Recent enlistees must opt for either the old or new military retirement plan.
You are in the military.
First, thank you for your service.
The sacrifices you and your loves ones make are appreciated.
Now let us talk retirement.
According to a recent Kiplinger recent article titled “The Big Pension Decision Military Service Members Must Make in 2018,” if you joined the military from 2006 through 2017, you have a choice to make between January 1, 2018 and December 31, 2018.
What is this choice?
You will need to decide whether you want to switch to the new "blended" retirement system.
What are the differences?
This plan had a generous pension.
If you remain in the service for 20 years, it starts at half of your base pay every year for the rest of your life.
It is even better if you stay 30 years.
The pension will be up to 75 percent of your base pay.
What if you leave before 20 years, like I did after only five years of active duty?
You would get no pension.
This is not ideal for most of those who serve in the military.
Only 20 percent remain long enough to receive this pension.
New Retirement Plan.
The new plan is better for those who stay in the military for fewer than 20 years.
The pension for those staying 20 years is reduced to 40 percent and 60 percent for those who remain 30 or more years.
After 60 days of service, you will get a contribution to the federal Thrift Savings Plan of one percent of your base pay made automatically.
Contributions will be matched for the next four percent of your contributions.
You get to keep these after 2 years of service.
What if you joined prior to 2018?
You do not need to wait two years before you can keep the matching contributions.
How long does this matching last?
These contribution continues up to 26 years of service.
This option is probably better if you choose to leave the military before serving 20 years.
If you are likely to stay beyond the 20 years, you should run the numbers.
How do you do this?
Calculate the payouts and then determine how much you will need in the Thrift Saving Plan to make up the difference in pension.
What if you do not make a decision?
Not actively choosing the new system means you will default to continue with the old plan.
Those who join in 2018 have no choice and will automatically be a part of the new plan.
Those who joined before 2006 will remain with the old system.
Do you need more resources?
Check out the following:
- USAA calculator for members of the Reserves and National Guard and for active duty members
- The Defense Department’s Blended Retirement System guide
- The Department of Defense’s Reserve Component fact sheet
Remember: “An ounce of prevention is worth a pound of cure.” When making your financial, tax and estate plans, do not go it alone. Be sure to engage competent professional counsel.
For more information about estate planning in Overland Park, KS (and throughout the rest of Kansas and Missouri), visit our estate planning website and be sure to subscribe to our complimentary estate planning e-newsletter while you are there.
Reference: Kiplinger (November 10, 2017) “The Big Pension Decision Military Service Members Must Make in 2018”