The US Military retirement system is making big changes. Starting January 1, 2018, the Department of Defense will implement a new retirement system, affecting about 2.2 million people. If you are among that number, you have some decisions to make.
The Blended Retirement System, or BRS, combines the traditional annuity, earned after 20 years of service, with a defined contribution plan that involves deposits to a service member’s Thrift Savings Plan account.
Under the traditional system, military members who serve 20 years or more earn an annuity pension. These monthly payments continue for the rest of your life. If you have less than 20 years of service, you do not earn this benefit. Historically, that has left 81% of those who served with no retirement benefit from the DoD.
The Thrift Savings Plan, similar to a 401(k) plan, does allow both DoD civilian and military employees to build up retirement savings. However, unlike civilians, military members do not receive matching funds.
The new plan includes more employees who will be able to take at least part of their retirement benefits with them. It’s estimated that 85% of those serving in the military will have some kind of portable benefit when they separate from service.
Those who joined December 31, 2005 or earlier will be in the traditional plan. If you joined the service January 1, 2006 or later, or you are a reservist with fewer than 4,320 retirement points, you can choose which plan to participate in.
The opt-in window is from January 1, 2018 until December 31, 2018. If you don’t opt-in to the BRS by that date, you are automatically grandfathered into the legacy system.
Both the BRS and the legacy program offer a pension after 20 years of active duty. There are many other similarities: eligibility for extra income from special, incentive, and combat pay, based on the same standards. You still have access to the Survivor Benefit Plan (SBP), which pays a lifetime annuity to your surviving spouse as well as income for dependent children and dependents with special needs.
So, why would you choose to switch? Well, the blended system offers three things the traditional retirement does not: a mid-career continuation pay, the option to take a lump-sum payout when you retire, and employer matching for contributions.
If you are among those who will be choosing one of these systems, expect to receive many resources over the next year. The DoD will release several training modules, and the Defense Credit Union Council has published a guide with an explanation of the new system and a number of insights on retirement planning.
What it comes down to is that there’s no automatic answer for individuals. Your personal situation, years in service, and future plans all matter in this decision. We have experienced financial consultants who can analyze your situation and offer advice.†
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