Retirement planning for active-duty and veteran service members

Pension

Service members who entered after 2018 (or opted in) are on the Blended Retirement System: a defined-benefit pension of 2.0% x years of service x average of the highest 36 months of basic pay — about 40% at 20 years — plus government TSP contributions and matching. The Legacy High-3 system (pre-2018, no opt-in) pays a richer 2.5% multiplier (about 50% at 20 years) but provides no TSP match. Reserve and National Guard members earn a points-based pension generally payable at age 60, reduced by 90 days for each qualifying period of active duty in support of contingency operations.

Under the Blended Retirement System you can take 25% or 50% of your retired pay as a lump sum at retirement, in exchange for reduced retired pay until full Social Security retirement age. Weigh a lump sum against monthly retired pay.

Tax-advantaged accounts

The Thrift Savings Plan is a 401(k)-style account with the lowest expense ratios of any defined-contribution plan in the United States. Roth TSP is available, and contributions in a designated combat zone can go in tax-free and, in a Roth, come out entirely tax-free — one of the most powerful tax shelters in the code. The 2026 elective-deferral limit is $24,500 (under 50) or $32,500 with the $8,000 age-50 catch-up. SECURE 2.0 raises the catch-up to $11,250 for ages 60-63 in 2026 ($35,750 in total deferrals). Under BRS, contribute at least 5% of basic pay to capture the full government match; leaving the match unclaimed is the single most expensive mistake a junior service member can make.

Social Security

All military service since 1957 is covered by Social Security through normal payroll taxes, so service members face the standard claim-age decision with no public-sector offset. VA disability compensation is entirely separate: it is federal-income-tax-free, inflation-indexed, and does not reduce the military pension for most retirees under concurrent-receipt rules (CRDP/CRSC). Because it is tax-free and COLA-protected, VA disability is some of the most valuable retirement income that exists — model it as its own fixed, inflation-adjusted source rather than folding it into the pension.

Common pitfalls

The big ones: taking the BRS lump-sum option, which trades a large slice of guaranteed lifetime pension for a deeply discounted cash payment and is rarely a good deal; under-contributing to TSP and forfeiting the match; sitting in the TSP G Fund for an entire career because it 'can't lose money' — the opportunity cost over 20+ years is enormous; and treating the Survivor Benefit Plan decision casually. SBP converts the pension into a survivor annuity and should be compared head-to-head with private term life, not auto-elected or auto-declined.

Worked example

A 35-year-old E-7 under BRS with 15 years of service, $95,000 saved in the TSP, plans to retire at 20 years (age 40). Pension at 20: roughly 2.0% x 20 x a ~$72,000 high-36, about $29,000/year, COLA-adjusted, payable immediately for life. Add a TSP that has been getting the full 5% match in the C/S/I funds and continues compounding untouched until 60. Many retirees then start a second career, so the pension and (if applicable) tax-free VA disability often cover baseline spending from 40 onward while the TSP is left to grow. The planning question becomes tax-bracket management in the second career and when to convert TSP to Roth, not whether the income exists.