Securing your future, one paycheck at a time

  • Published
  • By Maj. Travis Pond
  • 509th Contracting Commander
My father always told me, "Money isn't everything, but life sure is a lot easier if you have some."

Before I lose your attention let me tell you; my goal is not to bore or confuse you with numbers and complex formulas about investments. You may be young, old, man, woman, officer, enlisted or civilian. You could be an avid saver, an active stock market trader or just a guy or gal who wants to have a good time on the weekend, wear trendy clothes and drive a nice car. Regardless of your background or situation, there are a few old adages that hold true. If you follow them in the most basic sense, you will be much better off down the road.

Pay Yourself First
If you aren't saving 10 percent of your take home pay, you are cheating your future self, and I know he or she will not appreciate it!

You may say, "I'm going to serve 20 years in the military and I'll be set for life" or "I'll worry about retirement when I get older." This is a recipe for disaster. Yes, military retirement pay and lifetime health care are tremendous benefits, but not enough to maintain a reasonable standard of living.

Many experts will tell you that the average couple needs $60,000 per year to live comfortably in retirement. Have you figured out how much retirement pay you will receive after a military career? For illustration purposes, here is an example:

You retire as an E-7, Master Sergeant, after 20 years of active duty service. In today's dollars, your retirement pay would be $2,100 per month or $25,000 per year. Military retirement can start as early as age 37, but most retire in their 40s.

To supplement your military retirement, you will probably find another job and work until you become eligible for Social Security at age 62. Social Security is another important benefit, but the government faces a significant funding shortfall in the near future and our national debt is growing rapidly; something's got to give. When you hit your 60s the minimum retirement age may be 72 or higher, and the level of benefits paid may be lower.

For the purpose of our example, we will assume benefits remain as they are today. If so, Social Security may add $14,000 per year or $20,000 per year if you delay taking benefits until age 67. This added to your military retirement will get you to $45,000 per year. The other $15,000 per year must come from other investments.

To earn an interest or dividend payment of $15,000 per year, you will need approximately $400,000 in principal. That may sound like a big number, but the benefit of time and compounding makes this a very achievable goal for just about anyone. If you save 10 percent of your monthly pay, you should be able to reach this goal before you stop working.

There is nothing better than free money
You may be familiar with the popular saying used by economist Milton Friedman, "There is no such thing as a free lunch." Lucky for us, in the Federal Government, there is such a thing as a free lunch. It is called the Thrift Savings Plan (TSP). If you are a Department of Defense civilian employee, the Government will match your contributions dollar for dollar up to a certain percentage. If you don't take advantage of this free money, you might as well be burning it.

On the military side, the TSP offers the benefit of pre-tax contributions and tax free growth. You do not pay taxes on your contributions to the TSP, and your money grows tax free until you withdraw it in retirement. Also, if you are deployed your contributions to the TSP are tax exempt.

How do I get there from here?
You may be thinking, "I can't save 10 percent of my pay, I barely make enough money to pay my bills." In some cases this may be true, but for most of us there is plenty of room in our monthly budget to set aside 10 percent.

Take a look at your monthly expenses: mortgage or rent, car payment, utilities, cable TV, Internet and cell phone. Can any of these be reduced? Do you really need 200 TV channels, Showtime and HBO? Do you need the $100 per month unlimited cell phone plan with texting and Internet or the latest $500 smart phone? Is your four year-old car reliable? If so, do you really need to buy a new one as soon as you've made the last payment? What else could you do with that $500 monthly car payment?

Look at your daily habits too. Do you use tobacco products? That will cost you $100 per month depending on frequency of use. How much do you spend at the gas station buying $2 sodas or $3 energy drinks? Why not buy a six or 12 pack at the commissary for a fraction of the cost? Once you start asking these questions and writing down the numbers, you will be amazed at what you find. When you find the 10 percent, have it taken out of your check directly (the TSP works this way).

When you get a raise or promotion, keep the value at 10 percent, or better yet, add the full amount of a raise or promotion to your savings. If you are living comfortably at your current salary, you will never miss the extra money.

The choices you make now will impact your life and your lifestyle in the future. Take the time now to think about how you want to live when you retire. With a little bit of planning, each of us can reach the goal of financial independence. Many military oriented organizations such as USAA offer professional investment planning services for free.

If you spend wisely today, you will reap the rewards tomorrow. Pay yourself first, take advantage of free money, and live well but stay within your means. Your future self is counting on you.