The End is Coming…

… to the legacy military retirement system, that is.

He's not wrong

He’s not wrong

You thought I was going to say something else, didn’t you? Ha!

No, seriously, there’s a major ongoing overhaul to the military retirement system. It will change a lot of incentives and require members to pay more attention to their own finances; and, on balance, I believe this is a benefit for Reservists, in particular.

Historically retirement has been the 20-year deal: serve honorably for twenty years, and earn a pension, determined by paygrade and years of service. The Reserve system parallels the Active Duty retirement, though with the additional variable of Reserve Retirement Points thrown in, but it is basically similar.

What the 2016 National Defense Authorization Act has done is reduce (not eliminate) the defined-benefit pension, and add a matching contribution to the already-established Thrift Savings Program (TSP) in which all federal employees, including military, may enroll. Since most people don’t retire from the military, the matching contributions would mean that the vast majority can finish their service with a little something for their retirement beyond their own personal savings.

It’s not perfect – and, in fact, it’s not even finished, as the Pentagon’s FY17 budget request would delay matching contributions until the fifth year of service, meaning many servicemembers would see no benefit – but it’s a step in the right direction. The full defined-benefit pension is not affordable and a “blended” system better accounts for today’s more mobile workforce.

It’s also a boon to Reservists.

At the moment, as a mobilized Reservist, I am essentially on loan back to the Active Component of the Navy. The way Reserve retirements are set up, a pension normally begins at age 60. However, time spent mobilized (in 90-day increments) can move up that first pension check, 90 days at a time. For example, a six-month mobilization would move up your pension by six months (A seven-month mob would move it by only six months, though… so don’t do seven. Stick with numbers divisible by three, if you can.).

However, there are multiple kinds of Active Duty orders in the Reserve – you might get a job considered Active Duty for Training (ADT) or Active Duty for Special Work (ADSW). Those orders retain you in the Reserve Component and thus do not move up the start date of your pension. ADT and ADSW orders earn points for you, and additional points can help increase your pension – until you max out at 130 for the year. Beyond that, you’re doing nothing to help yourself in this regard.

But matching contributions would change that. If you’re a Reservist on long-term ADT/ADSW orders (and there are many of them), then you can now earn a matching contribution to your TSP account with every paycheck, and continue accruing benefits even after your annual points are maxed out. That’s a major change for the better!

It’s all academic to me – I’m too senior to “opt in” to the new system, and, on account of that decade-plus already served, I wouldn’t do it even if I had the option. At this point, there’s no way I can make up all those years of missed matching contributions compared to what I’ll earn with the legacy Reserve retirement. So it’s the old system for me.

But for all you youngins out there, it’s definitely something to consider. Unlike for Active Duty, where costs and benefits are more ambiguous at this stage, for Reservists it is a clear win.

Keep in mind, this won’t really be implemented for a couple more years, so all of our opinions might change 180 degrees between now and then. Change is going to happen anyway – finances compel it. But for now, at least, the good appears to outweigh the bad.

Update: They finally released some information geared toward the Reserve Component.


One thought on “The End is Coming…

  1. Pingback: Reserve Retirement Update | The Salty Wog

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