Over the past few years, I’ve had the good fortune of attending a couple of educational seminars, each of which featured a former Navy Seal as a guest speaker.
One was Marcus Luttrell, the lone survivor of Operation Red Wings and
co-author of the book “Lone Survivor.” The other was Robert O’Neill, who
was not only part of the operation that rescued Captain Phillips, but
also the final assault on the compound where Osama Bin Laden was killed.
Both men shared some truly fascinating stories about their rigorous
training and military experiences. At the end of the day, it
strengthened my opinion that our nation’s military has some incredible
men and women serving our country.
Recently, within a short span of time, I heard from a cousin who is a
retired Army officer and I also drove past a military convoy near the
National Guard base near Grayling.
It made me realize that, although I work with many people who served in
the military, only a small handful actually made the military their
career. And just as with so many other occupations, the financial
dynamics of a military career appear to be changing.
I’ve previously written that traditional pensions known as defined
benefit programs are becoming extinct. The auto industry, state
government, educators and most municipalities have eliminated
traditional pensions for new hires.
It appears that the military is also going to significantly alter their
retirement program, in an attempt to save $1 billion annually.
If approved by Congress, the new program will be a “blended” plan.
It will shrink the traditional pension amounts by roughly 20 percent and
implement a mandatory contribution. However, for the first time, those
that do not make the military a lifelong career — in other words serve
for less than 20 years — will receive some retirement benefits.
If the Pentagon’s recommendations are enacted, the 20 percent reduction
in military pensions will be offset by government contributions into a
program similar to a 401(k) or IRA. The program is called the Thrift
Savings Plan (TSP.)
Within the TSP, Uncle Sam will automatically contribute one percent of
basic pay. Military personnel will also have three percent of their pay
automatically withheld and deposited into the TSP. The similarity I
referred to is that there will be a ten percent penalty if the money is
withdrawn prior to age 59.5.
Participants in the plan can opt out of having their three percent
withheld if they complete financial literacy training. The greatest
benefit of the TSP is for military personnel with more than four years
of service. Uncle Sam will match their contribution into the TSP dollar
for dollar, for up to five percent of pay.
If all goes as planned, the new military retirement program will go into
effect in January 2018. More than likely, there will be a grandfather
clause for long-term military personnel to continue with the traditional
pension or opt into the new TSP.
Naturally, as these changes move through Congress, I’ll keep my readers
posted. Like so many things in our nation’s culture, it is becoming more
complex even for military personnel. From private to general, military
personnel also need financial advisers to sort through their situation,
goals and strategies.