F.E. WARREN AIR FORCE BASE, Wyo. --
Leaving the military can be a stressful decision, but the Airman and Family Readiness Center attempted to make the decision easier this Military Saves Week at F.E. Warren Air Force Base, Wyo., Feb. 27 – March 3.
The AFRC hosted a number of financial management classes including ones devoted specifically to retirement benefits and the Thrift Savings Plan. The sessions aimed to help Airmen make better decisions about their post-retirement financial future. While they did not give specific investment advice, facilitators answered questions on what may be the best option for the individual based on their situation and proximity to retirement.
The retirement course covered the upcoming change from the traditional, pension-based retirement plan to the Blended Retirement Plan, due to take effect Jan. 1, 2018. Airmen entering on and after that date will automatically be enrolled in the new retirement system, and those entering prior to that date will be grandfathered under the current retirement system. However, service members with fewer than 12 years of service will have the option to elect the new program, with a deadline of Dec. 31, 2017.
Under the legacy retirement plan, a service member receives 2.5 percent multiplied by the number of years served, multiplied by the previous highest 36 month average base pay. Under the Blended Retirement Plan, that payout changes to two percent multiplied by the years of service, multiplied by the previous highest 36 month average base pay. In both the legacy and the blended program, the retirement benefit is only payable to those serving 20 years or more.
The blended plan will reduce the basic pension from fifty percent to forty percent for those serving 20 years, but the difference is intended to be offset by TSP contributions.
“The Blended Retirement Plan does lower the amount received in a traditional pension,” said Stephanie Talcott, an accredited financial counselor. “However, the Thrift Savings Plan can make up that difference if the Airman takes advantage of the TSP matching program.”
The blended plan also includes an initial deposit of one percent of a service member’s base pay into a TSP account after two months of service. Additionally, DoD will also contribute up to four percent of base pay to match the service member’s own contributions after two years of service.
Since service members taking advantage of the Blended Retirement Plan receive some portable benefit after two years of service, the number of service members who receive a government retirement benefit increases from about 19 percent to an estimated 85 percent, said Talcott.
Another course fleshed out more options which are available through the TSP. Donna Creighton, an investment advisor with Blue Federal Credit Union, discussed the differences between the Lifecycle and the G, F, C, S and I funds, as well as the difference between a traditional and Roth TSP.
“The main difference between the Roth and the traditional TSP is in the taxes,” said Creighton. “Because the Roth is ‘after-tax,’ when you take out that money at retirement, all the money you put in – including the growth – is tax free. When you receive the retirement payout from the traditional, you have to pay taxes on it.”
Following separation, the service member can roll their TSP funds over into a 401k or individual retirement account with no penalty, or the money can remain in the TSP to build over time with no future contributions.
As the Airman makes decisions about their financial future after retirement, the Airman and Family Readiness Center is poised to help prepare them to make those decisions from an educated position. For more information about retirement options and the TSP savings plan, contact the AFRC at 307-773-2241.