You’ve probably heard that currently serving military members and their families soon will have to choose whether to switch to the new military retirement system or stick with the old one.
But retirement options and savings choices can be confusing. How can troops know which to pick?
Military leaders want families who are thinking through the choice to be armed with as much information as possible, said Lt. Col. Steven Hanson, who heads the Army‘s compensation and entitlements office.
He discussed three military retirement myths at a recent Association of the United States Army conference.
Myth 1: You’ll be forced into the new military retirement system.
That’s false, Hanson said.
Everyone who joins the military after Jan. 1, 2018, will be a part of the new system whether they like it or not. But those who are currently serving at that time will have to make a choice: Keep the old system or opt into the new one.
“One of the big misconceptions about this is that people will be forced into the new system and that is simply not the case,” he said. “Nobody will be moved into the blended system unless they actively choose to do so.”‘
The current retirement program is based on a pension system. Under that plan, if a military member serves 20 years, is medically retired or is forced out and qualifies for early retirement, he’ll be able to walk away with a pension based off his rank at retirement.
But most troops don’t retire out of the military — they simply leave the service. And thanks to the way the current system is set up, that means they walk away empty-handed.
That’s a problem the new “blended” retirement system is designed to fix. Instead of retirement or nothing, it gives service members a savings that is closer to what’s used by employers in the civilian sector.
Under it, troops can contribute money to their Thrift Savings Plans (TSP), and the Defense Department will match it up to a certain percent, much like a 401(k) plan. Even if a service member opts to put nothing in his TSP, the DoD will still contribute an amount equal to one percent of his base pay to the account each month.
And service members who stay in long enough to become retirees will still get a version of the pension system in the new military retirement plan as well, although payments will be based on a lower amount than they are today.
Myth 2: It’s easy to tell which plan you should use.
False. While it would be nice to know if the new system is the right choice for you simply based on how many years you’ve been in, that’s not the case. Whether the new system is right for any given service member is going to be based on a whole slew of information specific to that person and his or her family, Hanson said.
“There’s no cookie-cutter answer. Every service member is going to have different circumstances,” he said. “Everyone should do what’s best for their personal circumstances.”
Myth 3: You’re going to have to figure out which plan is best for you on your own.
Mostly false. While the final choice ultimately will be up to each individual service member, the law that required the retirement plan change also requires the Defense Department to provide a lot of education about what the change means — and how service members can pick which plan is right for them.
“We need to make sure that they have the tools, the skills and the knowledge to make an informed decision,” Hanson said. “We are putting together a training and education plan to make sure service members understand the old system versus the new system so they can make an informed choice.”