Service members who joined the armed forces in recent years must decide whether to stay in the military’s old retirement system or join the new one. Here’s how to choose the system that’s best for you.
As the year winds down, questions are popping up about the new military blended retirement system, when a person needs to decide whether to switch to the new system and how to determine which plan is better.
Kiplinger’s recent article, "The Big Pension Decision Military Service Members Must Make in 2018," explains that if you joined the military from 2006 through 2017, then you have from January 1 to December 31, 2018, to decide whether to switch to the new “blended retirement system.”
If you do nothing, you’ll continue to be covered under the old plan. Those who join the military after January 1, 2018, will be enrolled in the new system automatically, while those who entered the military before 2006 remain in the old system.
The current military retirement system provides a generous pension. It starts at 50 percent of your base pay every year for life if you stay in the service for 20 years or up to 75 percent if you remain for 30 years. However, if you leave the military before 20 years, you get nothing. About 80 percent of all service members don’t stay long enough to collect a pension.
Contrast this with the new system, which reduces the pension to 40 percent of your base pay if you stay for 20 years or 60 percent if you stay for 30 years. However, you’ll also get an automatic contribution of 1 percent of your base pay to the federal Thrift Savings Plan after 60 days of service, and matching contributions for the next 4 percent of your pay (which you can keep after two years of service). Those 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.
Even if a person doesn’t plan to stay in the military for 20 years, they’ll come out ahead with the new system. A person who may stay to make his “20” should compare payouts under the old and new system, and calculate how much he’ll need to save in the TSP to make up the difference.
USAA has a calculator for active-duty service members and members of the Reserves and National Guard. The Defense Department’s Blended Retirement System guide also has more information. Members of the Reserves are eligible for the new plan based on the retirement points they have earned—see the Department of Defense’s Reserve Component fact sheet for more information.
Reference: Kiplinger (November 10, 2017) "The Big Pension Decision Military Service Members Must Make in 2018"
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