Today I want to talk about a big change that is coming down the pipe for ALL service members, and that is the change to the blended retirement plan. Usual disclaimer about me not being an expert applies, but I did stay in a Holdiay Inn once so…

Anyway the first thing that is important to note are the changes:

Old plan: 20 years required/nothing if you leave early/calculated by the average of your highest 36 months of basic pay divided by 50. If you go over 20 add 2.5{9ffa98477ad9ae5230ceaf88023fa42cd91068973d6dcf54237a48e4b0f07a7d} per year. 

Ex: base pay is 4000/month service member retires at:

20: $2000

21: $2100 and so on 

Redux: At 14 years the service member can take a one time 30k up front payment (before taxes) lump sum in exchange to reduce his percentage to 40{9ffa98477ad9ae5230ceaf88023fa42cd91068973d6dcf54237a48e4b0f07a7d}. For most people it doesn’t make sense and if you make it to 25 you get your 50{9ffa98477ad9ae5230ceaf88023fa42cd91068973d6dcf54237a48e4b0f07a7d} back. 

Cost of living and disability pay (if any) added

The new plan is much more convuluted but I’ll try to break it down the best I can. The new plan affects anyone coming in after 1 January 2018 as mandatory. Anyone less than 12 years by December 2017 will have the option to opt-in. Once decided it’s irrevocable so make sure it’s a choice you want. If you are over 12 years no change is allowed. 

Changes: leaving the military at 20 will still net a lifetime pension. Multipler changes to 2.0 instead of 2.5 for years in service. 

Forced 401(k) contributions: New service members will have 3{9ffa98477ad9ae5230ceaf88023fa42cd91068973d6dcf54237a48e4b0f07a7d} of their base pay placed into their TSP account with no ability to change it. After 60 days the DOD will contribute another 1{9ffa98477ad9ae5230ceaf88023fa42cd91068973d6dcf54237a48e4b0f07a7d}. After 2 years the service member can change the contribution with DOD matching up to 5{9ffa98477ad9ae5230ceaf88023fa42cd91068973d6dcf54237a48e4b0f07a7d} for a 5{9ffa98477ad9ae5230ceaf88023fa42cd91068973d6dcf54237a48e4b0f07a7d} contribution, leading to 10{9ffa98477ad9ae5230ceaf88023fa42cd91068973d6dcf54237a48e4b0f07a7d} per month. When the service member leaves the military they take the account with them. For anyone converting to the new plan 60/24 doesn’t apply. 

Lump sum: At 20 years the service member can take a 25 or 50{9ffa98477ad9ae5230ceaf88023fa42cd91068973d6dcf54237a48e4b0f07a7d} lump sum. Works similar to the redux. 

Continuation pay: At 12 years of the service if the member chooses to stay in they will get a continuation bonus of AT LEAST 2.5 times their base pay. This bonus caps at 13 times base pay for high priority jobs and critical specialties. We don’t yet know how that will be figured out. 

All in all it seems that the new plan is better, as long as you don’t plan to stay 20. The .5 subtraction will hurt in the long run but the continuation pay while not technically retirement pay should help cushion the blow. 

Whatever your child decides make sure he or she is making an informed decision. If they switch and don’t plan to stay 20 then it’s only worthwhile if they are making contributions, and I would say it needs to be maxed. Young people don’t plan for retirement but if they don’t contribute the new plan will be worthless to them. 

As always any questions feel free to reach out and I’ll help the best I can. 

Justin

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