Understanding the New Blended Retirement System
The military recently announced the new Blended Retirement System, and we all have questions. In an effort to grasp the basics, I reached out to Michael Meese, Retired Brigadier General and COO of American Armed Forces Mutual Aid Association (AAFMAA).
After he so patiently conversed with me, I was able to gain a better understanding and share with you the answers to questions we’ve all been asking.
Here's what you need to know about the Blended Retirement System.
WHY IT CHANGED.
The first question I asked myself when they announced the new Blended Retirement System (BRS) was, why change the one already in place? Meese explained it like this:
The old retirement system was established shortly after World War II, back when people were loyal to one job for the duration of their career. The old retirement system worked really well for those who committed a full career to the military. Today, however, only 20 percent of service members stay in a full 20 years, which means the old system doesn’t provide for the other 80 percent. It is for this reason the decision was made to implement the new BRS.
WHAT IT IS.
The BRS breaks down into three parts.
Thrift Savings Plan (TSP). This portion of the retirement system operates like a civilian 401K. You put a percentage of your income into TSP, which is invested by TSP for your retirement. The DOD will automatically contribute 1% for everyone in the new plan automatically, and will match up to 5% of your monthly savings in TSP.
Continuation pay. Somewhere between 8 and 12 years of service, members are offered a mid-career bonus in return for an additional three-year commitment.
Full retired annuity. This portion of the BRS is given for life after completion of 20 years of service. It is calculated by 2% x number of years served x retired base pay. The difference between this portion of the BRS is that now it is 2%, instead of 2.5% under the old system.
Visual learners may want to view this PDF of the Blended Retirement System.
WHO IT AFFECTS.
The BRS affects everyone that signs after December 31, 2017. Every current service member who’s served less than twelve years has the option to join the BRS. If you’ve served twelve years or longer, you cannot opt into the Blended Retirement System, nor would you want to.
HOW TO CHOOSE.
If you have less than twelve years of service, then you have a choice. You are now in the old system and may choose to stay grandfathered in, or you may opt to enroll in the BRS.
Looking at both retirement systems side by side, you’ll see that the old offers exceptionally better benefits to service members who serve a full 20 years. The BRS offers a greater benefit to those who get out prior to the 20-year mark. For those of you planning on a full career with the military, it should be an easy choice to stay with the old retirement system. And for those knowing you will get out early, it’s also easy--opt for the BRS.
What if you don’t know? This is where it gets tricky. What if you’re not sure that you want to serve 20 years, or if a full career will even be an option? It’s this large group of military members and their families that struggle the most right now.
Here’s one perspective for you to consider. If you’re 50/50 on staying a full 20 years, opt for the BRS. Why? Because it serves as a safety net for you. If you stay with the old system, but don’t serve 20 years, you retire with nothing. But if you opt for the BRS and get out early, you still have your TSP investments, rather than the nothing you had under the old system.
Lastly, and why most fear they will make a choice they regret, is the fact that if you opt for the Blended Retirement System and stay in 20 years, you don’t have as much at retirement as with the old system. But you do have your TSP investments that have been growing the past 20 years, plus 40% of your retired base pay. The key, as Meese puts it, is to make your decision and never look back.
The only mistake you could make is to opt for the BRS and not invest a full 5%. So don’t do that.
WHEN TO CHOOSE.
If you have less than twelve years' time in service on December 31, 2017, you have the entire calendar year of 2018 to make a decision. But think carefully, since once you choose to opt in to the BRS, that decision is irreversible—you cannot switch back.
There is more you can do to plan for your retirement than choosing between the old system and the BRS. We don’t like to think about it, but military careers are not perfect. There is promotion passover, injury, and death that could alter your retirement with either of the systems. So it’s important that you diversify your investments and rely not solely on either system.
You should also consider investments outside the TSP including real estate. MilitaryByOwner Advertising is here to help you buy, rent and sell properties, so let us help you make your real estate investments a success.