Military retirement system changes coming
Q: How are the pension and retirement-savings options for service members changing, and do I need to make any decisions now?
A: Major changes are coming to the military retirement system starting in 2018. You don’t need to make any decisions now, but you should start to assess your options if you joined the military between 2006 and 2017 and have a choice between the old and new systems.
Under the current retirement system, service members who remain in the military for 20 years receive a pension worth 50 percent of their base pay (or up to 75 percent if they stay for 30 years), starting as soon as they retire from service, with payouts adjusted annually for inflation. There is no partial vesting; if you stay less than 20 years, you don’t get anything. Fewer than 18 percent of service members re-up for 20 years.
The new “blended retirement system” reduces the guaranteed income available after 20 years, but it also provides matching contributions to a Thrift Savings Plan, which you may keep after just two years of service.
Under the new system, if you stay in the service for at least 20 years, you can get a pension worth up to 40 percent of your base pay (or up to 60 percent if you stay at least 30 years), with payouts that are adjusted for inflation.
You’ll also get extra money in your Thrift Savings Plan: an automatic contribution of 1 percent of your base pay to the TSP after 60 days of service, and matching contributions for the next 4 percent of your pay. That’s up to 5 percent each year in free money that you can keep in your plan after completing two years of service.
If you joined the military from 2006 through 2017, you will have from Jan. 1, 2018, until Dec. 31, 2018, to remain in the old system or opt into the new one. (If you don’t do anything, you’ll remain in the current retirement system.)
When the time comes to choose, estimate what your monthly income is likely to be under the old and new pension systems, and figure out how much you’d need to save in the TSP to make up the difference. Be realistic about the possibility that you’ll stay in service for 20 years.
For more information about the new system, see the Department of Defense’s Blended Retirement System website at http://militarypay.defense.gov/BlendedRetirement.