The new Service retirement program applies to everyone entering the Services in CY2018.
Those who entered the Service in CY2005 or earlier stay in the current retirement program—no options.
Members entering the Service between CY2006 through 2017 will be given the option to stay under the current system or opt-into the new program.
The current program.
You have the Thrift Saving Program (TSP) and you have the pension.
The TSP is like a 401k but without a “match.” A match is the employer’s contribution on top of your contribution.
The pension provides lifetime income with a cost of living adjustment (COLA). Eligibility for a pension starts after 20 years of active duty service or at age 60 with 20 creditable years of service for Reserve and Guard members.
The formula to determine the pension amount is:
- (2.5% X years of service) X average high-three-years of base pay
The new retirement program.
Maintains a pension and the TSP adds a match. “Nice!” Hold on…
Everyone automatically gets the DOD TSP contribution of 1% of base pay starting upon entry to the Service (or when you opt-in) whether the member contributes or not.
After 2-years of service (or when you opt-in), members are eligible for a voluntary match up to 4% of base pay. The 1% automatic DOD contribution plus the 4% voluntary match totals 5%—you contribute 5%, DOD contributes 5%. The match stops at the 26th year of service.
After 2-years of service (or when you opt-in), the member owns the match money.
At 12 years of service, members will qualify for a retention bonus which requires a 4-year Service commitment. Amount will vary.
The pension amount is reduced 20%. Rather than 2.5% times years of service, now it will be 2% times years of service.
- (2% X years of service) X average high-three-years of base pay
On the surface, this might not seem like a big deal. However when you consider starting out 20% less over a lifetime with COLA increases, the lifetime earnings under the new program will be significantly less than the current program.
There will be an option for a lump sum discounted pension payment upon retirement. Don’t take it. You’ll be trading dollars for pennies–lifelong financial stability and significant earnings for immediate gratification.
Those with the option should stick with the current program. Unless you are absolutely 100% certain you are getting out of the Service, you should assume you will serve until retirement.