Military members will need financial guidance when the Department of Defense launches the Blended Retirement System on January 1, 2018, experts say.

With the military retirement system changes, anyone currently retired will continue to receive the pension that the government previously awarded military members with at least 20 years of service, says Scott Spiker, chairman and CEO of First Command Financial Services in Fort Worth, Texas.

However, beginning in 2018, anyone who joins the military will automatically be enrolled in the Blended Retirement System rather than the old pension system, Spiker says. Those with 12 years of service or less will have the option of selecting one or the other option, he says.

“We are trying to help people figure out which is better,” he says. “It depends on your situation.” Generally, Spiker says, anyone who plans to remain in the military for 20 years or more will be better served by the old pension system. If they are undecided, First Command has developed a calculator for advisers to help them work with their military clients to determine which may be a better option, he says.

The new Blended Retirement System is actually a great benefit for military members because only 19% of enrollees serve the full 20 years to qualify for the pension, says Josh Andrews, advice director for military life at USAA in San Antonio, Texas.

Although the Blended Retirement System reduces the pension benefit by 20%, it offers military members a Thrift Savings Plan option that works like a 401(k) plan, Andrews says. Everyone will automatically be enrolled in the Blended Retirement System at a 3% deferral and receive a 1% match from the government. However, if they decide to defer 5% of their salary, the government will match that.

The program also awards military members who have served between eight and 12 years with a reenlistment bonus if they sign up for another three years, Andrews says. The last component of the new system is that it permits a military member who retires with a pension to receive up to 20% of its value in a lump sum, Andrews says.

Specific changes to the system

The big development that the new Blended Retirement System offers military members, he says, is the Thrift Savings Plan with the match. “Since 81% of military members leave the service with no pension, the good news is that the automatic and matching contributions are for them to keep,” Andrews says. “It is no longer all or nothing. This is a huge win for our military members. They can leave after five or 10 years and have money saved for retirement. The Department of Defense estimates that under the Blended Retirement System, 85% will leave with some type of benefit.”

Up to this point, USAA and other financial advisers have found it a bit of a challenge to help veterans save for retirement, Andrews says. While the government has always offered the Thrift Savings Plan, without the match, military members had no incentive to contribute to it, he says. Military members move on average every two years, which limits the ability of their spouse to find employment, he says.

“This new system will help them leave military service hopefully in line with their peers with respect to retirement savings,” Andrews says. “For financial advisers, the Thrift Savings Plan is now going to be of equal importance in their conversations with military members as the 401(k) is with their civilian clients.”

USAA has also developed a calculator, as well as a video, to help advisers understand the difference between the Blended Retirement System and the old pension, Andrews says. In addition, the Department of Defense has information on their website, he adds.

And the work that advisers do with military members dramatically improves their savings outcomes, says Chad Feucht, co-owner of Feucht Financial Group in Fond De Lac, Wisconsin. Feucht says he pays particular attention to the unique situation of each military member and veteran he works with, since “the work they do for the nation and the amount of travel and experience they have makes their retirement savings a little more complex than other demographics.”

Feucht’s brother, Jeremy Feucht, also co-owner of the practice, says he expects the new retirement program will prompt more military members to seek their guidance of a financial adviser. While the government offers financial advice to military members, because they move every two years, it may not be consistent, and these service members “might want to have more of a consistent relationship with a firm like Feucht Financial,” he says.

Indeed, a survey in the third quarter of this year by First Command found that 77% of middle-class military families who work with a financial adviser are extremely or very confident in their ability to retire comfortably, compared to 21% of military families without an adviser. Sixty-two percent of these families with a financial adviser have a retirement account, compared to 46% without an adviser.