Should they stay or should they go? Military members face a big retirement choice

Navy Lt. Commander Jeff Raunig leads a busy life, juggling shared parenting duties and work as a physician for a Marine Battalion at Camp Pendleton, near San Diego. His clinic was slammed recently during an extra-busy Southern California flu season. 

Amid the hustle, one part of his life had always been a breeze: retirement planning. When Raunig decided to make a career out of the military, he knew a dependable monthly pension check was waiting at the end of 20 years of service.

“You just always heard, ‘Do your 20. Get your pension,’” he said. “Do whatever you want after that.”

Now, the old model of military retirement is changing, and Raunig is one of around 1.7 million servicemembers who have a big financial decision to make. The Pentagon is offering them the chance to opt-in to a brand new retirement model that brings more flexibility, but also more uncertainty.

On January 1st, the Department of Defense launched the Blended Retirement System (BRS), which introduces matching contributions of up to 5 percent for military members through the federal government’s 401k-style Thrift Savings Plan.

New servicemembers are automatically enrolled in Blended Retirement, while troops with more than 12 years of service (or the equivalent for Guard and Reserve) are grandfathered in to the legacy pension system that kicks in after 20 years in the military.

Members with fewer than 12 years of service have a choice, to be made by the end of the year: to opt in to the new system, or stay with the old model.

For Raunig, that meant crunching a lot of numbers.

“Med school doesn’t teach you that much about economics, either,” he said. “So I can’t say I’m really that skilled in those areas.”

Congress put these changes into motion in 2015 as part of the National Defense Authorization Act, the comprehensive yearly plan for military spending. The legislation included recommendations from a special commission on modernizing military retirement. 

That commission estimated reforms would save the government billions of dollars and increase the long-term fiscal sustainability of the military retirement system. It also predicted updated retirement offerings would make military service more attractive to younger people who don’t plan to stay in the same job for decades. 

People who stay in the military for 20 years under Blended Retirement will still get a pension, but it will be smaller than the legacy model. The new system also includes a mid-career bonus, and the option to take part of the pension in a lump sum.   

Currently, over 80 percent of troops separate before reaching 20 years of service, meaning they walk away with zero government retirement benefit.

“[Blended Retirement] will provide earlier vesting and portability to our servicemembers. Which we think is huge,” said Jeri Busch, the Pentagon’s Director of Military Compensation.

The new model demands that servicemembers take a more active role in managing their money.

In preparation, the Pentagon is requiring an online training course for everyone facing the Blended choice, and providing tools like a comparison calculator to help members weigh their options. There are even a series of YouTube explainers hosted by “Robyn,” a friendly character with red glasses and cheerful answers to Blended Retirement questions.

“I’m fictitious, but the work of financial readiness is real,” she beams in a video discussing “facts and fictions” about retirement options.

The Department of Defense is investing in training and financial literacy tools to help with the transition to the Blended Retirement Program. Pictured: "Robyn," the Blended Retirement System Guru, who helps answer questions in a Youtube series.

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Youtube/Department of Defense

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Suze Orman, the former TV host and author, is pitching in. The Pentagon announced last year that Orman is offering an online personal finance course free to military members.

The rollout also includes posting personal financial counselors on-base, part of an overall push to boost troops’ financial literacy.

WHO SHOULD SWITCH?

The Pentagon isn’t taking a position on whether servicemembers should opt in to Blended Retirement or stay with the old pension model. “It is a personal financial decision that members and their families must make,” said Busch. 

“Members first and foremost need to consider what their long-term career plans are. For those who are thinking they might leave the military before reaching 20 years of service, they should give BRS serious thought.”

For military members who are in the decision window of fewer than 12 years of service and plan to stay until 20, there’s no clear answer.

“This is going to be a really hard decision,” said Frank Laatsch, a retired professor of finance and Air Force veteran who gave briefings on Blended Retirement to Reservists at Camp Shelby in Mississippi.

“Almost every briefing, at least someone would stand up and ask, ‘just tell me what to do,’” said Laatsch. “And I can’t. It’s very complicated.” 

Members weighing the switch to the new system have a lot of variables to consider, including how much of their paycheck they could potentially contribute to a Thrift Savings Plan over the rest of their military career, what type of fund they will invest it in, and how much the new continuation bonus will add to their retirement nest egg. 

All that has to overcome the value of the higher pension payment guaranteed in the legacy system.

Laatsch said he’s concerned many young people are entering military service without the basic financial skills they’ll need to navigate the new retirement options.  

“How do you convince that 18 year-old kid who’s getting his first serious paycheck that he needs to save five, 10 percent of it instead of buying that new car or the stereo?” Laatsch said.

Even at close to 12 years of service, and with a medical degree under his belt, the Blended Retirement choice didn’t come easy to Jeff Raunig.

After completing the required training course and doing his own calculations, he concluded that joining the new system would be more unpredictable and cost him too much in lower pension payments in the long run.

“I do think it’s going to be a really good product for some people,” Raunig said. Just not for him.

Troops have until the end of 2018 to make the Blended Retirement choice, and that decision is permanent. 

If a servicemember has decided to switch, Frank Laatsch advises they make the jump as soon as possible to start receiving the matching funds. “And put in the entire 5 percent. At least get that matched. It’s so-called ‘free money,’” he said.

This story was produced by the American Homefront Project -- a collaboration of North Carolina Public Radio-WUNC, Southern California Public Radio-KPCC, WUSF-Tampa, KPBS-San Diego, Texas Public Radio and North Country Public Radio.