Posted on Feb 18, 2016
If eligible, will you choose the old military retirement plan or the new retirement plan?
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The new changes will be coming soon and with that many Soldier's will have a choice to stick to the current retirement plan or change to the new one. After 2018 the new Soldier's won't have a choice.
Has anyone thought about switching to the new plan? What are some pro's and con's that you see? Do you see this plan as beneficial?
http://www.militarytimes.com/story/military/benefits/retirement/2016/02/07/new-military-retirement-law-creates-big-decisions-many-troops/79347998/
Has anyone thought about switching to the new plan? What are some pro's and con's that you see? Do you see this plan as beneficial?
http://www.militarytimes.com/story/military/benefits/retirement/2016/02/07/new-military-retirement-law-creates-big-decisions-many-troops/79347998/
Edited 9 y ago
Posted 9 y ago
Responses: 8
I am going to go with the old system. I have put in a lot of years into it. I am not a fan of putting a retirement in the market place where things could so sour.
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I'm at 15 years AFS, so it's best for me to stick with the new plan. However, if I were under 8 years, I would absolutely go with the new plan, especially if the maximum match is increased to 6%. It seems like a small number, but over time, it definitely adds up.
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Consider the scenario that MAJ Ken Landgren mentioned:
OLD PLAN: An E7 at 20 will retire with $2212 a month under the old plan, and collect $583,968 in total monthly retirement payments at 60.
NEW PLAN New plan is $1770 per month, and collects up to age 60 $467,174 in total of monthly payments. This does not include TSP.
In this scenario, the pension portion of the Servicemember's retirement is only worth $116,794 less under the new plan. Once you add in the mid-career bonus of 2.5x base pay at you 12 year mark (worth $9,030.75 to an E6 or $17,703.75 to an O4), that number is just over $100,000. If the Servicemember only contributes enough to their TSP to maximize their matching potential, the government will match between $50,000 - $90,000 during their career. That $100,000 - $180,000 with a modest return over 20 years will become $300,000-$800,000.
Yes, there is risk involved with any 401K or IRA plan, but since you'll still be receiving a 40% base-pay pension, it's hard for me to see it as a high-risk decision.
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Plus consider that under the 'old' plan, it's all-or-nothing. You MUST complete 20 years of service in order to draw any government funded retirement. Under the new plan, you have the flexibility to consider other career options without taking such a large financial risk with your retirement plans.
Like I said, it's too late for the new plan to work in my situation, but 8 years or less and I'm all-in!
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Consider the scenario that MAJ Ken Landgren mentioned:
OLD PLAN: An E7 at 20 will retire with $2212 a month under the old plan, and collect $583,968 in total monthly retirement payments at 60.
NEW PLAN New plan is $1770 per month, and collects up to age 60 $467,174 in total of monthly payments. This does not include TSP.
In this scenario, the pension portion of the Servicemember's retirement is only worth $116,794 less under the new plan. Once you add in the mid-career bonus of 2.5x base pay at you 12 year mark (worth $9,030.75 to an E6 or $17,703.75 to an O4), that number is just over $100,000. If the Servicemember only contributes enough to their TSP to maximize their matching potential, the government will match between $50,000 - $90,000 during their career. That $100,000 - $180,000 with a modest return over 20 years will become $300,000-$800,000.
Yes, there is risk involved with any 401K or IRA plan, but since you'll still be receiving a 40% base-pay pension, it's hard for me to see it as a high-risk decision.
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Plus consider that under the 'old' plan, it's all-or-nothing. You MUST complete 20 years of service in order to draw any government funded retirement. Under the new plan, you have the flexibility to consider other career options without taking such a large financial risk with your retirement plans.
Like I said, it's too late for the new plan to work in my situation, but 8 years or less and I'm all-in!
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Generally speaking, for anyone "in" (and going towards retirement v. exodus) the Old system is Objectively Better.
The issue with the New System is that it requires "an uphill climb" to "break even." (same retirement benefit). For new entrants, the climb is not so steep, and with the uncertainty of staying in v. getting out at each successive enlistment, the New System becomes Subjectively Better (the old system is still Objectively Better).
Remember the New System REQUIRES taking "Longevity Bonuses" (aka Reenlistment Bonuses) and reapplying them towards them towards your retirement benefits to "break even." This is why CURRENT folks have the major advantage in the OLD system.
Based solely on the MATH, if you are close enough to Retirement (10+ years) stick with the Old system. At 8+.. it becomes debatable, at 6 swap.
The issue with the New System is that it requires "an uphill climb" to "break even." (same retirement benefit). For new entrants, the climb is not so steep, and with the uncertainty of staying in v. getting out at each successive enlistment, the New System becomes Subjectively Better (the old system is still Objectively Better).
Remember the New System REQUIRES taking "Longevity Bonuses" (aka Reenlistment Bonuses) and reapplying them towards them towards your retirement benefits to "break even." This is why CURRENT folks have the major advantage in the OLD system.
Based solely on the MATH, if you are close enough to Retirement (10+ years) stick with the Old system. At 8+.. it becomes debatable, at 6 swap.
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SFC Anabel Cepero
Sgt Aaron Kennedy, MS I agree with your break down. It all depends on where you are on time. If you are 10+ and know you're staying in then the old plan works out. If not then at least they'll have the choice to get out with something. That is if the plan works how they say it will.
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LTC Mark Overberg
If you opt in, make sure you’re going to contribute enough to max the government matching to your TSP. And talk to your installation personal financial counselor or a good investment advisor to diversify your TSP investments with a focus on stocks for growth.
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