If eligible, will you choose the old military retirement plan or the new retirement plan?

SFC Anabel Cepero — Thu, 18 Feb 2016 16:39:56 -0500

The new changes will be coming soon and with that many Soldier's will have a choice to stick to the current retirement plan or change to the new one. After 2018 the new Soldier's won't have a choice.

Has anyone thought about switching to the new plan? What are some pro's and con's that you see? Do you see this plan as beneficial?

http://www.militarytimes.com/story/military/benefits/retirement/2016/02/07/new-military-retirement-law-creates-big-decisions-many-troops/79347998/

New military retirement law creates big decisions for many troops

It's the biggest change in decades for military compensation. For the first time, the military will offer some limited retirement benefit to troops who separate before reaching 20 years of service.

Response by SFC Wade W. made Feb 18 at 2016 4:42 PM

SFC Wade W. — Thu, 18 Feb 2016 16:42:37 -0500

I'm glad I Retired in '08. This new system seems a little murky and difficult to wade through.

Response by Sgt Aaron Kennedy, MS made Feb 18 at 2016 4:47 PM

Sgt Aaron Kennedy, MS — Thu, 18 Feb 2016 16:47:22 -0500

Generally speaking, for anyone "in" (and going towards retirement v. exodus) the Old system is Objectively Better.

The issue with the New System is that it requires "an uphill climb" to "break even." (same retirement benefit). For new entrants, the climb is not so steep, and with the uncertainty of staying in v. getting out at each successive enlistment, the New System becomes Subjectively Better (the old system is still Objectively Better).

Remember the New System REQUIRES taking "Longevity Bonuses" (aka Reenlistment Bonuses) and reapplying them towards them towards your retirement benefits to "break even." This is why CURRENT folks have the major advantage in the OLD system.

Based solely on the MATH, if you are close enough to Retirement (10+ years) stick with the Old system. At 8+.. it becomes debatable, at 6 swap.

Response by MAJ Ken Landgren made Feb 18 at 2016 5:32 PM

MAJ Ken Landgren — Thu, 18 Feb 2016 17:32:18 -0500

Where did you get this diagram from?

Response by MAJ Ken Landgren made Feb 18 at 2016 5:38 PM

MAJ Ken Landgren — Thu, 18 Feb 2016 17:38:16 -0500

: < eyeballs

Response by CPT Private RallyPoint Member made Feb 18 at 2016 6:21 PM

CPT Private RallyPoint Member — Thu, 18 Feb 2016 18:21:36 -0500

I am going to go with the old system. I have put in a lot of years into it. I am not a fan of putting a retirement in the market place where things could so sour.

Response by MAJ Ken Landgren made Feb 18 at 2016 6:24 PM

MAJ Ken Landgren — Thu, 18 Feb 2016 18:24:29 -0500

OLD PLAN: An E7 at 20 will retire with $2212 a month under the old plan, and collect $583,968 in total monthly retirement payments at 60.

NEW PLAN New plan is $1770 per month, and collects up to age 60 $467,174 in total of monthly payments. This does not include TSP.

Response by CPT Private RallyPoint Member made Feb 19 at 2016 3:10 AM

CPT Private RallyPoint Member — Fri, 19 Feb 2016 03:10:15 -0500

As a reservist I am sticking with the old system. I firmly believe this new system was designed solely to save money, not to benefit Soldiers. Also since I am planning to stay in for at least 20 and already contribute to a TSP I think I would be losing out.

Response by MAJ Private RallyPoint Member made Feb 19 at 2016 3:13 AM

MAJ Private RallyPoint Member — Fri, 19 Feb 2016 03:13:09 -0500

I'm at 15 years AFS, so it's best for me to stick with the new plan. However, if I were under 8 years, I would absolutely go with the new plan, especially if the maximum match is increased to 6%. It seems like a small number, but over time, it definitely adds up.

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Consider the scenario that MAJ Ken Landgren mentioned:

OLD PLAN: An E7 at 20 will retire with $2212 a month under the old plan, and collect $583,968 in total monthly retirement payments at 60.

NEW PLAN New plan is $1770 per month, and collects up to age 60 $467,174 in total of monthly payments. This does not include TSP.

In this scenario, the pension portion of the Servicemember's retirement is only worth $116,794 less under the new plan. Once you add in the mid-career bonus of 2.5x base pay at you 12 year mark (worth $9,030.75 to an E6 or $17,703.75 to an O4), that number is just over $100,000. If the Servicemember only contributes enough to their TSP to maximize their matching potential, the government will match between $50,000 - $90,000 during their career. That $100,000 - $180,000 with a modest return over 20 years will become $300,000-$800,000.

Yes, there is risk involved with any 401K or IRA plan, but since you'll still be receiving a 40% base-pay pension, it's hard for me to see it as a high-risk decision.
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Plus consider that under the 'old' plan, it's all-or-nothing. You MUST complete 20 years of service in order to draw any government funded retirement. Under the new plan, you have the flexibility to consider other career options without taking such a large financial risk with your retirement plans.

Like I said, it's too late for the new plan to work in my situation, but 8 years or less and I'm all-in!

Response by Capt Tom Brown made Feb 19 at 2016 9:21 AM

Capt Tom Brown — Fri, 19 Feb 2016 09:21:48 -0500

Think in large the new system has been shown to be better in the sense that it benefits more people for time served and allows everyone the opportunity to accumulate greater savings than before. The new plan is comparable to ones in place at Fortune 500 companies. Small employers can't afford anything close if anything at all.

Response by MAJ Private RallyPoint Member made Feb 26 at 2016 10:14 AM

MAJ Private RallyPoint Member — Fri, 26 Feb 2016 10:14:32 -0500

With me coming up in 19 years (June)...it's safe to say that I'm sticking with the old plan. I'm not a fan of the new plan for a SM who wants to make the military a career - to many things can go wrong with the market and will impact your "investment" retirement.

Response by LTC Private RallyPoint Member made Aug 1 at 2017 5:45 PM

LTC Private RallyPoint Member — Tue, 01 Aug 2017 17:45:22 -0400

I will have 22 years total combined active and reserve years of service this October...upon re-entering Active Duty here shortly, I will elect to continue with the "old" pension plan for many of the reasons MAJ Ken Landgren expressed above.

Response by MAJ Ken Landgren made May 31 at 2018 3:51 PM

MAJ Ken Landgren — Thu, 31 May 2018 15:51:05 -0400

Here is a powerful and simple tool to use:
https://www.greateriefcu.com/financial-services/calculators/future-value-of-multiple-deposits.aspx

future-value-of-multiple-deposits.aspx