Military Retirement Changes

Rye83 · Sep 27, 2017

In the months to come, the Defense Department will roll out an expansive education program to ensure all troops understand the difference between the two benefits and are prepared to make such a critical personal financial decision. There will be classes, online educational tools and a calculator that will enable military personnel and their families to compare the two options based on their current career status and plans for the future.

The law contains a grandfather clause giving all troops entering the service prior to 2018 the option to keep the legacy retirement benefit, which offers a monthly pension check equal to 50 percent of basic pay after 20 years of service.

The new retirement benefit offers a smaller pension check, 40 percent of basic pay after 20 years, yet also includes monthly government contributions to an individual retirement account that service members own outright after completing just two years of service.

It will be similar to 401(k) contributions for private sector employees, and mark the first time the military offers some limited retirement benefit to troops who separate before reaching 20 years of service. Historically, noncareer service members — more than 80 percent of the force — have received no retirement benefit.

The new system will make individual retirement account contributions equal to at least one percent of basic pay. Beyond that, the government will provide matching funds to troops who contribute their own cash. The maximum is 5 percent, meaning if troops agree to contribute 5 percent of their own pay to the individual retirement account, the government will also contribute 5 percent.

Individual contributions are tax-deferred, meaning the tax is payable upon withdrawal. But money deposited into these retirement accounts, known as a Thrift Savings Plan, is generally not available for withdrawal before the owner reaches age 59½. Early withdrawal comes with significant tax penalties.

Personal finance experts say the most important factor in the decision will be whether an individual service member plans to stay for a 20-year military career. For those who expect to reach the 20-year mark, the traditional pension system is probably a better deal.

Yet for young troops who are unsure about their career plans, the new system promises some retirement benefit for those who might leave after long before 20 years of service.

New in 2017: Huge changes ahead for military retirement
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The traditional military benefits will no longer be an option in the future. Let the corrupt and greedy (Wall Street) decide our service member's retirement fate. Awesome.

I guess that many of the prior service baby-boomers in Congress have already gotten theirs, screw everyone else. This is what real disrespect to those who serve looks like.

(Sure, it helps those that don't stay in for 20 years a bit...but it completely screws those that make a career out of serving the county... especially those who signed up thinking they would get the 50% pay after 20 years. Now they will be stuck with getting only 40%.)

ShawnM · Sep 28, 2017

They've been talking for many years about changing things up. I agree that it blows for the folks coming up that will end up doing 20 years...not many enlistees know that they will stay 20 so I'd assume most folks would take the new option; but after next year it does not matter anyway...glad I retired 10 years ago under the old system.

Shawn

cabb · Sep 28, 2017

Join the club. I had a pension at one time, too. The federal, state and local governments are some of the last hold outs, but they too will eventually go the the 401K route.

6 companies with the best retirement plans

In fact, benefits advisory firm Willis Towers Watson said that between 1998 and 2015, the percentage of employers still offering a traditional defined benefit pension plan to newly hired employees fell from about 50 percent to 5 percent. Lots of companies either froze their retirement plans or closed them altogether.

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