Service members weigh options as military prepares to launch big change to retirement system

Monica Hayden is waiting for the day when the Air Force starts matching the money she puts into her retirement savings fund.

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“In the long run, I’m winning if I start it now,” said the 24-year-old airman first class from Washington, D.C. “It’s something that would benefit me substantially. ... I’m looking forward to it.”

Hayden, a financial manager at Offutt Air Force Base, and thousands of other service members, can choose a new retirement deal from the military starting Jan. 1. That’s when the Department of Defense deploys its new Blended Retirement System, billed as the biggest change in military retirement in 70 years.

Others are less than certain about the new system and may stick with the traditional military pension plan.

“I have the option of either one,” said Rebekah Andersen, a senior airman from Wooster, Ohio. If she stays in the military for 20 years, the traditional pension sounds good. She’s not sure she wants to put 5 percent of her own pay aside to qualify for matching retirement contributions.

“I haven’t done all the research,” said Andersen, a linguist at Offutt. “So we’ll see. It depends.”

Those in uniform fewer than 12 years have all of 2018 to decide whether to switch from the long-standing retirement system to the blended system, so named because it combines a monthly pension with a matching, tax-advantaged savings plan.

Those with 12 or more years in the service will remain with the traditional system. Those who enter the military after Dec. 31 won’t have a choice and will automatically join the new system.

The traditional retirement plan generally pays service members 50 percent of their base pay after 20 years, with bigger percentages for more years of service.

A service member making $3,000 a month who retires after 20 years would receive a pension of $1,500 a month starting immediately, with cost-of-living adjustments each year.

Those staying fewer than 20 years usually do not receive military pensions, but military members pay Social Security taxes and qualify for those benefits the same as civilians.

The traditional system lets service members put their own money into a tax-advantaged Thrift Savings Plan, which started in 2002, but there has been no matching contribution by the government.

Only 19 percent of military members make it to a 20-year retirement, and the rest essentially receive no retirement benefits.

But the Blended Retirement System makes a major change in the Thrift Savings Plan, intended to benefit both those who serve 20 years and those who serve fewer.

After Jan. 1 the military will match participating service members’ contributions to the plan up to 5 percent of base pay, similar to some 401(k) retirement plans so popular in the civilian world.

“That’s really the strongest aspect of the Blended Retirement System,” said Andrew Corso, assistant director of military compensation policy for the Department of Defense in Washington. “This is a program that we’re proud of.”

With the Blended Retirement System’s savings match, the Pentagon estimates that 85 percent will come away with some retirement money, even if they serve only one tour of duty.

Among those who can choose between the two plans — military members with fewer than 12 years in uniform — the factors in reaching a decision vary by individual, Corso said, and the military is not pushing those people toward one plan or the other.

“We think only the individual can make the decision,” he said.

Accepting the matching contributions will have a price: Instead of 50 percent of base pay as a monthly pension, the Blended Retirement System’s monthly checks will be 40 percent. The Pentagon estimates the new system will save $1.5 billion a year by putting more of the retirement onus on individuals.

That can be a problem for enlisted personnel, said Scott Spiker, CEO of First Command Financial Services of Fort Worth, Texas. The financial coaching company focuses on military families.

Spiker, a U.S. Naval Academy graduate, said lower-salaried military members are less able to put their money into the savings plan, which means they would have less money available for retirement.

“Asking them to go in harm’s way, not being paid a lot — if they don’t take the right steps at every turn of their career, they’re not going to end up with a good outcome,” Spiker said.

The new system also changes the military’s midcareer bonus program, which rewards people who stay in vital jobs beyond the 10 or 12 years when many of them leave.

The old plan, which ends Dec. 31, pays $30,000 in exchange for added years in uniform but reduces pensions. The new plan’s payments vary according to the branch’s needs but do not affect pensions.

To make the right choices, the military is requiring all personnel to take online training on retirement options, said Barry Wilkinson, a retired chief master sergeant who heads the financial education office at Offutt.

For those choosing the Blended Retirement System, the important thing is to take advantage of the Thrift Savings Plan, just as young civilians should save in a 401(k) or other retirement plan, Wilkinson said.

Nearly half of those in the military already use the plan because of its tax advantages, even though there has been no matching.

Today, competition for young people is intense, Wilkinson said, and civilian employers often start retirement benefits at an early age. “The government’s got to be able to come up with something that offers retirement.”

Those who qualify for a military pension are usually in their 40s and will need other sources of income until they reach Social Security retirement age, which is 67 for most current service members, he said.

Among military members with fewer than 12 years of service, the new retirement system is a popular topic of discussion, Wilkinson said. “They’re trying to figure out how it affects them down the road. The people that come to see us are on the fence.”

One of them is Lt. Corey Seegrist, a program manager at Offutt from Southern California. He’s leaning toward the traditional retirement system, with its higher monthly pension payments for staying in the military for 20 or more years. If he intends to leave earlier, the matching savings plan may be a better option.

“I’m deciding on whether to make this a career,” Seegrist said. “I’ve got to decide what the best long-term solution is.”

Military bloggers are offering straight talk and advice. One of them is Doug Nordman, a Navy veteran from Oahu, Hawaii, who said there’s still a lot of confusion despite all the training and discussion. He also hears from concerned spouses and from parents who want their young adult children to make the right decisions.

“The issue is that people assume that they’re going to retire,” Nordman said. “The blended system is designed for people who don’t retire to get more money through a savings account.”

He said it’s good to have a skeptical outlook when retirement plans change, but the matching savings plan is good for those who leave the military before retiring and, in most cases, is at least revenue-neutral for those who serve 20 or more years and receive a pension.

That’s probably true even though the government estimates an average 7 percent annual return on the savings plan to make up for the smaller pension, he said. As a result, Nordman strongly recommends taking part in the Blended Retirement System and the matching Thrift Savings Plan.

The Pentagon says the main purpose of the new Blended Retirement System is to attract people and keep them in careers that the military needs to complete its missions.

The new plan has one important edge: It still offers a life-long pension after 20 years with cost-of-living increases, which is becoming increasingly rare in civilian life.

In fact, some people have said the new system is too generous, said Bob Kerrey, former governor and U.S. senator from Nebraska and member of the federal commission that recommended the new plan, approved last year by Congress.

“It’s not too generous,” Kerrey said. “It’s exactly what Americans ought to have, something that’s sufficiently powerful that it will provide enough savings at a low cost.”

Overall, he said, the new program is good. “Congress responded and made significant changes and, I think, improved the status of military retirees and their health and retirement benefits.”

Hayden, the airman who is leaning toward the Blended Retirement System, said she has used an online calculator set up by the military to estimate what her savings and pension would be, based on her pay and career plans.

If she takes maximum advantage of the matching savings plan, she said, the calculator shows a substantial increase in the money she would have toward retirement, even with the reduced monthly pension.

“I’m a budgeter,” she said. “Having a nice little cushion is always necessary. If I can create that without hurting me too bad right now, I’ll do it.”