Posted on May 13, 2016
There's A Problem With The Proposed Changes To The Military's New Retirement Plan
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Generation Z (the Digitals) are now joining the Military. Do you believe the new Military Retirement Plan will have any effect on recruiting new Service Members into the military? Why or Why not?
"The blended plan begins in 2018 and, as of now, will feature these changes:
◾Retirement pay (pension). Service members will be eligible for a retirement benefit after 20 years of service. Smaller than the current benefit, it will be calculated using a 2% multiplier instead of the current 2.5%. (Multiply your years of service by 2%. That number is the percentage of your High-36 average base pay that you’ll receive in retirement).
◾Matching contributions. Service members will receive an automatic 1% Defense Department contribution to their Thrift Savings Plan after 60 days of service. At the beginning of their third year of service, service members who contribute at least 5% on their own will receive up to 4% in matching TSP contributions.
◾Continuation pay. After 12 years in the military, service members will receive continuation pay if they commit to serving four more years. This one-time retention bonus will be worth at least two and a half months of basic pay for active-duty personnel and at least half a month’s basic pay for reservists. The amount could be higher for in-demand positions.
◾Partial lump-sum option. Retirees can choose to receive a full retirement annuity each month, or they may be able to opt for a smaller pension along with a lump sum payment. Details are still being worked out, so it’s unclear how this will be calculated and what this would mean from a tax standpoint.
With any change, there are positives and negatives.
The positive: The new plan will benefit a lot more service members. The overhaul aims to provide some retirement funding to about 85% of service members. Plus, the design should encourage service members to save for retirement on their own since they’ll need to make a personal contribution of 5% to get the full match. Being better prepared for retirement is always a positive.
The negative: Retirees will probably get less. Under the new system, that could equate to a six figure difference over their lifetime. That’s based on someone entering the service in 2016, opting for the new system, receiving the minimum continuation payment and serving 20 years. However, it’s worth noting that today less than 20% serve long enough to qualify for full military retirement."
"The blended plan begins in 2018 and, as of now, will feature these changes:
◾Retirement pay (pension). Service members will be eligible for a retirement benefit after 20 years of service. Smaller than the current benefit, it will be calculated using a 2% multiplier instead of the current 2.5%. (Multiply your years of service by 2%. That number is the percentage of your High-36 average base pay that you’ll receive in retirement).
◾Matching contributions. Service members will receive an automatic 1% Defense Department contribution to their Thrift Savings Plan after 60 days of service. At the beginning of their third year of service, service members who contribute at least 5% on their own will receive up to 4% in matching TSP contributions.
◾Continuation pay. After 12 years in the military, service members will receive continuation pay if they commit to serving four more years. This one-time retention bonus will be worth at least two and a half months of basic pay for active-duty personnel and at least half a month’s basic pay for reservists. The amount could be higher for in-demand positions.
◾Partial lump-sum option. Retirees can choose to receive a full retirement annuity each month, or they may be able to opt for a smaller pension along with a lump sum payment. Details are still being worked out, so it’s unclear how this will be calculated and what this would mean from a tax standpoint.
With any change, there are positives and negatives.
The positive: The new plan will benefit a lot more service members. The overhaul aims to provide some retirement funding to about 85% of service members. Plus, the design should encourage service members to save for retirement on their own since they’ll need to make a personal contribution of 5% to get the full match. Being better prepared for retirement is always a positive.
The negative: Retirees will probably get less. Under the new system, that could equate to a six figure difference over their lifetime. That’s based on someone entering the service in 2016, opting for the new system, receiving the minimum continuation payment and serving 20 years. However, it’s worth noting that today less than 20% serve long enough to qualify for full military retirement."
There's A Problem With The Proposed Changes To The Military's New Retirement Plan
Posted from taskandpurpose.com
Retirement
Recruiting
Millennials
Posted >1 y ago
Responses: 5
I don't think it will really affect young recruits making a decision to join the military, but I think it will have a good long term and positive effect on retention. This is because people want to get out of the military will be able to get out at any natural transition point and not feel handcuffed to stay in until 20 years. The types of people just staying in for a retirement and not because they want to continue to serve, in my opinion, tend to have a negative effect on the command climate. Since they will be able to get out with less of an economic penalty, it will clear the path more for those who just want to serve, and improve the overall command climate, which ultimately helps retain the best people.
In short; yes we'll lose some more people, but I think we'll lose the people who want to get out anyway, and we'll retain more of the people who want to stay and serve.
In short; yes we'll lose some more people, but I think we'll lose the people who want to get out anyway, and we'll retain more of the people who want to stay and serve.
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CPT Mark Gonzalez
Exactly. Under the current system there is too much dead weight and people that want to leave, but too far in. The new system slightly adjusts with a drop to 40% at 20, but can go further. I believe a further cut in the long run(reduction in set retirement with a boost to 401k match) will actually attract the people who want to serve, but negatively impact those that feel trapped.
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My concerns
- The recruits won't understand the full financial landscape.
- The recruits are in the spending mode to fulfill their wants and needs instead of investing.
- Many young families will have a hard time finding extra money to invest.
- Recruits will won't understand the investment vehicles to include the risk to reward concept.
- The recruits won't understand the full financial landscape.
- The recruits are in the spending mode to fulfill their wants and needs instead of investing.
- Many young families will have a hard time finding extra money to invest.
- Recruits will won't understand the investment vehicles to include the risk to reward concept.
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MSgt Alex Taylor
You make very valid arguments that I agree with. I'm sure the base support agencies will slowly educate new members on the plan, but the onus to invest will be lost on many who enjoy life to the maximum their paycheck will allow while young. As they start to understand the system, they will either kick themselves later for not investing, or decide a further career with the military isn't for them as part of it. The 20 year cliff is still there, only now they will retain a little if they depart early.
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There's a big problem. I don't see any incentive to stay in until retirement under this new plan.
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CPT Mark Gonzalez
At 20 years they would still get 40% plus their separate 401k funds. With that said there is a subsection of personnel that are only staying to 20 because of the cliff system. This is a form of financial coercion and a lot of these people are no longer happy in their service. This brings down their morale and negatively impacts their work and those around them. So a little less coercion in my opinion is a good thing.
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MGySgt James Forward
I don't understand your position. So saying for 20 years and receiving 40% of your final three for life is not an incentive to say in? The pay off your 401K could exceed your retirement. So you have thre legs of your retirement stool; Mil retirement, 401K and Social Security. A fourth leg would an addition retirement and increased 401K from addition contributions.
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