Houston Estate Planning and Elder Law Attorney Blog
For those who joined the military in recent years, a big decision is looming for their future. They have to make a choice next year between staying in the old retirement system or opting for the new one.
Figuring out whether or not to stay with the current military retirement system or choosing to join the new system may be a challenge, but you have an entire year to educate yourself as to which one is best suited for you and your family.
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% of your base pay every year for life, if you stay in the service for 20 years or up to 75% if you remain for 30 years. However, if you leave the military before 20 years, you get nothing. About 80% 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% of your base pay if you stay for 20 years or 60% if you stay for 30 years. However, you’ll also get an automatic contribution of 1% of your base pay to the federal Thrift Savings Plan after 60 days of service, and matching contributions for the next 4% 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.
There are several sources for information for active-duty service members and members of the Reserves and the National Guard. The Defense Department’s website has a wealth of information about the Blended Retirement System, including a Reserve Component fact sheet for members of the Reserves. USAA’s website has a calculator designed for use by as for active-duty service members and members of the Reserves and National Guard.
Reference: Kiplinger (November 10, 2017) “The Big Pension Decision Military Service Members Must Make in 2018”