Decision time for military personnel
New blended retirement system available
Many members of the military will have to make a big decision in 2018: whether to stay with the military’s longtime retirement program or move to a new system that combines features of a pension with a retirement savings plan.
The current military retirement system provides a generous lifetime pension, starting at 50 percent of base pay for those who stay in the service for 20 years. But those who leave before 20 years get nothing, and about eight out of 10 service members don’t stay long enough to collect a pension, says Joshua Andrews, the United Services Automobile Association’s advice director for military life.
The new “blended retirement system” reduces the pension payouts to 40 percent of base pay for those who stay for 20 years (or 60 percent if they stay for 30 years). But they also get an automatic contribution of 1 percent of base pay to the Thrift Savings Plan after 60 days of service.
They’ll receive matching contributions for the next 4 percent of pay, which they can keep after two years. (People who joined the military before 2018 can keep the matching contributions right away without waiting for two years.) The matching contributions continue for up to 26 years of service.
Everyone who joins the military in 2018 or later will be enrolled in the new system. Those who joined the military from 2006 through 2017 have from Jan. 1 to Dec. 31, 2018, to opt in to the new plan. Those who do nothing will remain in the old plan.
Those who don’t plan to stay in the military for 20 years will come out ahead with the new system. Those who might stay that long should compare payouts under the old and new system and calculate how much they’d need to save in the Thrift Savings Plan to make up the difference.
The calculators at www.usaa.com/ brs and http://militarypay.defense.gov/blendedretirement can help.
Those who pick the blended retirement system should plan to contribute at least 5 percent of pay each year to the Thrift Savings Plan, so they can get the maximum match.
“Otherwise, you’re leaving free money on the table,” Andrews says. They can always contribute more than that to the Thrift Savings Plan to build up more retirement savings.
“USAA recommends putting at least 10 percent of your basic pay into your TSP,” he says.