Reserve and Guard New Retirement Plans

The details for the new National Guard and Reserve "blended benefits" proposal are coming out, and while some groups are unhappy, other groups are looking forward to the increased flexibility and retirement benefits for those who retire early.

The new "blended" retirement plan gives veterans a reduced defined benefit when the reach age 60 in exchange for providing access and to the 401k-like Thrift Savings Plan (TSP). The TSP will offer a matching contribution of up to 5% of the soldiers' basic pay and new plan participants (Reserve and Guard included) will receive a continuation payment, in exchange for at least 4 more years of service.

An example from a typical Army Reserve Sergeant First Class (E-7) retiring with 20 years under the current retirement plan (with 20 years service and 4 years on active duty) would draw a total retirement amount of $630,035 between the ages of 60-85.

Under the new retirement plan, the defined benefit falls by 20% (to about $504,000), but if the soldier takes advantage of the various TSP benefits (government contributions matched to 5% of basic pay and the TSP 12-year payout can be rolled into your TSP account) the retiree can more than make up for the loss in defined benefit. With an average TSP return of 7.3 percent and only a 3% government match, the same sergeant could retire with a total payout of $692,000.

Of course, the TSP return can be more or less, depending on the stock market performance and the mix of more volatile (but potentially more lucrative) stock index funds and safer (but lower returning) government bonds and fixed income securities.

One potential drawback, however, is that the new retirement policy's most important change, the TSP, will require additional education and discipline from soldiers to ensure that they are investing in the correct mix of stocks and bonds for their age and estimated career length. While this could be difficult for some, it is hoped that having soldiers take a more proactive look into their retirement will help them not only be more aware of their finances but also benefit them if and when they reenter the civilian job market.