Understanding the intricacies of military pensions is a daunting task. For many servicemembers and Veterans, the prospect of retirement comes with the challenge of understanding pension benefits and making financially informed choices. The military financial professionals with AAFMAA Wealth Management & Trust LLC (AWM&T) can simplify the complexity of your military pension and provide valuable insights to help you retire securely.
Understanding Your Military Pension
After years of dedicated service, you’ve accumulated a valuable asset – your military pension. It serves as a financial foundation for your retirement, and it's essential to grasp its nuances. Military pension plans vary based on factors such as years of service, rank, and when you entered service. Additionally, all military retirements are protected from inflation by annual Cost of Living Adjustments (COLAs), based on changes in the Consumer Price Index (CPI) as measured by the Department of Labor.
- Final Pay Plan: If you entered military service prior to September 8, 1980, your Final Pay in retirement is computed at 2.5% multiplied by your number of years in service.
- Legacy or High-36 Pension: If you joined the military between September 8, 1980, and July 31, 1986, you are in the Legacy/High-36 retirement system. This plan calculates your pension based on 2.5% multiplied by the number of years in service, which is then multiplied by the highest 36 months of basic pay.
- REDUX: If you entered the military between August 1, 1986, and December 31, 2013, and elected the Career Status Bonus, you are eligible for the Career Status Bonus. Your two options are the High-36 plan described above or REDUX. This incorporates a $30,000 Career Status Bonus (CSB) after 15 years of service with a reduction in retirement pay. If you have 30 years of service, there is no pay reduction. This retirement system is completely voluntary.
- Blended Retirement System (BRS): Introduced in 2018, the BRS is a more flexible system that combines a reduced traditional pension with contributions to the Thrift Savings Plan (TSP). The military will contribute 1% of your base pay to the TSP and will match up to 5% of your contribution after two years of service. When you reach 12 years of service and commit to another 4 years, you will be eligible for a cash incentive. Those who retire will have a pension which is 2% times the number of years in service times your highest 36 months of basic pay.
- Retiring Reservists: Sometimes called non-regular retirement, reservists who accumulate 20 or more years of qualifying service are eligible for reserve retirement when they reach age 60 or, in some cases, a lesser qualifying age. The two non-disability retirement plans in effect for reserve-qualified retirees are the Final Pay plan and the High-36 plan. There is no REDUX retirement plan for reservist retirement.
- Disability Retirement: If you receive a Department of Defense (DoD) disability rating of at least 30% and are medically unfit for service, then you may qualify for disability retirement. This is calculated using a percentage of disability or years of credible service.
- VA Survivors Pension: The VA Survivors Pension program provides monthly payments to qualified surviving spouses and unmarried dependent children of wartime Veterans. Please note that factors considering marital status, income, and net worth are considered when determining eligibility.
Considerations for Your Best Payout
Now that you have a basic understanding of the main military pension plans, let's delve into some essential considerations to ensure you receive your best payout and retire securely.
- Longevity Matters: In the High-36 system, your pension percentage increases with each year of service. If possible, consider staying in the military for at least 20 years to qualify for the maximum pension, which is 50% of your high-three average. The pension multiplier is reduced for BRS participants, making it even more critical to stay in for the long haul or make up the difference through TSP contributions.
- Maximize Your High-36: If you're under the High-36 system, strategize how to increase your High-36 average. This can involve seeking promotions, special pay, or assignments that boost your base pay during your three years. Being proactive about your career progression can lead to a more substantial pension upon retirement.
- Thrift Savings Plan (TSP): For BRS participants, TSP contributions are a game-changer. The government matches contributions of up to 5% of your base pay, effectively doubling your retirement savings. Make the most of this benefit by contributing at least 5% to your TSP. Even if you're under the High-36 system, contributing to your TSP can supplement your pension and provide a crucial source of retirement income.
- Disability Benefits: If you have a service-connected disability, you may be eligible for disability benefits in addition to your pension. These benefits can substantially increase your overall retirement income. Ensure you understand the process of applying for and receiving disability benefits, as they can be a significant financial lifeline.
- Survivor Benefits: Consider your family's financial security in retirement. Survivor Benefit Plan (SBP) options are available to provide ongoing income to your spouse or dependents after your passing. Understanding the different SBP options and their costs is essential in making an informed decision about this valuable benefit.
- Financial Planning: Seek the guidance of a financial advisor with experience in military pensions. They can help you create a retirement plan that maximizes your pension, TSP, and other income sources. Additionally, they can assist you in developing a strategy to manage your finances in retirement.
- Transition Planning: Planning for the transition from military service to civilian life is critical. Ensure you have a clear roadmap for your career after the military, as it can impact your pension and overall financial stability. Consider factors such as job opportunities, relocation, and cost of living.
Retire Securely with AWM&T
Retiring from the military should be a time of celebration and relaxation, not one filled with financial worries. By breaking down the complexity of your military pension and considering the factors outlined above, you can make informed choices that lead to a secure and comfortable retirement.
Remember that your military pension is just one piece of the retirement puzzle. With careful consideration and strategic planning with the team of military financial professionals of AWM&T, you can ensure a financially secure retirement. Start early, stay informed, and look to us for professional guidance to make the most of your hard-earned benefits. Call us today at 910-307-3500 or visit aafmaatrust.com to get started.
About Us
AWM&T was created in 2012 to meet the financial needs of military families. We provide experienced, trustworthy, long-range financial planning, investment management, and trust administration services to support financial independence and security. We aim to be the premier provider of fiduciary services by always working for AAFMAA Members’ best interests.
We are proud to share the mission, vision, and values of AAFMAA, our parent company, consistently building on AAFMAA’s rich history and tradition to provide Members with a source of compassion, trust, and protection. Through AAFMAA’s long-standing legacy and our financial expertise, AWM&T is honored to provide personalized wealth management services to military families across generations.