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fi nancialforum Retirement Plans T


More Information MOAA Premium and Life members can visit www .moaa.org/transitionwe binars to access a pre- recorded webinar that includes additional de- tails on the new military retirement program.


52 MILITARY OFFICER JUNE 2016


The new military retirement program will begin in 2018. Lt. Col. Shane Ostrom, USAF (Ret), CFP®, provides details on how the current and new programs diff er.


The new military retirement pro- gram applies to everyone entering the uniformed services during calendar year 2018. Those who entered service in 2005 or earlier must stay in the current re- tirement program with no other option. Members entering service in or between 2006-17 will have the option to stay under the current system or opt in to the new program. The current program off ers the Thrift


Savings Plan (TSP) plus a pension. The TSP is like a 401(k) but without a match. (A match is the employer’s contribu- tion on top of your contribution.) The pension provides lifetime income with a COLA. Eligibility for a pension starts after 20 years of active duty service (or at age 60 with 20 creditable years of ser- vice, for reservists and guardmembers). The formula to determine the pension amount: 2.5 percent times years of ser- vice times the average of your highest three years of base pay. The new retirement program maintains a pension, and the TSP adds a match. Everyone automatically gets the DoD TSP contribution of 1 percent of base pay upon entry to the service (or when you opt in), whether the member contributes or not.


After two years of service (or when


you opt in), members are eligible for a voluntary match of up to 4 percent of base pay. The 1-percent automatic DoD contribution, plus the 4-percent vol-


untary match, totals 5 percent — you contribute 5 percent, DoD contributes 5 percent. The match stops at the 26th year of service. After two years of service (or when you opt in), you are fully vested — you own the match money. At 12 years of service, members will qualify for a re- tention bonus (amounts will vary), which requires a four-year service commitment. The pension amount is reduced by 20 percent. Rather than 2.5 percent times years of service, now it will be 2 percent times years of service, times your average high-three-years of base pay. On the surface, this might not seem like a big deal. However, when you consider starting out with 20-percent less over a lifetime with COLA increases, lifetime earnings under the new program will be signifi cantly less than the current program. There will be an option for a lump- sum discounted pension payment upon retirement. Don’t take it. You’ll be trad- ing dollars for pennies — lifelong fi nan- cial stability and signifi cant earnings for immediate gratifi cation. Those with the option probably should


stick with the current program. Unless you are absolutely, 100-percent certain you are getting out of the service, you should as- sume you will serve until retirement.


MO


— Lt. Col. Shane Ostrom, USAF (Ret), is a CFP® and benefi ts information expert at MOAA. Visit www.moaa.org/fi nancialcenter for other re- sources. Email specifi c benefi t and fi nance inqui- ries to beninfo@moaa.org.


PHOTO: SEAN SHANAHAN


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