In an effort to attract millennials, the U.S. Military has introduced a new retirement program to be implemented on January 1, 2018. The new plan opens up retirement funding to 85 percent of service members, while downsizing traditional pension benefits. The move is expected to save the U.S. around $2 billion annually.
Service members will be able to take advantage of the military’s Thrift Savings Plan (TSP), a 401(k) program similar to private sector retirement plans. It provides an automatic one percent of base pay contribution, matching up to four percent of what the service members contributes. The automatic contribution kicks in after 60 days of service. And, it only takes two years of service for the automatic contribution to be conferred to service members. After two years, service members receive the automatic and matched contributions. Both the automatic and matching contribution end after 26 years of service.
The payouts will be smaller than those under the new program, but the upside is retirement benefits will be open to more service members. Less than 20 percent of service members serve long enough to qualify for full military retirement.
The new plan also incentivizes service members to take charge of their retirement plans. Only by contributing 5 percent of base income to TSP can service members receive the full matching. A continuation pay will also be available after eight to twelve years of service.
For those who have served more than 12 years on January 1, 2018 they will stay on the old retirement plan. Service members who have less than 12 years get an option to either stay on the current plan or switch to the new one.
The new plan is meant to attract millennials and improve the financial situation of many service members. A recent study found that veterans of all armed forces are twice as likely to fall into debt. It also found that over half of service members are unprepared for a financial emergency.