Military Blended Retirement System FAQ
Under the military’s Blended Retirement System, about 85 percent of all active-duty and reserve service members will receive a retirement benefit, even if they don’t qualify for full retirement. That’s a big difference from the low numbers of service members today saving for retirement. Your future self will thank you if you begin saving even modestly today. Recent changes make it easier to save for your future.
What Is The New Retirement System?
The new retirement system is known as the "Blended Retirement System" or BRS. The “blending” in BRS comes from the blending of two major sources of retirement income: the existing annuity provision for those who retire after 20 or more years of service, PLUS the Thrift Savings Plan (TSP). The TSP is a government run 401(k) retirement account that allows members to invest their own money in either stocks or government securities and also get a contribution to that account from their employer.
Perhaps the greatest benefits from switching to the blended plan arise out of the automatic and matching contributions the Department of Defense would provide to your Thrift Savings Plan account. The automatic contribution, set at 1 percent of your base pay, starting after your first 60 days of service, is literally free money for you. At the beginning of your third year of service, you would become "fully vested" which means all of the contributions from the Defense Department are yours, regardless of when you subsequently leave the service.
When you become fully vested, the Department of Defense will also start matching money you contribute to your Thrift Savings Plan account, up to an additional 4 percent of your base pay.
Here's an example of how it would work (see table): If you save 5 percent of your base pay into your Thrift Savings Plan, the Department of Defense will also deposit the 1 percent automatic contribution and an additional 4 percent of your base. An E-5 with five years of service could receive matching contributions of up to $133 per month. An E-8 with 18 years of service could receive up to $249 matched each month.
Through matching Thrift Savings Plan contributions, the Defense Department enables you to save 10 percent of your base pay for retirement each year, while only contributing 5 percent from your paycheck. So those contributing up to 5 percent of base pay will receive a guaranteed, immediate 100 percent return on their investment.
|You contribute||DoD Auto Contribution||DoD Matches||Total|
What Is New About This Retirement System?
BRS uses the retirement annuity formula that has been in place for years: the average of the service member's highest 36 months of basic pay times 2.5% of their years of service -- but the 2.5% is adjusted downward by half of a percentage point, from 2.5 to 2%.
To make up for this reduction the government will contribute to a member's Thrift Savings Plan (TSP).
After the first 60 days in the service, all members are enrolled in TSP and receive an automatic government contribution of 1% of basic pay into their account each month. This 1% contribution is automatic, you don't have to put any of your own money in to receive it. Additionally, members are automatically enrolled to contribute 3% of their out-of-pocket basic pay to the TSP each month (they can change or stop this at any time).
After two years of service, the government will match the member's contributions up to an additional 4%. So, after two years of service, members can get up to a 5% government matching contribution on top of what they contribute each month. Therefore if a member contributes 5% of their basic pay the government will match it, making a total contribution to the TSP of 10% of their basic pay.
If a member only contributes 3% of their basic pay to the TSP, the government matching contribution will be 3%, and so on. If a member has the ability to contribute more of their basic pay to the TSP - say 10% - the government will still only contribute a maximum amount that equals 5% of the member's basic pay.
For an E-4 with 4 years service contributing 5% of the basic pay that equals over $3,000 being saved each year. Compound those contributions and interest over several years and you are talking serious savings -- hundreds of thousands of dollars over a military career!
Why Is Adding The TSP To Retirement A Good Thing?
The best part of having a TSP contribution really applies to those who don't stay in the military long enough to get a retirement check.
The government says that 83% of people who join the military don't stay long enough to retire, so when they leave after 5 or 10 years of military service they basically get nothing towards their future retirement. This plan changes that.
By contributing to the TSP, military members can leave the service at any time and have an existing retirement fund that they can take with them anywhere. Even if they get out of the military before completing 20 years they would keep the money they have in their TSP fund. That money can be left in the TSP, taken out, or moved to a different retirement fund to get tax savings.
How Much Longer Will The High-3 Legacy Retirement System Be Available?
All military members who serve as of Dec. 31, 2017, are “grandfathered into the legacy retirement (high-3) system” according to the DoD. New recruits serving as of 1 January 2018 are automatically enrolled in BRS and do not have access to the legacy High-3 retirement system.
Blended Retirement System Not for Everyone
On the surface, the BRS is a cutback. Fundamentally, new service members will not make as much as they would have in the old system. Those are the black-and-white numbers and there’s no way around them, but it’s estimated the BRS will mean an annual savings of about $2-billion to taxpayers.
“Yes, we’re cutting military retirement benefits,’’ said Michael Meese, a retired Brigadier General who is now Chief Operating Officer of the American Armed Forces Mutual Aid Association (AAFMAA), which provides financial services for U.S. service members and their families.
“But we’re doing so in a way where there’s a plan to hopefully make up for that by people investing in the 401(k)-type element. If that is managed in the right way, there’s the potential to make even more than the old system.
“In speaking to broader, non-military audiences, I’d point out this is a very responsible action and perhaps one that ought to be applied to other aspects of government entitlements, when you consider the deficits we have.’’
The entire year of 2018 was set aside to permit affected soldiers, sailors, airmen, and marines to choose which system is best for them. The last day to opt in to BRS, out of the legacy High-3 system, is December 31, 2018.
Will My Command Or Branch Of Service Want Me To Choose BRS Instead Of High-3?
The official guidance from the Department of Defense includes a requirement to “Avoid command influence on which retirement system a member should choose” and to “Stress the DoD does not take a position on a member’s decision to opt in or not.”
If I Opt In To The Blended Retirement System, When Do I Start Getting Matching Retirement Contributions From The DoD?
Those who opt in to BRS will automatically begin getting up to 4% in matching contributions, effective immediately upon opting in. For new recruits who begin military service on or after 1 January, 2018, a waiting period will apply.
What Is The BRS Mid-Career Cash Payout I’ve Heard About?
Those who choose or are enrolled in the Blended Retirement system will become eligible for a cash payout at some point between eight and 12 years of service. The Department of Defense says of this incentive, “active-duty members will be eligible for a cash incentive of 2.5 to 13 times their regular monthly basic pay, and National Guard and reserve members will be eligible for .5 to six times their monthly basic pay (if serving on active duty), in return for a commitment of at least three more years of service.”
There is also an additional (and unrelated to the above) cash payout option under BRS; “Members may elect to receive a 25% or 50% lump sum payment of their retired pay discounted to the present value in exchange for reduced monthly retired pay until age 67”.
Joe Wallace is a 13-year veteran of the United States Air Force and a former reporter for Air Force Television News
The Blended Retirement System Summed Up
- Retired pay will be 2% times number of years of service. If you retire at 20 years service you get 40% of your final base pay. If you retire at 30 years service you get 60% of your final base pay.
- You can either get your full retirement when eligible or opt to get a lump-sum benefit at retirement. If you take the lump-sum you will get a reduced monthly retirement check until age 67.
- The military will contribute 1% of your base pay to your TSP no matter what you do, even if you don't put any of your own money in
- You will be automatically enrolled with a 3% base pay contribution to your TSP. (You can change this at any time.)
- The military will match up to 5% of your contribution after 2 years of service.
- You can always stop contributing to the TSP, get a loan of your TSP balance, or withdraw your money from the TSP account.
- When you reach 12 years of service and commit to 4 more years of service you will be eligible for a cash incentive of 2.5 to 13 times your regular monthly basic pay if you are active duty and 0.5 to 6 times your monthly basic pay if you are in the reserves.
Choice of lump sum payment
- If you take a lump sum payment it will be discounted to allow for inflation.
- If you take the lump sum payment, your monthly retirement benefits (and survivor benefits) will be reduced.