Asset allocation is a strategy for investing in different asset classes, such as stocks and bonds, to help manage investment risk without sacrificing the potential for a strong return. But asset allocation does not guarantee investment gains or protect against losses in a falling market.
Base pay is the amount you earn each month. It does not include housing and other allowances that are part of your total compensation or any additional benefits or special pay. Base pay is also known as basic pay.
Blended Retirement System (BRS) is the military retirement system that took effect on January 1, 2018. It combines a pension with a retirement savings plan that features an automatic DoD contribution of 1% of base pay for all servicemembers plus a matching contribution of up to 5% of base pay if you contribute to a Thrift Savings Plan account.
Career continuation pay is an incentive payment available to all BRS participants at some point between your eighth and twelfth year of service at the discretion of the Secretary of your service branch. As a condition of the payment, you agree to serve three additional years.
Compounding occurs when investment earnings are added to investment principal, creating a new, larger base on which future earnings are calculated.
Diversification is a strategy for managing risk and enhance return that involves buying a number of different investments within each asset class. But diversification does not guarantee a profit or protect against losses in a falling market.
Index is a list of investments that share one or more relevant characteristics, such as asset classification, market capitalization, or investment objective, and whose changing collective performance is an indication of how that segment of the market is performing.
Individual retirement account (IRA) is a retirement savings plan you set up with a financial institution. Your IRA earnings grow tax-deferred and are reinvested to help build your account value. You can choose between a traditional tax-deferred account and a tax-free Roth account.
Lifecycle funds are intended to provide a source of retirement income starting at a specific future time, such as 2040 or 2050. Each lifecycle fund gradually shifts its investment emphasis from growth to income as the target date approaches.
Portability means that you can move investment assets you have accumulated in one retirement savings plan to another plan without losing their tax-deferred status. For example, when you retire or leave the service for any reason, you can move assets in a TSP account to an IRA or to another employer’s plan if the plan accepts transfers.
Retirement pay base is the amount on which your pension is calculated in the Blended Retirement System. It depends on your High-3, or average base pay during the 36 continuous months it was the highest and the date you joined the armed forces.
Return is the gain or loss on your investment principal. It is determined by the change in an investment’s price over a specific period, such as a year, plus any earnings the investment provides.
Tax-deferred means that any taxes that would otherwise be due on earnings in a retirement savings account are postponed until you withdraw money from the account. In some accounts, taxes are also deferred on contributions you make to the account. Annual withdrawals are required from tax-deferred accounts after you turn 70.
Tax-free Roth is a retirement savings account in which earnings are tax deferred and withdrawals are tax free provided you are at least 59 and your account has been open at least five years. Contributions are never tax-deferred. Withdrawals are required after 70 from an employer plan Roth account but not from a Roth IRA.
Vesting means you are eligible to receive income from your employer’s retirement plan or plans, based on having completed the required years of service. Vesting periods differ in different types of plans.