I Took the Blended Retirement System OPT-IN Training and This is What I learned
I took the Blended Retirement System OPT-IN Training and this is What I learned:
You may have heard a thing or two about the new retirement system. I wanted to know more info, so I took the Blended Retirement System Opt-In Course. Jealous? Well don’t be. If you’re eligible for the new system, you will also take the mandatory training too. The FY16 National Defense Authorization Act authorized a new retirement system, the Blended Retirement System (BRS). The main goal of the BRS is to
help force servicemembers to save for their retirement. One of the current statistics floating around is that less than 20% of current servicemembers will retire with the current high-3 option. That means that the 80% of Servicemembers will not grab onto that coveted military pension. They will walk away from their service with whatever funds they personally saved on their own.
If you joined the service BEFORE 1 January 2006, you are grandfathered into the pre-2018 Retirements System. That’s the High 3 System for most.
If you joined the service AFTER 31 December 2017, you will automatically enroll into the new Blended Retirement System (BRS).
However, if you joined AFTER 31 December 2005 but BEFORE 1 January 2018 or are a Reserve Component member with 4,320 retirement points or less, you will have the choice to stay with the pre-2018 retirement system or enroll into the new BRS. If you don’t opt-in, you are automatically grandfathered into the pre-2018 system.
When Do I have to decide by?
The opt-in window is 1 January 2018 through 31 December 2018. Once you make your decision and opt-in, the choice is final….choose wisely my friends!
What do I get with the new BRS?
- Continuation pay…think of it as a mid-career bonus. Sometime around years 8-12, if you choose to take the continuation pay (signs you up for 3 more years of service), you can receive anywhere from 2.5 to 13 months of basic pay depending on your career field. The DoD wants you to drop the continuation pay into your retirement savings…not buy a car or truck like their infographic suggests.
- TSP Contributions & Matching. Everyone who opts into BRS will automatically get a 1% match of their basic pay into the TSP. They will receive this even if they don’t contribute anything personally.
The DoD will also match up to 4% of your basic pay, depending on how much you personally contribute. Read the fine print about which types of funds the DoD match has to go to. After you serve at least 2 years, you are vested. That means the money is yours to keep.
- If you complete your 20 years of active duty service you will be eligible for full retirement pay. Just like in the 20 year + requirement in the old system. But here’s the rub. The multiplier is only 2% as compared to the current system’s 2.5%. For example, 2% x 20 years of services = 40% instead of the 2.5% x 20 = 50% under the current plan. So you would be taking a 20% cut to your retirement pay with the hopes of making that up via TSP contributions and matching, compound interest, and a favorable stock market.
- Lump sum payment. If you qualify for the 20-year pension, at retirement you can also choose to take a lump sum payment (or 4 installments) of the amount of pension you would have collected up until age 67. You can choose if you would like it to be discounted at either 25% or 50%. Remember time value of money (TVM) here. A dollar you receive today is worth more than a dollar you receive tomorrow. Hence, your pension is discounted to today’s present value. Not the sum of the value of your pension at age 67.
What do I get under the current “High 3” plan?
The current plan gives servicemembers who retire with at least 20 years, a monthly annuity/pension based off of the average of their highest 36 months of basic pay. Remember, under the current plan the pension multiplier is 2.5%. So using 20 years of service as an example, you would receive 50% of your basic pay each month in retirement. Servicemembers still have the opportunity to invest in their TSP just like their peers who chose the BRS. However, they won’t receive the automatic contributions and matching from the DoD.
So… what should I do?
The decision to stay the course or opt-in to BRS is a big one. With hundreds of thousands of dollars at stake and only you, the servicemember, can make the final decision of which plan to choose. The DoD says it will have the online comparison calculator available soon, which will be extremely helpful to run some quick numbers before taking the training and talking to a financial counselor if you choose. Everyone’s situation is going to be unique. For some people, it will be a no brainer to opt-in. However, for others it’s going to be a more difficult decision. It comes down to how many years you think you’ll serve, how many years you already have in, and how diligent you are at investing in your TSP. With final consideration on how you think the market will perform. The good news is we all have some time to learn about the BRS. Take a hard look at career roadmaps, and make an informed and sound decision. Don’t worry, it even seems like the DoD is still trying to figure out details as well.
Stay tuned for more updates on the BRS, the release of the calculator and some of my opinions on things to consider when making your decision.