for saving money during your military service. Don’t invest in programs you don’t understand; consult the experts before you do. Make informed decisions, ask questions, and retire in peace. Here are some tips you must follow to build wealth during your military career.

Investing during the initial time of your career

Make a budget and invest as soon as you can

You know how much money you have each month to spend and save. 

Open a savings account next as a reserve of funds. Then create an emergency fund with 6 to 9 months worth of costs to see you through an unforeseen circumstance, such as a protracted illness or job loss. After learning finance fundamentals, you can look into assets that fit your risk appetite. Your risk tolerance depends on how much risk you are comfortable taking with your money. Typically, advisors classify investments as being conservative, moderate, or aggressive. Traditional investments don’t always yield significant returns but can present a low chance of loss, whereas aggressive investments are the riskiest but may offer more substantial profits.

Create an emergency fund

We are all aware that change is the only constant. Your financial situation can alter due to problems like work changes, marriage, divorce, parenthood, or caring for an elderly relative, which can also affect your investing approach. Even if you make some cuts, keep saving money for your retirement. Examine your budget once more. Can you change a few things so you can keep saving? Would it make sense to alter the percentage you contribute to the retirement plan offered by your employer? You might get more guidance by talking to a financial counselor. Setbacks like a disability or layoff may cause you to accelerate your investment savings plan or consider withdrawing money from your retirement account. A lump sum distribution will require you to pay income taxes and may result in an early withdrawal penalty of 10% if you are under 59 1/2, so try to avoid cashing out.

Get profit from the thrift Savings Plan (TSP)

The TSP is one of your most acceptable options for retirement savings because it is the federal government’s take on a 401(k). Contributions can be collected from your paycheck automatically and offer tax benefits now (conventional TSP account) or in the future (Roth TSP account). Your TSP contributions are matched up to 5% under the Blended Retirement System. 

Save money into a retirement account

If one is offered, invest in your employer-sponsored 401(k) or 403(b) retirement plan. Numerous schemes provide for employer contributions that are matched. If you can, try to put aside 10% to 15% of your income, and if your employer matches your contributions, make use of it to help you accomplish that target. For instance, if your employer matches up to 3% of your donations, you might earn 7% of your own money for a total commitment of 10% of your pay.

If you don’t have access to an employer-sponsored plan or want something additional to your employer plan, Traditional IRAs, Roth IRAs, and Simplified Employee Pension (SEP) IRAs are all viable possibilities. Because they will have more time for the stock market, some people decide to invest in stock funds when they first start. Dollar-cost averaging is one risk management method if you select an equity fund. You don’t have to be concerned about buying at a high price or losing an opportunity to buy at a low price when you consistently spend a certain amount on equities. When using dollar-cost averaging, you purchase more shares at low prices and fewer at higher prices.

retirement awards investing
Retirement awards and certificates. (U.S. Army Reserve photo by Sgt. 1st Class Clinton Wood)

Investing in the middle of your career

Manage your debts wisely

A debt management strategy could appear to be the perfect solution. The majority of debt management programs, however, are temporary fixes. Your spending habits need to adapt to the real world. You will never succeed if you don’t alter your practices. You might be able to stop the downward trend and catch up on your payments using a debt management strategy. Please ensure you know the situation, how the debt management plan functions, and how the organization helping you set it up is paid. Three main options exist for military people and their families drowning in credit card debt or another type of debt: debt management programs, debt consolidation loans, or debt settlement. Each has advantages and disadvantages that make them the best – or worse! – option depending on the circumstance. You can create a strategy with the aid of many nonprofit organizations. Because each client has a unique financial circumstance and set of priorities, no one solution works for everyone. It is best to research each of those three to choose the most suitable debt relief option for you.

Invest the promotion pay you earn

The military pay chart you receive once you are a non-commissioned officer displays a significant wage increase. The same is valid for junior officers. Once you reach a certain rank, what do you do with that money? Set up a meeting with a financial advisor and inquire how you may put some excess cash to good use. You can choose from various options, including money market accounts, mutual funds, and savings bonds. Understanding precisely what you’re getting into while saving money for your military retirement is crucial. Long-term investors fare best; if you have 20 years to spare, you can afford to invest your hard-earned military salary in low-risk investments. Avoid gambling with dangerous plans and make prudent investment decisions. Despite this, when things are good, military personnel are nevertheless seduced by what they observe in the capital markets. When the market is trending upward, the returns do appear promising.

Build wealth

Increase your retirement contributions as your position and pay increases. Try to save as much as possible in your IRA or company-sponsored plan. To find out the most recent contribution caps, contact the IRS. You may usually re-balance your portfolio or change the proportions of stocks and bonds in many employer-sponsored plans. Look at how your assets are distributed. How much of your portfolio is held in mutual funds, equities, or bonds? You can manage financial risk with your diversifying portfolio.

Keep Investing 

The military profession has difficulties, such as frequently moving due to PCS orders. Despite the setbacks brought on by the particular challenges you confront as an army member, continuing to invest will help you attain your financial objectives more quickly.

Hold a solid financial position at retirement

Eight times your final income should be saved by the time you are 67, as a general guideline. Look at your portfolio to see if you’re on course to achieve your goal. In that case, you might decide to put off retiring or delay the commencement of your Social Security benefits.

Investing at the time of retirement

Continue investing even after the service

Those who are leaving the military should remember that their investments continue while their service is ending. Whether you’re embarking on a new job path or retiring, investment can still assist you in achieving your unique objectives. Your financial plan should be based on the direction you want to go in after leaving the service. You can decide your possibilities to maximize your financial resources for the next phase of your life by discussing your specific needs with a financial advisor. Access to individualized investment management and financial counseling is now more inexpensive and readily available thanks to new subscription financial planning services.

Think about the alternative career and investment

If you are beginning a second career, you will be exposed to several perks and opportunities, such as a 401(k) plan. A simple approach to save for retirement is to enroll in and set up automatic deductions from your paychecks if your employer offers a 401(k) and employer match in investments. Whatever stage of life you are in, leaving the military opens up new chances. You should continue earning and investing.

Manage your tax

Even though they will receive a retirement check after their 20-year tenure, many military personnel opt to invest in 401K accounts for tax reasons. A specific dollar amount can be invested annually to be eligible for a tax credit. 

401K accounts have received some unfavorable press recently. Still, you may want to check into finding a tax-friendly retirement investment like one if your family is a military family with two salaries. It’s crucial to seek assistance from a tax preparer or financial advisor if you require this investment to understand the applicable rules and how you can lawfully profit. 

Never follow advice from a book or article without first consulting a knowledgeable source; rules are continuously changing, and yesterday’s tax benefits are frequently replaced by out-of-date regulations today. 

Conclusion about investing throughout your military career

Whether you’ve been in the military job for a while or are new to it, having a financial plan in place can assist you in determining your savings priorities, defining your investment style, and developing a plan to meet your retirement objectives. The stages to achieving life’s primary financial goals differ from those taken by the average individual because of the significant level of uncertainty that comes with serving in the military. Family planning, investing for further education, home ownership, and retirement might be made more difficult by training, permanent change of station transfers (PCS), mobilizations, and deployments. Stay on track to accomplish your goals by making prudent investments throughout your work and retirement.