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Introduction
Navigating the military retirement system can be a challenging task. However, with a proper understanding of its ins and outs, you can effectively strategize for your post-service life. In this article, we will explore the various aspects of the military retirement system to help you comprehend how it works and what benefits it offers to service members.
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Understanding the Basics
First, let’s define what the military retirement system is. It is a pension plan for military service members that provides a monthly income after they retire from service. Eligibility for retirement pay typically begins after 20 years of service, but the specifics can vary depending on the retirement plan one is under. The U.S. military offers different retirement systems: the Final Pay, High-36, and Blended Retirement System (BRS).
Final Pay Retirement System
The Final Pay System applies to those who entered service before September 8, 1980. Under this system, your retirement pay is calculated by multiplying your final monthly base pay by 2.5% for every year of service. So, for example, if you served for 20 years, you would receive 50% of your final base pay each month during retirement.
High-36 Retirement System
If you entered service between September 8, 1980, and December 31, 2017, you fall under the High-36 system. Here, your retirement pay is calculated similarly to the Final Pay system, but it uses the average of the highest 36 months of base pay instead of your final base pay.
Blended Retirement System (BRS)
For those who entered service on or after January 1, 2018, or opted into this system during 2018, the Blended Retirement System applies. It is called “blended” because it combines a traditional pension with a defined contribution plan, similar to a 401(k). Under BRS, the pension is reduced to 2% per year of service, but it also includes automatic and matching contributions to the Thrift Savings Plan (TSP), and a mid-career Continuation Pay bonus.
See Also: https://militarypay.defense.gov/Pay/Retirement/
New VA Retired Benefits Programs
The Department of Defense has two programs designed to reduce the reduction in retired pay due to receipt of Veteran Administration compensation, for certain disabled retirees.
Concurrent Retirement and Disability Payments (CRDP) provides a 10-year phase-out of the offset to military retired pay due to receipt of VA disability compensation for members whose combined disability rating is 50% or greater . Members retired under disability provisions must have 20 years of service.
Combat-Related Special Compensation (CRSC) pays added benefits to retirees who receive VA disability compensation for combat-related disabilities and have 20 years of service.
Learn More on the Dept. of Defense Website
Key Components of the Blended Retirement System
As the most recent and prevalent retirement system, understanding the BRS and its components is crucial for modern service members.
Traditional Military Pension
Under BRS, if you serve for 20 years or more, you are eligible for a monthly pension after retirement. This pension is equal to 2% of your high-36 average pay for each year of service. For example, if you retire after 20 years of service, you would receive 40% of your high-36 average pay.
Thrift Savings Plan
The Thrift Savings Plan is a tax-advantaged savings and investment plan similar to a 401(k). Under BRS, after 60 days of service, the military automatically contributes an amount equal to 1% of your base pay to your TSP account. Starting from your third year of service, the military will also match your TSP contributions up to an additional 4% of your base pay. This means that if you contribute 5% of your base pay, you will receive a total of 10% of your base pay in your TSP account.
Continuation Pay
Continuation Pay is a mid-career bonus that service members receive in return for a commitment to serve for an additional number of years. The payout varies by service branch and career field.
Planning for Retirement
Understanding your retirement system is the first step in planning for retirement. Regardless of the system you’re in, consider the following tips:
- Start Early: The earlier you start saving for retirement, the more time your savings have to grow.
- Consider Future Healthcare Costs: Military retirees have access to excellent healthcare benefits, but it’s still important to budget for potential out-of-pocket healthcare costs.
- Diversify Your Investments: Diversification is key to managing investment risk. The TSP offers a variety of investment funds that you can use to diversify your savings.
- Plan for Taxes: Your military retirement pay is subject to federal income tax and possibly state income tax as well. Work with a financial advisor to understand and plan for these tax obligations.
- Stay Informed: The military retirement system can change as laws and policies are updated. Stay informed about any changes that might affect your retirement benefits.Maximize TSP Contributions: If you’re under the BRS, make sure you’re contributing at least 5% of your base pay to take full advantage of the government matching contributions. The TSP is a powerful tool for building retirement savings due to its tax advantages and low costs.
Other Benefits for Military Retirees
In addition to the retirement pay, military retirees also have access to a variety of other benefits, including:
- Healthcare: Military retirees are eligible for TRICARE, the Department of Defense’s health care program.
- Commissary and Exchange Privileges: Retirees maintain full privileges to use military commissaries and exchanges.
- Space-Available Travel: Retirees are eligible for space-available travel on military aircraft, a benefit often referred to as “Space-A.”
- Legal Assistance: Retirees can get free legal assistance from Judge Advocate General’s (JAG) Corps.
- Survivor Benefit Plan (SBP): The SBP is an insurance plan that will pay your surviving spouse a monthly payment (annuity) to help make up for the loss of your retirement income.
Understanding the military retirement system is crucial for those serving in the U.S. armed forces. By fully grasping the benefits and knowing how to maximize them, you can secure a comfortable and financially stable retirement.
Remember, every individual’s circumstances are unique, so it’s a good idea to consult with a financial advisor or retirement planner to ensure you’re making the most of your military retirement benefits. With the right planning, your years of dedicated service can pave the way to a future that’s as rewarding as it is secure.
