Transitioning out of the military is a big step, both personally and financially. In order to ensure that you have...
Understanding the New Blended Retirement System for the U.S. Military
Planning for retirement in any career is often a daunting and overwhelming task. For our military personnel, it’s especially important to understand the available options under the new Blended Retirement System. The National Defense Authorization Act of Fiscal Year 2016 blends the traditional legacy retirement pension with a defined contribution to service members’ Thrift Savings Plan Account. The Uniformed Services Blended Retirement System goes into effect January 1, 2018. Let’s take a closer look by outlining a few quick facts:
1. Current Active Duty Military Personnel
Current active duty military personnel, defined as serving as of December 31, 2017, are automatically grandfathered in the traditional legacy retirement system and will not be automatically switched to the new Blended Retirement System.
2. New Active Duty Military Personnel
Active duty military personnel who entered on or after January 1, 2018, will automatically be enrolled in the new Blended Retirement System.
3. Active and Reserve Duty Military Personnel
Both active and reserve military personnel will be grandfathered under the legacy retirement system. Active duty with fewer than 12 years since their Pay Entry Base Date will have the option to opt into the Blended Retirement System. Reservists with fewer than 4,320 retirement points as of December 31, 2017, also have the option of opting into the new system. The time frame for opting-in is January 1 through December 31, 2018.
4. Mandatory Opt-In Course
Military personnel eligible for opting-in to the Blended Retirement System must complete a mandatory course available via Joint Knowledge Online (CAC required), Military One Source (non-CAC enabled), and through several other service learning management systems. The course takes two hours and includes pre and post-course tests. Upon completion, military personnel must turn in their certificate to their training manager.
6. Comparison Calculator Tool
It’s important to note that opt-in mandatory training is recommended before using the comparison calculator, a tool that’s helpful in several ways:
- It allows military personnel to compare estimated benefits under both plans prior to making a decision.
- Military personnel can adjust data to view how career and savings changes will affect their retirement.
- A video tutorial is available for learning how to use the comparison calculator tool.
Blended Retirement System Basics
- Defined Benefit. Basic requirements for retirement do not change; pensions remain the primary component of military retirement.
- Defined Contribution. Military personnel opting-in will immediately receive an automatic agency contribution of 1% to their Thrift Savings Plan. New military personnel, enrolled on or after January 1, 2018, will receive the 1% contribution after 60 days. An agency matching contribution begins after two years of service.
- Continuation Pay. A mid-career incentive is available at the eighth (but not more than the 12th) year of service.
- Lump Sum. A lump sum of 25% or 50% may be taken at retirement. The lump sum is discounted to a present value from a future value. The monthly annuity is reduced until age 67 and then reverts back to the full annuity amount. Watch this free webinar to learn more about the present and future value of a lump sum or an annuity.
If you or someone you know is currently serving or plans on serving in the armed forces they can learn more at militarypay.defense.gov or speak to the financial managers aboard their local base.