The American men and women who serve in the military have always had a retirement pension plan, and in some cases the plan worked very well for these individuals. However, as of 2015, there have been a lot of changes proposed to the military’s retirement pension plan. As of September 2015, it looks like the major changes that are being proposed by the Department of Defense are going to become law. There are a lot of major changes that are going to come along with the new retirement plan that may be confusing to people who are used to the old military retirement plan and taking note of the major changes can help those who are involved understand what the changes mean.
One of the major points that is involved with the change is that the pensions will be cut by 20%. Even though the amount of pension that military personnel have gotten in the past is getting cut, there will be a supplement that is being offered by government contributions to individual retirement investment accounts. Also, people who retire from the military will be able to receive a great retirement benefit before they reach the 20 years of service that is used to take to qualify for the old pension plan.
Although the retirement plan will remain mostly about a pension plan, it is believed that there should be individual investment accounts for all troops. The retirement plan will also provide contributions to those accounts as a part of a Thrift Savings Plan (TSP). The money that is put into the savings plan will not be available without tax penalties before the account holder is 59 1/2. If the retiree is still of working age, the new system will considerably reduce the monthly pension income. That money would be restored, with the potential for more money, when the military veteran reaches age 60.
Another factor that would come along with the newly proposed plan is that there would be a dollar-for-dollar match of troops’ payments towards their TSP contributions that can add up to 5% of basic pay. This would happen after the individual completed four years of service. This mirrors something similar that a 401(k) plan would do for employees, as some employers offer their employees matching programs for their retirement programs. Along with this TSP account, there is a new rule that would allow the government contributions to continue for the duration of the individual’s service. The initial proposal stated that these payments would stop after 20 years of service.
For people who are currently serving in the military, there is a grandfather clause that will give them the choice between the old pension plan, and the new one that has been proposed. Once the bill is passed, however, anyone who joins the military will have to have the new plan as their way to save for retirement.
Although there are many changes coming along with the retirement pension plan that the military has in place, it can be easier to understand when you know the basics of the changes. Overall, the changes are looking hopeful to give military personnel the money they deserve when it comes time to retire.