Blended Retirement System Is Finally Here

Have you ever waited for something for 3 years and then it finally arrived? Maybe a wedding or a kid’s graduation? Do you remember the excitement and all the preparation? Well, that’s how I feel about Blended Retirement System (BRS). In January 2015, we got our first glimpse of the Blended Retirement System, the military’s new retirement system, and now, BRS is here. Are you ready for it? Have you made your decision? If not, don’t worry, you still have time.

The following two simple questions will help guide your BRS decision. Hint…for one of them, the answer is much more difficult than the question. If you are still new to BRS and unsure of what exactly it is, I recommend you go to usaa.com/brs before reading this blog. Learn about BRS and then come back to this article.

Will I retire from the military?

The decision on whether to opt-in or switch to BRS is more of a career decision than a numbers-based decision. Why? For most of those who retire from the military, the High-3 is more valuable. However, according to the Department of Defense, only 19% of military members retire from the military. That means that under High-3, 81% leave military service without any government-provided retirement benefit since they don’t get the military pension. Under BRS, that is not the case. The automatic and matching contribution to your TSP account help ensure that you can leave military service before military retirement and get some help with your retirement savings.

Under BRS, the DOD estimates that 85% of military members will separate from service with a government-provided retirement benefit, which makes the comparison easy. Under High-3, 19% benefit; under BRS, 85% benefit. The military retirement system is no longer a “retire or nothing” system.

So, back to my original question; will you retire from the military? Keep in mind that only 50% of officers and 16% of enlisted members retire from the military[1]. Therefore, if you decide to stay with High-3, you are betting on going the distance. We all know that our ability to reach military retirement can be influenced by factors outside of our control. You may be separated due to being in an overmanned career field, other Force reduction measures or failure to promote. We all know someone, and it might be ourselves, who joined with a deep desire to “make it to 20” but decided to get out prior to that due to the stress our families go through because of multiple TDYs and deployments.

When should I contribute to my Thrift Savings Plan (TSP)?

The answer is now! Contributing to your TSP is one of the first steps toward saving for your retirement goal — your largest and longest goal. USAA suggests that you contribute at least 10% of your basic pay into the TSP. This is even more important if you decide to switch to BRS because with BRS you’ll have to contribute at least 5% of your own money to get 5% from the government. Obviously, you want to start getting that government contribution as soon as possible, and that means opting in to BRS and getting your own contributions started as early in 2018 as possible. Here is a quick example of what waiting until the end of the year to begin contributing could mean. Let’s say you’re an E-4 over four years making basic pay of $2,490 per month in 2018. Let’s compare switching to BRS and beginning your contributions under BRS in January versus waiting until December.

Putting off making TSP contributions just a few months could mean giving up almost $28,000 in your golden years. Sure, I’m making some assumptions about market returns, but you get the picture.

Regardless of whether you decide to stay in High-3 or switch to BRS, USAA believes you should put at least 10% of your basic pay into your TSP. If you know you will switch to BRS, do it as early as possible to reap the benefit of the “free money” via DOD automatic and matching contributions.

Finally, if you are just beginning or need to reconfirm your decision, I recommend visiting USAA’s BRS webpage at usaa.com/brs. Read the material there, watch the video that helps explain the decision, and then click “Get Started” to use our Military Retirement Comparison Tool to compare the two systems based on your individual career decisions.

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[1] https://www.rand.org/content/dam/rand/pubs/monographs/2007/RAND_MG598.pdf