Should You Choose the New Military Retirement System?

by guest blogger Kimberly Lankford, author of Kiplinger’s Financial Field Manual: A Personal Finance Guide for Military Families

If you joined the military from 2006 through 2017, you have from January 1 to December 31, 2018, to decide whether to switch to the new “blended retirement system.” If you don’t do anything, you’ll continue to be covered under the old plan. (People who join the military after January 1, 2018, will automatically be enrolled in the new system, and those who entered the military before 2006 remain in the old system.)

The current military retirement system provides a generous pension – starting 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. But if you leave the military before 20 years, you get nothing – and about eight out of 10 service members don’t stay long enough to collect a pension.

The new system reduces the pension payouts to 40% of your base pay if you stay for 20 years, or 60% if you stay for 30 years. But 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. (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.

If you don’t plan to stay in the military for 20 years, then you’ll come out ahead with the new system. If you think you may stay that long, compare payouts under the old and new system, and calculate how much you’d need to save in the TSP to make up the difference. If you do pick the blended retirement system, plan to contribute at least 5% of your pay each year to the Thrift Savings Plan, so you can get the maximum match.

USAA has a calculator (www.usaa.com/brs) that can help active-duty service members and members of the Reserves and National Guard run the numbers. Also see the Defense Department’s Blended Retirement System guide for a calculator and more information (militarypay.defense.gov/blendedretirement).

For additional information on the new military retirement system and other financial information for servicemembers and their families, check out the Financial Field Manual.