As a veteran, you've served your country and earned access to a wide range of benefits that can help you build a secure and comfortable retirement. However, navigating the complexities of military pensions, VA benefits, and retirement savings plans can be challenging. To make the most of your hard-earned benefits, you need a strategy that incorporates your military pension, health care benefits, and other financial assets.

In this guide, we’ll explore how to maximize your military pension, integrate it with civilian income, and use VA benefits to create a comprehensive retirement plan.

1. Understanding Your Military Pension

Your military pension is likely the cornerstone of your retirement income, and understanding how it works is essential for maximizing its value. Military pensions are based on years of service and rank, with the ability to retire as early as 20 years of service.

• Legacy High-3 vs. Blended Retirement System (BRS): If you retired before 2018, your pension is based on the "High-3" system, which calculates your pension based on the average of your highest three years of salary. Veterans retiring after 2018 are part of the Blended Retirement System (BRS), which combines a traditional pension with contributions to the Thrift Savings Plan (TSP).
• High-3 Pension Formula:
  (Years of Service) × (2.5%) × (High-3 Salary Average) = Annual Pension
  For example, if you served 25 years with a High-3 average salary of $70,000, your annual pension would be:
  25 × 2.5% × $70,000 = $43,750 per year.
• BRS Pension Formula:
  (Years of Service) × (2%) × (High-3 Salary Average) = Annual Pension
  Under BRS, a 25-year veteran with a $70,000 High-3 average salary would receive:
  25 × 2% × $70,000 = $35,000 per year.

The BRS also includes government contributions to the TSP, which offers additional retirement savings potential.

2. Maximizing Your Thrift Savings Plan (TSP)

For veterans covered by the Blended Retirement System (BRS), the TSP plays a significant role in retirement savings. The TSP is similar to a 401(k), and it allows you to contribute a portion of your salary, with matching contributions from the government.

• Contribution Limits: In 2024, you can contribute up to $22,500 to your TSP, with an additional $7,500 if you’re over age 50 and making catch-up contributions.
• Government Matching: Under BRS, the government will automatically contribute 1% of your basic pay to your TSP, and will match up to 5% of your contributions. To get the full match, you should aim to contribute at least 5% of your salary.
• Investment Options: The TSP offers several low-cost investment funds, including stock, bond, and government securities funds. Consider using a diversified mix of these funds to balance growth and stability in your retirement portfolio.

3. Combining Military Pension with Civilian Income

Many veterans transition into civilian careers after their military service, which presents an opportunity to combine your military pension with civilian income for a more robust financial future.

• Maximizing Tax Benefits: Military pensions are often partially or fully exempt from state income taxes, depending on where you live. Research your state's tax laws to see if you can benefit from these exemptions while earning civilian income.
• Balancing Pension and Retirement Savings: If you have a civilian job with a 401(k), consider contributing to both your 401(k) and TSP. This allows you to take advantage of employer matching contributions and diversify your retirement savings.
• Saving Extra for Early Retirement: Since military pensions often begin earlier than traditional pensions (at 20 years of service), veterans can save the entirety of their pension or civilian salary for early retirement or other financial goals.

4. Leverage VA Disability Benefits

In addition to your military pension, many veterans are eligible for VA disability benefits. These benefits can provide additional income, tax-free, which helps boost your overall retirement security.

• Disability Ratings: VA disability compensation is based on your disability rating, which ranges from 0% to 100%. The higher your disability rating, the higher your monthly compensation.
• Tax Advantages: Unlike military pensions, VA disability payments are not taxable. This means that your disability benefits offer significant financial value without impacting your tax burden.
• Health Care Benefits: Veterans with disability ratings often qualify for VA health care, reducing the need for out-of-pocket medical expenses in retirement. Understanding and using your VA health care benefits can help manage long-term medical costs.

5. Health Care in Retirement: Tricare and VA Benefits

Health care is one of the biggest expenses retirees face, but as a veteran, you have access to comprehensive health care coverage that can significantly reduce your costs.

• Tricare: Military retirees are eligible for Tricare, which offers affordable coverage for you and your family. Tricare comes in different forms, including Tricare Prime, Tricare Select, and Tricare for Life (once you’re eligible for Medicare).
• Tricare for Life: Once you turn 65 and become eligible for Medicare, Tricare for Life becomes your secondary payer, covering costs not covered by Medicare. This dual coverage ensures comprehensive health care in retirement with minimal out-of-pocket expenses.
• VA Health Care: In addition to Tricare, veterans with service-connected disabilities may also qualify for VA health care. This can further reduce medical expenses, especially for those with chronic conditions or disabilities.

6. Estate Planning and Legacy Considerations

As a veteran, it’s important to consider how your military benefits can support your family and loved ones after you’re gone. Incorporating your pension, TSP, and other assets into an estate plan ensures that your family is protected.

• Survivor Benefit Plan (SBP): The SBP allows you to provide continued income to your spouse or dependents after your death. It’s important to assess whether enrolling in the SBP is the right decision based on your family’s financial needs.
• VA Survivor Benefits: Veterans' families may be eligible for Dependency and Indemnity Compensation (DIC) if the veteran’s death was service-related. This provides a monthly payment to surviving family members, adding an additional layer of financial protection.
• Estate Planning Documents: Work with an estate planning attorney to draft a will, power of attorney, and health care directives to ensure your wishes are carried out, and your family is taken care of in the event of your death or incapacity.

7. Social Security Considerations for Veterans

Many veterans will also qualify for Social Security benefits, which can supplement your military pension and TSP withdrawals in retirement.

• Timing Your Social Security Benefits: Like all retirees, you can begin receiving Social Security benefits as early as age 62, but delaying benefits until full retirement age (or later) increases your monthly payments.
• Combining Social Security with Your Military Pension: Because military pensions are separate from Social Security, you can receive both simultaneously without penalty. However, integrating Social Security with your other retirement income streams requires careful planning to optimize your benefits.

Plan for a Secure and Comfortable Retirement as a Veteran

Maximizing your military pension, leveraging VA benefits, and making smart investment choices can set you up for a comfortable and secure retirement. Whether you’re still on active duty, transitioning to civilian life, or already retired, having a clear strategy will help you get the most out of the benefits you’ve earned. If you’re ready to start planning for your future or need help navigating your retirement options, schedule a consultation with us today.