Author Topic: Military Retirement System Change 2018  (Read 4416 times)

Dragonstrike

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Military Retirement System Change 2018
« on: April 06, 2016, 07:46:15 PM »
For all you military folk out there and those knowledgeable about the Thrift Savings Plan, I have a question which can potentially be a major stock tip (?) as well and would like your input.

The military is changing the retirement system choices starting in 2018.  The new plan will allow the military to contribute a certain percentage of pay into the TSP to match the service member's contribution, along with time in service and requirements.  The information can be found on the DOD websites, but here is my line of thinking:

At a minimum, service members will contribute automatically 1% of their pay into the TSP fund.  Granted, this may seem small, but over 400 thousand service members having to do this will impact greatly I'm sure.  After time in service and setting the match rate, the military will contribute up to 5% I believe matching into the TSP.  That being said, and given that everyone else is diversifying into different funds, is this to say that with over 400 thousand now new investors into the TSP automatically that those shares and stocks will rise?

jamesvt

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Re: Military Retirement System Change 2018
« Reply #1 on: April 06, 2016, 09:38:36 PM »
The TSP is pretty much just an investment vehicle, you are not actually investing in it. There are 5 different funds you can invest in and there are also target date retirement funds.
The G fund is primarily composed of short term US Treasury securities.
The C fund is an index that closely tracks the S&P 500.
The S fund is a index that tracks the total US stock market minus the companies on the S&P 500.
The I fund matches the MSCI EAFE (Europe, Australasia, Far East) Index
The F fund matches Barclays Capital U.S. Aggregate Bond Index
The price of the shares of various TSP funds is just a reflection of what index they are tracking, so an increase in buyers isn't going to cause in increase in share price.

MustacheAndaHalf

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Re: Military Retirement System Change 2018
« Reply #2 on: April 07, 2016, 01:16:47 AM »
Have you estimated the impact?  400k people investing $1k would amount to $400 million.  If that went into the S&P 500 proportionally, that would be $13 million of Apple stock... out of $650 billion.  And since it's proportional, that hypothetical example would be 1/50,000th for each of the S&P 500 stocks.

I think the information is too diluted to be useful.  You're also assuming you know the exact day it will be invested, which you can't know: the fund manager(s) can invest the annual purchases over time, instead of all at once.  They can use derivatives to anticipate the purchases, and be exposed to the market before the money even arrives.

WildJager

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Re: Military Retirement System Change 2018
« Reply #3 on: April 07, 2016, 07:28:11 AM »
The default TSP allocation is the G fund, and I imagine most people will leave it there.  Lots of Treasury bonds coming as a result, rather than an influx into the S&P.

Dragonstrike

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Re: Military Retirement System Change 2018
« Reply #4 on: April 10, 2016, 09:55:55 PM »
True, I'm not estimating that kind of math into the equation, and I was just asking overall what people thought in order to get clarification.


Vagabond76

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Re: Military Retirement System Change 2018
« Reply #5 on: April 11, 2016, 05:44:56 PM »
The default TSP allocation is the G fund, and I imagine most people will leave it there.  Lots of Treasury bonds coming as a result, rather than an influx into the S&P.

I recall the default will change to a Lifecycle fund.

SethB

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Re: Military Retirement System Change 2018
« Reply #6 on: April 11, 2016, 06:20:22 PM »
Does anyone know what impact this will have on reservists?

I am not aware of any changes to the non-matching TSP and point based retirement, so I would appreciate a heads up if something has changed.

Nords

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Re: Military Retirement System Change 2018
« Reply #7 on: April 11, 2016, 06:57:34 PM »
Does anyone know what impact this will have on reservists?

I am not aware of any changes to the non-matching TSP and point based retirement, so I would appreciate a heads up if something has changed.
Sure, read the post at:
http://the-military-guide.com/should-you-choose-the-military-blended-retirement-system/

Note that both infographics linked from that post have been brought to you by the same group at DoD.  In the months since those two images were released the same DoD has gone back to Congress asking for a few "minor changes" to things like when the TSP matching contributions start (four years of service vs three years), the size of the mid-career bonus, and the amount of the lump-sum pension option.  The new pension system hasn't even started yet and the #KeepYourPromise crowd is already rightfully annoyed. 

Here's what we hope we know.  "Hope" as in "it's in the legislation and Congress hasn't changed it yet":
1.  The new blended retirement system starts 1 January 2018.  Everyone who's now on active duty or in the Reserves/Guard (including IRR and gray area) is grandfathered under the current system.  Those who've joined the military after 2005 will have a certain amount of time (rumored to be a year) during 2018 to decide whether to stay with the current retirement system or to switch over to the new blended system.  Everyone who joins the military after 2017 will be under the new system.

2.  Reserve/Guard servicemembers who are under the new system will have a 2% multiple on their point count (instead of the current 2.5%), just like active duty.  They'll have the same TSP matching as active duty.  They'll have a smaller mid-career bonus, which might be based on retaining certain specialties instead of being paid to everyone who agrees to sign a contract extension.  Nobody knows how the bonus will be calculated.

3.  Reserve/Guard retirees might even have a lump-sum option on their pension, although we're not sure whether it'll be the same terms as active duty.  DoD would love to hand out lump sums and reduced pensions to active-duty retirees in their 30s or 40s and not have to pay the full pension amount until age 67.  The math is not as compelling for DoD to pay a lump sum at age 60 and then to revert to a full pension payment at age 67.

We'd love to build spreadsheets and calculators and other analysis tools but nobody is sure how much the mid-career bonus will be and who would be eligible to get it.  Nobody knows what the lump-sum option will be.  Rumor is that DoD has even asked Congress to delay the start of the TSP matching until the fourth year of service (instead of the third year) because the services would like to dangle TSP matching as a re-enlistment incentive to those who originally joined on four-year contracts.  You can imagine what type of feedback our elected representatives are getting from their military constituents on that.

I'm pretty sure that The Military Guide will be all over it until at least 2018.


Villanelle

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Re: Military Retirement System Change 2018
« Reply #8 on: April 11, 2016, 10:29:16 PM »
OP, one point.  Not all of these people will be new investors.  Many service members already invest in the TSP.  There may nt be a match, but it's still the cheapest mutual fund (-like) option available. This article says that 41.5% of service members already invest in TSP, as of June 2014.

Quote
http://www.stripes.com/news/us/military-savers-favoring-roth-thrift-savings-plan-to-build-nest-eggs-1.290762

mgnhrvth

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Re: Military Retirement System Change 2018
« Reply #9 on: June 21, 2016, 08:08:18 AM »
Below is the latest Air Force message. I just took the on-line BRS JKO course - it was well done and value-added. This course and future courses will also be available at the Military OneSource website to facilitate access by Service members and their families.

On 1 January 2018, the Department of Defense will implement the new Blended Retirement System (BRS) enacted by Congress in the Fiscal Year 2016 National Defense Authorization Act.  As this implementation date gets closer, it’s extremely important for Airmen at all levels to begin familiarizing themselves with the new BRS as it will impact everyone.  All Airmen accessed after 1 January 2018 will automatically be enrolled in the new BRS and those Airmen with 12 or less years of service as of 31 December 2017 will have the opportunity to “opt-in” to the new system if they choose.  Whether you fall into one of these categories or supervise someone who does, education on the new system is paramount.

The first step will provide education for leaders at all levels on the basics of the BRS.  This training is now available through the Joint Knowledge Online (JKO) BRS Leader Training Course (http://jko.jten.mil).  We highly encourage all supervisors to take this 30-minute training to familiarize yourself with the BRS.  Although geared towards leaders, the Leader Training course is available to all Airmen and we encourage anyone looking for additional information to take the course.  Specific courses targeting newly accessed Airmen and Financial Counselors will be available in the future.  A specialized course for Airmen eligible to opt-in to the BRS will be mandatory and will be available starting in 2017.

Airmen are our most important asset and preparing them for these impactful changes is a leadership priority.  We are counting on and thank each of you for leading the way and taking care of our Airmen.  For additional background information on BRS, please visit http://militarypay.defense.gov.
« Last Edit: June 21, 2016, 08:18:36 AM by mgnhrvth »

Travis

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Re: Military Retirement System Change 2018
« Reply #10 on: June 22, 2016, 11:56:39 AM »
Thank you for that. Nobody has told me yet that there is a leader's course for the new plan.