Decision 2018: 50% Base Pay @ 20 years or matching 5% TSP now?


If you are a service member in the active and reserve components who entered the military after Jan. 1, 2006 you get to make an educated guess in 2018 on how long you are going to serve. In 2018 you must decide on choosing the traditional retirement or the new retirement of a matching TSP blended with a 80% reduced pension. If you joined after 2018 your fate to matching TSP with reduced pension has already been decided.

The traditional retirement means doing at least 20 years and get your 50% of base pay of your last 36 months of service (refusing the $30k CSB @ 15 years and taking HIGH 36 option). After 2018 you will still get a pension after 20 years but its been reduced by 20%. The new system is an automatic contribution by the govt of 1% of base pay in your TSP. You are then forced to put in 3% of base pay into your TSP or be subjected to re-education if you opt out.  Then you can put up to $18,000 per year into your TSP which the military will match up to 5% of base pay after 4 years of service. After only serving two years you will be fully vested and can keep these matching 1% funds. You must choose what fund you want this money invested in TSP and there is no promise that it will make any money at all. You could always roll it over to another IRA, but don’t because you can’t beat TSPs low expense ratios.

It’s a no brainer if you are not planning to do 20 years to take the new system as you will get $0 from the government for retirement otherwise. Your retirement income would come from your new job and funds invested into TSP yourself without any matching in the old system. By knowing you wont do 20 means you get 6% matching at least!

On the flip side If you did exactly 20 years and took HIGH 36 instead of CSB/REDUX assuming you promoted to O-6 and stayed in rank for 3 years, you can expect the base pay for an O-6 with over 18 years is $9,392.70 a month. Half of that is $4,696.35 making $56,356.20 a year!


Now those who made it to 20, and reached O-6 for 3 years who stupidly opted in during the one time option offered in 2018 or those who joined after 2018 with the new blended system will get a 20% pay cut we get $3,757.08 a month ($45,085 a year) along with the 6% match to TSP.  These figures are somewhat inaccurate as these rates will increase in the next 15 years for my retirement. We will just pretend you got your retirement in 2016 at this rate.

So this new system is lucrative to those who will not do 20 years. Its actually quite similar to the CSB where service members could take a lump sum of $30,000 at 15 years by robbing themselves of 20% of there pension in the future (never worth it). Just keep in mind this new system is made for those who stay in for much less than 20 years apparently this was 50% of officers and 93% of enlisted, so for many its better than the old system of 20 years or nothing!

In order to make an equivalent steady annual income of $56,356.20 assuming a nice 2% interest or dividends in investment would require a principal of  $2,817,810. If you think you can do better go ahead and switch and then quit the Navy before 20. If your close to your 20 years or are set on doing 20 years, stick with the traditional as it may be the last good pension left in America for the next two years at least!

For those that are still unsure, just keep in mind that switching to the new blended system but staying your full 20 will cost you 20% of your future pension if you guessed wrong. U.S. expectancy in 2011 was 78.7 years, I plan on making my 20 years when I turn 50. That’s 28.7 years * 20% * $56,356.20 = $323,484.58 in lost income, no pressure.

Now you can argue that your 6% TSP match and your savvy investing skills could make up for that loss, but that very doubtful as you have only 5 funds and one appropriate life cycle fund to choose from. Even if you were making 18 year O-6 pay for those 20 years the 6% match is only $135,254.88. I guess if you could pull off 240% return on that matching then its some what worth considering.

Bottom line, planning on 20 years, go traditional!! Switch if your not going to do 20. If your not in the military and want to do 20? You better sign up before 2018!



EDIT: looks like the matching is limited to 5% and not 6%, also many people have chimed in saying you only need a 7% return to achieve the 240% return which is possible, but never a for sure thing.


2 thoughts on “Decision 2018: 50% Base Pay @ 20 years or matching 5% TSP now?

  1. […] Decision 2018: 50% Base Pay @ 20 years or matching 5% TSP now? […]

  2. […] Decision 2018: 50% Base Pay @ 20 years or matching 5% TSP now? […]

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