The financial decisions you make in the 12 months around your military retirement can mean the difference of $500,000 or more over your lifetime. Most veterans get almost no financial education before they out-process, then make irreversible decisions under time pressure.
This guide covers the major decisions — retirement systems, TSP, VA disability, SBP, and post-retirement income strategy.
Disclaimer: This is educational information, not financial or legal advice. Consult a fee-only financial advisor familiar with military benefits before making major decisions.
Your Retirement System: Legacy vs. BRS
Legacy Retirement System (High-3):
- Applies to anyone who entered service before January 1, 2018 (or opted to stay)
- 2.5% × years of service × average of highest 3 years of base pay
- 20 years = 50% of high-3 base pay
- 30 years = 75% of high-3 base pay
- No TSP match (government doesn't contribute to your TSP)
Blended Retirement System (BRS):
- Applies to anyone who entered service on/after January 1, 2018, or opted in
- 2.0% × years of service × average of highest 36 months of base pay
- 20 years = 40% (vs. 50% under Legacy)
- 5% TSP match (government matches your contributions up to 5%)
- Continuation Pay — lump sum payment at 8–12 years for reenlisting
Which is worth more? It depends on whether you stay for 20 years. BRS benefits more if you separate before 20 years. Legacy benefits more if you serve 20+.
Maximizing Your TSP Before and After Separation
While on active duty:
- Contribute at minimum to get full government match (BRS: 5%)
- Contribution limit: $23,500/year (2025); $31,000 if age 50+
- Combat zone tax exclusion: Contributions made while in a combat zone are tax-free — the Roth TSP conversion advantage is significant
- TSP offers the lowest expense ratios of any retirement account in the US (0.048%)
TSP fund allocation: For most service members under 40: Lifecycle funds (L Fund) or aggressive allocation (C Fund + S Fund) is appropriate. The G Fund (government securities) has near-zero real return — don't park everything there.
At separation — your TSP options:
- Leave it in TSP — lowest fees, good fund options; can roll in later
- Roll over to IRA — more investment flexibility; Fidelity, Vanguard, Schwab
- Cash out — almost never the right choice; 10% penalty + ordinary income tax + loss of tax-advantaged growth
Most financial advisors recommend leaving TSP in place or rolling to a Roth IRA if you're converting from traditional. Consult a fee-only advisor before rolling over.
Never Cash Out Your TSP
Cashing out your TSP triggers a 10% early withdrawal penalty PLUS ordinary income taxes on the full amount. A $100,000 TSP balance cashed out for someone in the 22% bracket results in ~$68,000 received, losing $32,000 immediately. This is one of the most costly financial mistakes veterans make at separation.
VA Disability Compensation: Apply Before You Separate
VA disability compensation is tax-free and does not offset (reduce) your military retirement pay — it's additional income.
When to file:
- File your VA disability claim before your separation date — through the Benefits Delivery at Discharge (BDD) program if 90–180 days from separation
- Earlier filing = earlier rating decision = no gap in benefits
What to claim:
- Every condition that can be attributed to service — injuries, hearing loss, tinnitus, sleep apnea, joint problems, mental health conditions
- Don't self-filter — let the VA evaluate; you can always decline
- Get a full C&P (Compensation and Pension) exam
Tax-free income impact:
- 10% disability: $175/month (2025)
- 30% disability: $525/month
- 50% disability: $1,075/month
- 70% disability: $1,716/month
- 100% disability: $3,737/month (P&T rating)
- 100% P&T + TDIU: Additional healthcare, commissary, and other benefits
CRDP (Concurrent Retirement and Disability Pay): If you have 20+ years of service AND a VA disability rating of 50%+, you receive both your full military retirement AND your full VA disability — no offset. This is potentially $2,000–$5,000/month in additional tax-free income.
SBP (Survivor Benefit Plan): The Decision You Can't Undo
At retirement, you must decide whether to enroll in the Survivor Benefit Plan. This is one of the most important and least understood financial decisions veterans face.
What SBP does:
- Provides up to 55% of your retirement pay to your surviving spouse if you die first
- Cost: 6.5% of your covered retirement base (deducted from monthly retirement check)
- Inflation protection: SBP benefit increases with COLA adjustments
Arguments for SBP:
- Guaranteed income for surviving spouse regardless of market conditions
- Inflation-protected
- Spouse cannot outlive the benefit
- Subsidized by DoD — actuarially a good deal for younger retirees
Arguments against SBP:
- 6.5% premium is paid even if spouse predeceases the retiree
- Premiums paid from age 38–58 with no benefit if spouse dies first
- Could theoretically be replicated with term life insurance at lower cost for healthy individuals
The math: For most military retirees, SBP is actuarially favorable — especially with a younger spouse, good health, and long life expectancy. For retirees with health issues or significant age differences (retiree is much older), the calculation changes.
Get a fee-only financial advisor to run the numbers for your specific situation before your retirement appointment.
Post-Retirement Income Strategy
Military retirement pay + VA disability is a strong base. Building on top of it:
The veteran financial advantage:
- Military pension: Inflation-adjusted, for life
- VA disability: Tax-free, for life (if P&T)
- Healthcare: Tricare continues at retiree rates
- Combined: Often $4,000–$8,000/month before civilian employment income
This base means your civilian salary requirements are lower than peers — you can be more selective about roles, take calculated risks, or prioritize work-life balance over maximum compensation.
TSP + civilian 401(k) strategy:
- Continue contributing to civilian employer 401(k) for matching
- Max Roth IRA annually ($7,000/year; $8,000 if 50+)
- Keep TSP invested through retirement; take required minimum distributions at 73
Tax efficiency:
- Military retirement pay is taxable; VA disability is not
- Many states exempt military retirement from state income tax — check your state
- Consider whether converting TSP to Roth IRA makes sense in your tax situation
Fee-Only Financial Advisor
Use a fee-only fiduciary financial advisor — someone who charges a flat fee or hourly rate, not commissions. NAPFA (napfa.org) and the Garrett Planning Network (garrettplanningnetwork.com) can help find advisors who specialize in military finances. Expect $200–$400/hour or $1,500–$3,000 for a comprehensive plan. Worth every dollar given the decisions at stake.
The 12-Month Financial Checklist
12 months out:
- File VA disability claim through BDD if possible
- Finalize SBP decision with financial advisor
- Maximize TSP contributions for final year (especially if deployed)
- Decide on TSP rollover strategy
6 months out:
- Open Roth IRA at Fidelity, Vanguard, or Schwab
- Ensure beneficiary designations are current on TSP, SGLI
- Research state tax treatment of military retirement in your target state
30 days out:
- Confirm retirement pay start date with DFAS
- Confirm VA claim status
- Ensure direct deposit information is updated for retirement pay
Post-separation:
- Enroll in Tricare Retired (if applicable)
- File for any remaining VA claims
- Begin civilian employer 401(k) contributions immediately
The financial foundation you leave the military with is the strongest of any profession. The decisions around how you use it determine whether it compounds into lasting security or erodes in the transition.