A former Sanitation Department pensioner with the New York City Employees’ Retirement System, is pulling in about $285,047 annually1. With the threat of pensions fading in the wind and corporate structures finding ways to get away from pension plans, it can be very challenging to find businesses these days whom offer such plans. Most know, the attraction of the military a 20-year retirement benefit. Ideally, should a military member remain in the service long enough to complete his or her 20-year service commitment or longer, he or she will receive approximately 50% of his or her base salary or more depending on the length of the commitment. This has always assisted the services to meet their required annual quotas for the most part as an added benefit to working in the military to include is a great retention resource.
However, Congress has rolled out a new retirement system requiring any service member joining effective January 1, 2018 will automatically be enrolled in the Blended Retirement Service (BRS). Those already serving prior to this date, can be grandfathered into the prior pension system with some exceptions. Should a member have less than 12 years in the “Pay Entry Base Date” or Reserve with fewer than 4,320 points2 as of December 31, 2017, one will have the option to choose which retirement system, old or new to chose from. Those with service commitments of more than 12 years are automatically grandfathered into the prior system.
So which retirement system is better? Well, the question really depends on each individual needs. As with any financial planner would explain, rarely are any clients similar. Each have unique circumstances and life events in which some recommendations are better than others.
If a service member is looking for the guaranteed standard monthly pension check, then the non-BRS (old system) is right for him or her as long as they meet the retirement requirements. However, with the new system for those with 12 or fewer years must pick which is right for them. Those service members joining January 1, 2018, will not have the option to choose because they are automatically enrolled into the BRS. If a service member knows that he or she has the potential to serve for less than 20 years or fail to meet other retirement mandates, then the new system is a better fit. According to Colorado news source, Sky-Hi3”83-percent who have served will never see a dime of their pay that was “deferred” for their retirement”. With the new system, it acts like a Defined Contribution System meaning the government now puts money into the Thrift Savings Plan (TSP). While this may be new for military members, the government has already been doing this for their civilian government workforce. With the BRS, a service member will automatically receive 1% of his or her base pay into a TSP account whether one contributes or not to the account. Also, there is a service matching contribution up to 5%. Consider this as free money. I always highly encourage one to contribute up to the amount to receive the free money, then once that limit has been reached, max out your Individual Retirement Account (IRA). After an IRA is maxed out for the contribution annual limit, then consider putting additional money into your 401(k) or in this case, Thrift Savings Plan (TSP). You should never leave free money on the table.
What is great about the new system is it has a leg up on the old system because the service member can move the money from his or her TSP after leaving the service. Therefore, putting it into another qualified retirement account, perhaps at his or her new job. It is now considered as the “service member’s” money—it goes with her or him. The old system, pension, does not move with the service member should he or she only commit to 15 years of service, shy of 20 years.
For a more in-depth discussion, I highly recommend you consult with a financial planner to determine with option best fits your needs.
1 New York Post, https://nypost.com/2018/02/20/retired-sanitation-worker-rakes-in-285k-a-year-from-pension/
2 Uniformed Services Blended Retirement System, http://militarypay.defense.gov/BlendedRetirement/
3 Sky-Hi, https://www.skyhinews.com/news/hamilton-military-retirement-83-percent-never-make-it/