by Shannon Razadin
By now military families have heard about the impending changes to the military retirement system. Shannon Razsadin, executive director of the Military Family Advisory Network (MFAN), is here to break down what it means and explain who will be affected — and when.
Why the change in military retirement? The DoD carefully considered the future of the force. The reality is, since the start of the all-volunteer force in 1973, more than 80 percent of service members have not served the 20 years required to earn the military retirement pension. It’s clear that the new system better suits the needs of the modern military. Here’s what you need to know.
Who?
- Service members who have served less than 12 years as of Dec. 31, 2017, can choose between the Blended Retirement System and the legacy retirement system.
- Service members who have served 12 years or more will stay with the current legacy retirement system.
- Service members who join after Dec. 31, 2017, will automatically be enrolled in the new Blended Retirement System.
So, those who entered service on or after Jan. 1, 2006, are eligible to opt in to the Blended Retirement System, and those who entered service on or before Dec. 31, 2005, will remain on the legacy system.
What?
Under the new Blended Retirement System, the U.S. Department of Defense will make an automatic 1 percent contribution to your Thrift Savings Plan (TSP) — regardless of whether you invest in your TSP. If you choose to invest in your TSP, the DoD will contribute even more through a match. Here’s a table that breaks down your contribution and what the DoD will match — keep in mind that the maximum percentage that the DoD commits is 5 percent (1 percent for the automatic contribution, and 4 percent for the match).
It’s important to remember that you will not be automatically switched to the Blended Retirement System. This is an opt-in system for those who entered military service between Jan. 1, 2006, and Dec. 31, 2017. If you do nothing, you will remain on the legacy retirement system.
| Your Contribution | DoD Contribution* | DoD Match** | Total |
| 0% | 1% | 0% | 1% |
| 1% | 1% | 1% | 3% |
| 2% | 1% | 2% | 5% |
| 3% | 1% | 3% | 7% |
| 4% | 1% | 3.5% | 8.5% |
| 5% | 1% | 4% | 10% |
* Contributions begin after 60 days of service.
** Match begins after 3 years of service and will continue up to 26 years of service.
If you serve 20 or more years in the military, you will receive the full retirement pay annuity (pension). Under the Blended Retirement System, you would calculate your monthly payment with the following formula:
You can figure out your retired basic pay by averaging the highest 36 months of basic pay.
So, for anyone under the new Blended Retirement System, you keep whatever you commit to your TSP — including what the DoD contributes as well as your retirement pay (if you reach the 20-year milestone).
What’s the biggest difference between the legacy retirement system and the Blended Retirement System?
With the legacy retirement system, if you don’t serve 20 years, you won’t receive any contributions from the DoD. However, if you do serve 20 years, the formula to figure out your retirement pay changes. Instead of the 2 percent figure used in the Blended Retirement System formula, the legacy retirement system uses 2.5 percent.
When?
All service members who have served less than 12 years as of Dec. 31, 2017, can choose to be grandfathered into the legacy retirement system or to switch to the Blended Retirement System. Service members must make a decision sometime between Jan. 1, 2018, and Dec. 31, 2018. Be advised: The decision to opt in is not reversible! So, for example, if you opt in to the Blended Retirement System, you cannot change your mind later and go back to the legacy retirement system.
For lots more information about military retirement and financial readiness, including training on the new Blended Retirement System, visit militaryfamilyadvisorynetwork.org/milcents. MilCents is a fresh look at finances, the program simplifies what you need to know, and gives military and veteran families direct access to finance experts.