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Dollars and Sense

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Allan Holmes thinks that the Thrift Savings Plan will have a hard time getting young people to start saving because the salaries they're paying aren't particularly high:

But there's still the problem: Who has $2,000 a year at age 19 to sock away? Maybe the investment board can figure how to get around that one.

I'm not sure this assumption is correct. If you're young and newly enlisted, the chance that you'll be going overseas and have a lot of your living expenses taken care of actually makes it a lot more likely that you'll have $2,000 to save. If you look at the military pay tables, someone entering the armed forces at the lowest possible rate of pay will make $1,338.60 each month--and their pay goes up after their first four months. On that salary, $2,000 would be a big savings commitment. And there are definitely fixed costs like student loans and car insurance to consider. But not everyone's going to come in at the lowest rate of pay. And while $2,000 a year may seem like a decent chunk of change, it's less than 10 percent of many service-members' salaries, the conventional wisdom on the appropriate minimum savings rate.

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