According to the Military Times, the Pentagon is considering a major change in the military retirement system. The new plan would phase out the 20-year cliff vesting system and offer more benefits to all troops. It would be the biggest change in military retirement in over 60 years if approved by Congress.
The new benefits program would contribute money to a soldier’s retirement savings account instead of offering a monthly pension at retirement. The yearly retirement contributions would roughly equal 16.5 percent of a soldier's annual pay and be deposited into mandatory 401(k)-style account. Another aspect of the program would raise contributions to troops who deploy often, take hardship assignments or fill high-demand jobs.
The new plan would give service members more flexibility in building a meaningful retirement nest egg, one that better fits their lifestyle and needs. Still to be ironed out would be whether soldiers would gain immediate access to all their retirement money or whether it would be partially or entirely withheld until they reach retirement age, typically 65. Under the current plan, monies can’t be withdrawn (without a big penalty) until a soldier reaches 59.
The new plan offers major new retirement benefits to an estimated 83 percent of soldiers who serve less than 20 years in the military. Here’s a breakdown of how the new plan would affect soldiers with varying lengths of service:
- Recruits. New soldiers would receive annual contributions to a Thrift Savings Plan (TSP) account and could leave service with that money at any time. Early money withdrawals (before age 59) would incur a penalty, except in certain circumstances.
- 5 years of service. Soldiers would start accruing new benefits in a TSP account. Those who remain in the service for 20 years would get about 12 percent of their pay at retirement as an annuity.
- 10 years of service. Soldiers would start accruing new benefits in a TSP account. Those who stay in for 10 more years would get about 25 percent of their pay at retirement as an annuity.
- 15 years of service. Soldiers would start accruing new benefits in a TSP account. Those who stay in for five more years would get about 37.5 percent of their pay at retirement as an annuity.
- 20 years and over. Soldiers who stayed in past 20 years would continue to get annual TSP contributions.
For an additional perspective, check out this video:
Got any thoughts on the proposed new military retirement system? Feel free to share them in the comments section.
Alex A. Kecskes has written hundreds of published articles on health/fitness, "green" issues, TV/film entertainment, restaurant reviews and many other topics. As a former Andy/Belding/One Show ad agency copywriter, he also writes web content, ads, brochures, sales letters, mailers and scripts for national B2B and B2C clients. Please see more of his blogs and view additional job postings on Nexxt.