As you may have heard, the 2016 National Defense Authorization Act has passed the laws for the U.S. military's blended retirement system. It takes effect in January 2018.
Servicemembers (and those who join before 2018) are grandfathered under the current retirement system. Servicemembers who joined after 2005 (and before 2018) will have the option to convert to the blended retirement system.
It's early days. The Department of Defense still has to implement the law, and then the Defense Finance and Accounting Service has to modify their computers. The TSP has a lot of work to do, although many provisions of the military blended retirement system are similar to the software of the civil-service TSP contribution system. I'm skeptical that everyone will be lined up at parade rest waiting to open the doors on 1 January 2018, but I'd like to be pleasantly surprised.
Here's a one-page summary of the blended retirement system. I haven't seen it yet on a public DoD server but it's been spotted on my daughter's ship and on a USCG server. It has a DoD logo on it so it must be legit, right? Right.
http://the-military-guide.com/wp-content/uploads/2015/12/Blended-military-retirement-graphic-color.pdfIt's also attached at the bottom of this post.
Here's the highlights:
Don't join the military to get rich.
Only 17% of servicemembers earn a pension.
The blended retirement system was requested by the other 83% who feel that 20-year cliff vesting is unfair. (Career counselors see cliff vesting as a "retention incentive".)
DoD is saving billions of dollars by offloading at least 20% of their pension fund accrual contributions in exchange for cash-basis matching TSP contributions, the "continuation pay" obligation, and any
suckers retirees who take the lump-sum option with their pension.
Mandatory Thrift Savings Plan enrollment. (Currently less than half of servicemembers even have a TSP account, let alone contribute to it).
Default contributions of 3% (not enough for a full DoD match), hopefully to the TSP's L2050 fund.
Recommendation:
If you think you’re staying on active duty for at least 20 years, then stick with the current High Three retirement. "Think" means "still feeling challenged & fulfilled after 14+ years".
If you’re pretty sure that you’re leaving active duty before 20 years then take the blended retirement system.
If you fail to maximize your TSP and IRA contributions, and fail to invest the continuation pay, and fail to invest even more in taxable accounts, then it really doesn't matter which retirement plan you choose because you're still going to be working a bridge career... and it might be a very long bridge career.
Here's the blog post:
http://the-military-guide.com/2015/12/17/should-you-choose-the-military-blended-retirement-system/It includes the advice I gave to my daughter. She's in the middle of her third
Groundhog Day deployment so her morale is a little spotty right now...
If you're seeking a calculator project then I'd be happy to help beta-test it. (If you're developing a smartphone app then I recommend you contact Marine vet Matt Pagan at PopSmoke.net.) Part of the coding challenge is that whatever you program now may change over the next couple years and could change again even after the system starts. Your calculator would also have to allow users to set their TSP contributions to various levels and asset allocations, and perhaps to choose various projected rates of return. For example, DoD's REDUX calculator suckered a lot of servicemembers by assuming that the Career Status Bonus was invested at an 8% APY... even though we know most of them went toward paying down consumer debt-- or buying pickup trucks.