The Blended Retirement System (BRS) is the new military retirement plan, which went into effect on January 1, 2018. The Senate Armed Services Committee passed the BRS as part of the FY 2016 National Defense Authorization Act (NDAA). The 2016 NDAA featured several major proposals, including military retirement reform, personnel reform, and headquarters and management reform.
One of the primary goals of the 2016 NDAA was to find areas for the Department of Defense (DoD) to save money. This came in many shapes and sizes, including reducing troop numbers, retiring old weapon systems, reducing the acquisitions of new weapon systems, and much more. Perhaps the biggest change happened to the military retirement system, which had seen few changes in the previous 70 years.
Servicemembers who had already retired, and those who joined the military prior to January 1, 2018, were grandfathered into the current military retirement systems (either High Pay, High-3, or REDUX).
That said, certain current servicemembers who had less than a given service time were allowed to opt into the Blended Retirement System. (see the section below for BRS eligibility).
We’ll give a brief overview of the current military systems, highlight why the government opted to enact the new Blended Retirement System, how the BRS works, whether or not members should opt into the BRS (if eligible), and how the BRS will impact current or future military retirees.
Note: the focus of this article is entirely on the defined benefit (pension) portion of military retirement benefits. The recent proposal didn’t include any major changes to other military retirement benefits, such as healthcare.
Table of Contents
- Military Retirement System Overview
- Why Did the Government Create the Blended Retirement System?
- Very Few Military Members Receive any Retirement Benefits
- Solution – Create Retirement Benefits Available to All Military Members
- Blended Retirement System Eligibility
- Active Duty Eligibility
- Guard / Reserve Blended Retirement System Eligibility
- Service Academy Eligibility for Cadets and Midshipmen
- How the Blended Retirement System Works:
- Matching Thrift Savings Plan Contribution Eligibility
- How Automatic and Matching TSP Contributions Work
- Continuation Pay Bonus
- Defined Benefit Changes (Changes to the Pension Portion)
- Lump Sum Option – Control Over How & When Retirement Pay is Received
- Opting Into the Blended Retirement System
- Pros and Cons of the Blended Retirement System
- Who Wins, and Who Loses?
Military Retirement System Overview
The current military retirement system is a “cliff-vesting” retirement plan, which basically means it’s all or nothing. Once you reach the required 20 years of service, you qualify for the entire retirement plan. Failing to reach the required 20 years of service nets servicemembers zero retirement benefits (except for early military retirees and medical retirees, which is out of the scope of this article).
Here is a basic overview of the military retirement pension plans available before the creation of the BRS:
- High Pay
- High-3 (average of highest three years of pay)
- REDUX (reduced multiplier in exchange for a Career Status Bonus of $30,000 cash at the 15-year mark).
These three systems all reward retirees with an immediate pension once they reach 20 full years of service. The High Pay and High-3 Systems give retirees a pension based on 2.5% of their base pay for each year they served on active duty. Under this plan, a 20-year retirement pension is worth 50% of the member’s base pay. There is also a Cost of Living Adjustment (COLA) each year based on the Consumer Price Index (CPI), the same measurement used for Social Security benefits and other government pensions.
The REDUX pension plan is slightly different. Retirees who choose this plan receive a $30,000 cash bonus at their 15-year mark in exchange for receiving a retirement multiple based on 2.0% of their base pay for each year served. Under this plan, a 20-year retirement pension is worth 40% of the member’s base pay. In addition, the annual COLA pay raise is based on CPI – 1. So if the CPI is 2.0%, REDUX retirees would only receive a 1% COLA increase. In general, REDUX is not a good deal for military members.
Here is a more in-depth analysis of active duty retirement benefits, including a podcast.
Why Did the Government Create the Blended Retirement System?
There were several reasons the DoD wanted to change the military retirement system. The annual fixed cost to the government is certainly a concern, as it is growing every year with more retirees and COLA increases.
But there is also a desire to make the military retirement system closer to what people might find in the civilian sector (except very few civilian companies offer pension plans these days). Many civilian employees have portable retirement plans they can take with them when they leave their job, often in the form of a 401k or similar retirement plan.
Very Few Military Members Receive any Retirement Benefits
Only about 17% of military members remain on active duty long enough to serve the full 20 years required to earn a military pension. That means roughly 83%, or about 5 out of every 6 servicemembers, don’t receive any long-term retirement benefit from their military service. Servicemembers do have access to the Thrift Savings Plan. However, they can only contribute funds from their own pay and bonuses. The military does not currently offer matching contributions like many civilian companies.
Solution – Create Retirement Benefits Available to All Military Members
The government changed the military retirement plan to provide service members with a 401k-style retirement plan (using the TSP) and a pension plan that vests at 20 years. Members are free to take their TSP account and matching contributions with them when they leave the military. This would come at the expense of a lower multiplier for the pension.
While the total fixed portion of the military retirement will be lower, it may actually be possible for servicemembers to have a larger total retirement package using the BRS, depending on how long they participate, whether they contribute bonus or other pay, and how well the stock markets perform.
Officials estimate that at least 75% of active duty servicemembers will receive some form of retirement benefits under the new plan, as opposed to the roughly 17% who receive benefits under the previous plans. The difference comes from the Thrift Savings Plan contributions made by the government, which would start after the servicemember has completed 2 years of service. Under this plan, the only servicemembers who wouldn’t receive some benefits would be those who serve fewer than 2 years.
Let’s look at Blended Retirement System eligibility and how the BRS works.
Blended Retirement System Eligibility
If you enter the Uniformed Services on or after Jan. 1, 2018, you are automatically enrolled in the BRS. This is your only retirement plan option. (This applies to the Active Component Service as well as the Reserve Component Services (National Guard and Reserves).
Active Duty Eligibility
Active Duty – More than 12 Years Service: If you are an Active Component Service member with 12 years (or more) of service prior to Dec. 31, 2017, you are grandfathered under the legacy retirement system (High Pay, High 3, or REDUX). You remain under the legacy retirement system, and nothing about your current retirement plan changes.
Active Duty – Less than 12 Years Service: If you are an active-duty Servicemember with fewer than 12 years of service as of Dec. 31, 2017, you are grandfathered under the legacy retirement system, but may choose to opt into the BRS. For most servicemembers, the opt-in period is from Jan. 1, 2018, through Dec. 31, 2018. You won’t be moved to BRS unless you make this choice.
Guard / Reserve Blended Retirement System Eligibility
Guard / Reserves – More than 4,320 Retirement Points: If you are in the National Guard or Reserves and have accrued more than 4,320 retirement points as of Dec. 31, 2017, you are grandfathered under the legacy retirement system. Nothing about your current retirement plan changes.
Guard / Reserves – Less than 4,320 Retirement Points: If you are a member of the National Guard or Reserve in a pay status who has accrued fewer than 4,320 retirement points as of Dec. 31, 2017, you are also grandfathered under the legacy retirement system, but may choose to opt into the BRS. Opting into the BRS does not change how you accrue retirement points or when you’re eligible to retire. You won’t be moved to BRS unless you make this choice.
Service Academy Eligibility for Cadets and Midshipmen
You’re also grandfathered under the legacy retirement system if you’re a cadet or midshipman attending a Service Academy as of Dec. 31, 2017, or are in the Reserve Officer Training Program with a signed contract as of Dec. 31, 2017.
However, if commissioning (or being placed in pay status) occurs after the 2018 opt-in window, you’ll have 30 days upon commissioning to opt into the BRS. If you enter an academy or sign your service contract on or after Jan. 1, 2018, your retirement plan is the BRS.
How the Blended Retirement System Works:
The Blended Retirement System utilizes the Thrift Savings Plan, a Career Continuation Bonus, and a pension. (This is the same plan proposed in the 2015 Military Compensation Modernization Recommendations.)
Here is an overview of how the Blended Retirement System works:
Matching Thrift Savings Plan Contribution Eligibility
All servicemembers who join the military after January 1, 2018, are automatically enrolled in the Thrift Savings Plan, with a default contribution rate of 3% of their base pay (or Inactive Duty Pay, or Drill Pay in the National Guard and Reserves).
Members will begin receiving an automatic contribution of 1% of their base pay from the DoD beginning 60 days after entering the military.
Members will begin receiving matching contributions up to an additional 4% of their pay (5% total) once they have completed two years of service (starting at 2 years, 1 day of service). The maximum DoD contribution is 5% if the service member is contributing 5% of their basic pay.
Both the DoD automatic 1 percent and the matching contributions continue through the end of the pay period during which the service member attains 26 years of service.
NOTE: Currently serving members who opt-into the BRS will receive automatic and matching contributions in their first pay period after opting in—there is no waiting period.
How Automatic and Matching TSP Contributions Work
The military automatic and matching TSP contributions will follow the same method the government uses for civilian TSP participants.
Members will receive the following matching contributions:
- automatic 1% contribution,
- a 1% matching contribution for each percent of their base pay the military member contributes for the first 3% of base pay,
- and a 0.5% matching contribution for each percentage the member contributes for the next 2 percentage points.
- The maximum DoD contribution is 5%.
This chart shows how this works in practice:
|You Contribute||Automatic 1% DoD Contribution||Service Matching Contribution||Total Combined Contribution|
|More than 5%||1%||4%||Your contribution plus 5%|
TSP Contribution Vesting:
Being vested means having ownership. You are always vested in (entitled to) your contributions and earnings.
If you opted into the BRS, you’re also immediately vested in the Service Matching Contributions and their earnings. To become vested in the Service Automatic (1%) Contribution, you must have completed two years of service. All Service members who have completed two years of service are considered fully vested.
Continuation Pay Bonus
Military members are eligible to receive a Continuation Pay Bonus if they re-enlist for during the Continuation Pay Bonus window. Each service can determine the specific reenlistment requirement, but it will be a minimum of 3 years (some services require 4 years).
The servicemember must have at least eight years of service but less than 12 years of service to be eligible for the Continuation Pay Bonus (service years are determined by the member’s Pay Entry Base Date).
How much is the Continuation Pay Bonus? Each Service determines and publishes its own guidance on continuation pay rates.
- Active Duty Continuation Pay Bonus is between 2.5x to 13x the member’s monthly base pay.
- Guard / Reserve Continuation Pay Bonus is between 0.5x to 6x the monthly basic pay of a member of the same pay grade, as if serving on active duty.
The multipliers are determined by each service based on their specific retention needs, specialty skills, and more. The Continuation Pay Bonus does not consider other reenlistment bonuses which may be in effect.
The servicemember could take the payment in a lump sum, or as annual payments during their reenlistment. Like all reenlistment bonuses, the Continuation Pay would be subject to being recouped if the servicemember failed to finish their enlistment (with limited exceptions).
Defined Benefit Changes (Changes to the Pension Portion)
The previous retirement plans are what most people think about when they think about the military retirement system. The rule of thumb most people use when thinking about the previous military retirement plans is 50% of base pay at 20 years of service.
This is shorthand for using a 2.5% multiplier for their retirement pay multiplier for each year of service. 20 years is the minimum requirement to reach retirement eligibility, which is why it is most frequently used. But you can serve over 20 years and you will still earn an additional 2.5% for each year served. So 20 years is 50%, 25 years is 62.5%, 30 years is 75%, etc.
The Blended Retirement System uses a 2.0% multiplier instead of a 2.5% multiplier, making a 20-year pension worth 40% of the retirement pay multiplier instead of the current 50%. 25 years would be 50%, 30 years would be 60%, etc.
When does retirement pay start?
There are no changes to the start date for retirement pay. Active duty members will receive their retirement pay starting the month after they retire from active duty. Members of the Guard or Reserves will receive their retirement pay at age 60 or earlier if they qualify based on active duty service mobilizations.
Lump Sum Option – Control Over How & When Retirement Pay is Received
Retirees under the Blended Retirement System can choose one of three methods for receiving their retirement benefits.
- No changes to how or when you receive benefits
- Receive 25% Lump Sum of the discounted present value of future retirement payments, in exchange for reduced monthly retired pay, until full Social Security retirement age, which for most is age 67.
- Receive 50% Lump Sum of the discounted present value of future retirement payments, in exchange for reduced monthly retired pay, until full Social Security retirement age, which for most is age 67.
Lump Sum Eligibility:
- Active duty: At retirement after 20 or more YOS.
- National Guard/Reserve: Upon becoming eligible to receive retired pay at age 60 (or earlier with creditable active service).
Lump Sum Election:
- Active duty: Lump sum election must be made no less than 90 days before retirement.
- National Guard/Reserve: No less than 90 days before receipt of retired pay.
How Much Does the Lump Sum option Cost?
When you take either 25 or 50 percent in a lump sum, your monthly paycheck will then be 75 or 50 percent of the full value of your monthly retired pay until you reach full Social Security age, which is age 67 for most individuals.
Is the Lump Sum Option Worth it?
This is a loaded question. The math almost never works in the favor of the retire. But there are times when retirees may need money up front, such as their military transition, starting a business, paying off debt, etc. This option adds flexibility, but also complexity when determining how much the retirement benefits are worth, and this complexity may end up hurting some retirees who end up making a poor decision based on their situation. On the flip side, having the option of taking a lump sum payment up front could help some retirees during their transition into the civilian sector.
This is a situation where it pays to run the numbers and fully understand how much taking the lump sum will cost (taxes, opportunity cost, decreased pension, etc.).
Opting Into the Blended Retirement System
Members who joined after January 1, 2018, are automatically enrolled in the BRS. This is their only option. And Active Duty service members with more than 12 years of service are ineligible to opt into the BRS. The same goes for National Guard and Reserve members with 4,320 retirement Points.
That leaves a large percentage of military members who are eligible to opt-into the BRS. You can do this quickly and easily through MyPay.
Note: The last day to opt into the BRS is December 31, 2018.
The question is, should you Opt-in to the BRS?
There is no right or wrong answer here. But as a general rule of thumb, if you are still young in your career and aren’t sure if you will remain on active duty long enough to earn a military retirement, then it makes sense to opt into the BRS. You will earn automatic contributions and matching contributions to the TSP. And you can take those with you when you leave the military if you decide to separate. That way you have some retirement benefits, even if you don’t earn the military pension. (Remember, over 80% of servicemembers don’t remain on duty until retirement).
The decision becomes more nuanced if you are further along in your career. At some point, you need to sit down and do some soul-searching regarding your career options, try to determine if you will stick around for at least 20 years of service, run some numbers, and make a decision.
Again there is no one-size-fits-all answer. I recommend reading this article on whether or not to opt into the Blended Retirement System. The article was written by a Certified Financial Planner who helps walk through a case study. It’s a great way to look at this from a big picture point of view.
Pros and Cons of the Blended Retirement System
In general, I’m not a fan when military benefits get reduced. Primarily because each reduction makes it easier to repeat in the future. But there is a lot to like here, particularly when it comes to helping the entire military population, not just the 1 in 6 who stay in long enough to retire. I don’t want to take anything away from anyone who served the full 20 years – I have a lot of respect for all of you!
But many served for 12, 14, 16, or 18 years and couldn’t complete the full 20. They are sent on their way with whatever they have in savings and whatever they could put into their TSP or their own investments. This Blended Retirement System gives members a greater incentive to save money in their TSP since the matching funds would equate to receiving free money. The Continuation Pay Bonus would also be an incentive to remain in the service and would be a nice bonus for those already planning on staying in the military.
Finally, the reduced pension isn’t a catastrophic reduction. Yes, 40% of your base pay is a lot less than 50%. Servicemembers who contribute enough to earn the 5% matching agency contributions will have saved at least 10% of their base pay throughout their careers. Depending on how the markets perform, the compounding effects of time may help erase the gap between the two pension plans.
Of course, that’s the big “what if”? We all know many people won’t save the full amount, even if they receive matching contributions, and we have no way of knowing what the markets will return. There is also a big difference between having a fixed pension for life and having some money in the bank that needs to be managed and withdrawn as needed (it’s more complicated due to the tax implications, the need to balance a portfolio, etc.).
Who Wins, and Who Loses?
The big winners would be the military members who serve a few years but don’t make it until retirement. They will have the opportunity to save some money for retirement and take it with them when they leave. And since that is the majority of the military population, there will be a lot of winners.
The government is also a winner, at least in some ways. They will save money on their fixed pension expenses, but much of those savings will be redirected to other servicemembers through the TSP and Continuation Pay Bonuses. Some retirees may also end up as winners, depending on how their investments do and how they take their pension payments.
The losers? I hate to use that term here because everyone currently in the previous system is grandfathered in. So the only people who will be affected are those who haven’t joined yet or those who elect to transfer into this system. I don’t want to discount our future servicemembers because they will carry on the traditions and defense of our nation. But they will join the military with that plan in place, so they aren’t losing out – they will receive what they signed up to receive.
The biggest question mark around this new plan surrounds the variable nature of the benefit. Trading a fixed monthly payment for a lower fixed payment and some money in your Thrift Savings Plan is risky because we can’t predict future returns. It’s impossible to accurately calculate the future value of this plan compared to the current plan. But that is a problem faced by the vast majority of the population and certainly not unique to military members.
Learn more: Visit the BRS Guide for more info.
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Brian Starr says
My other question was what enlisted traditional reservist that does 12 drills and 15 days of annual tour could possibly contribute $18,500 a year when they don’t make that in a year?
Brian Starr says
My question is as a new reservist under the new Blended Retirement System, do you still get the point valuation per day like the people on the old reserve retirement system. Example if an airman with TSgt 11 years and 3,000 points and switch to the blended retirement do they only receive what they put into their TSP?? Being a career advisor this is a huge question that the Airmen want to know.
Doug Nordman says
Brian, the Reserve point-count system stays the same under the BRS. The only change to the BRS pension formula is a multiplier of 2.0% instead of 2.5%. That’s why the BRS pension is 20% smaller than the Reserve legacy High Three pension.
However Reservists also keep their own TSP contributions and the DoD’s BRS agency/matching contributions. If that 11-year TSGT with 3000 points opts in to the BRS, then when they contribute at least 5% of their base pay to the TSP then they’ll receive the full 5% agency/matching contributions from DoD.
If they never get another point or promotion and retire awaiting pay at 20 good years as an E-6, then their pension is calculated from the pay tables in effect when they’re 60 years old– and at the pay longevity as if they’d been on active duty the entire time.
You could estimate that pension with the latest pay tables. E-6 pay tops out at $4047/month in 2019, in 2018 it was $3944.10/month, and in 2016 it was $3772.50/month. The High Three average (2018, 2017, and 2016) is $3921.20. The estimated pension would be
(3000 / 360) x 2.0% x $3921.20 = $653/month in 2019 dollars.
(That amount would be higher at age 60 in future dollars.)
Of course this Reservist would certainly accumulate at least 500 more points during their career and perhaps a promotion or two.
In addition to the pension, the Reserve retiree would have all of their own TSP contributions over the years (at least 5% of their base pay) plus the BRS 5% agency/matching contributions.
Doug Nordman says
You make a good point, Brian! The answer is “only a handful, unless they do more orders”.
Even an E-9>38 earning $8242/month in 2019, and reaching 78 points (48 drills, 15 days of AT, 15 participation points, not considering any limits on annual points) would only have base-pay earnings of $21,429.20. They might have specialty pays or bonus pay as well.
However the TSP contribution limits ($19,000 in 2019) are set by federal law for 401(k)s and not by DoD. A Reservist who wanted to hit those contribution limits from their drill pay would have to do some extra orders or mobilize.
Keep in mind that those contribution limits are tracked by Social Security Number, so a Reservist with a civilian career would have that $19K limit apply to the total of their contributions to their civilian 401(k) as well as their TSP. That’s in a footnote to the contributions table on the TSP website:
Chief Mac says
Doug, I have some serious questions about this BRS as it appears to really hose over the reservists. First off it appears from utilizing the calc, the matching is only based on what a reservist gets in a weekend Drill Pay !! not on their Base pay.
That’s BS, It should be based on my base pay the same as active duty and I should be allowed to contribute up to 92% of my base pay per month or until I hit the maximum allowed for the TSP annually.
The way it sits right now an E7 with 12 yrs in, is going to get a match of a measly 460 to 500 bucks A YEAR ! If I finish my next 8 years I will get a total match of 4200.00 bucks. that is an utter joke! and I can only put a percentage of my weekend Drill pay as per the MYPAY site, even maxing it out at 92% still only allows about 7k a year!
How do I find out what amount of money I start with in my TSP for my current time served so I know what amount of money I am starting with when I opt into this BRS?
And I assume I can put the maximum amount allowed by the GOV into the TSP from my own money from my civilian job even though I wont get Matched, yes ? no ?? that’s not stated anywhere in the training either.
This is really poorly explained on ALL gov sites.
Doug Nordman says
Chief, the amount of the DoD BRS TSP contribution for each month is determined by the amount of base pay which is contributed by the servicemember that month. It’s 5% of a month’s base pay for active duty because they’re on duty all month long and they contributed (at least) 5% of their base pay. For a Reserve/Guard servicemember, it’s 5% of the amount of base pay earned during that time period, assuming the Reserve/Guard member contributes at least 5% of the amount of base pay they earned.
If the only military duty performed by a Reservist that month is the weekend drill, and they contribute at least 5% of that drill weekend’s base pay to the BRS, then the DoD BRS match would be 5% of the base pay earned during the drill weekend– not 5% of an entire month of base pay.
As you said, it’s set by the base pay for both Reserve/Guard and active-duty servicemembers. The active-duty members worked all month. The Reserve/Guard members worked for a drill weekend.
If the Reserve/Guard members were on active-duty orders of at least 30 days (and contributed at least 5% of their base pay to the TSP) then their DoD BRS TSP contribution would also be 5% of a month of base pay– the same amount of money the DoD BRS contributed that month to an active-duty servicemember’s TSP account.
However you can still contribute up to $18,500 of your Reserve pay to your TSP every year, and the DoD BRS match is not included in that $18,500 elective deferral limit.
DFAS’ MyPay software will allow up to 92% of all pay (specialty & bonus as well as base pay) to be contributed to the traditional TSP. (7.45% is reserved to pay FICA.) The various DFAS pay systems will allow about 60%-65% of all pay to be contributed to the Roth TSP. (Again the rest of the money is supposed to be set aside for tax withholding and FICA.) If I remember correctly, MyPay is set at 60% and Marine Online is set at 65%.
When you do a drill weekend (four drills) as an E-7>12, that’s $558.24.
If you contribute at least 5% of that to your TSP then the DoD BRS contribution will be 5% of $558.24 or $27.91. Over a year of 10 drill weekends that adds up to $279.10. If you do two weeks of AT (14 days of pay or 14 drills) then the BRS contribution is $139.56 x 14 x 5% = $97.69. The entire year’s DoD BRS contribution is $376.79. Over eight years that would be roughly $3200 (from DoD) because you’d continue to accrue seniority and receive annual pay raises.
Meanwhile those 10 drill weekends and 14 days of AT earned 54 drills or 54 x $139.56 = $7536.24. You could contribute 92% of that to the traditional TSP ($6933.34) or 60% to the Roth TSP ($4521.74). Over eight years your contributions would add up and the entire account would compound in the TSP’s investment funds.
For a Reserve/Guard member to contribute $18,500 to their traditional TSP account, they’d have to gross at least $18,500 / 92% = $20,108.70. For an E-7>12 earning $139.56 base pay per drill that’d be 144 drills– 10 drill weekends and 104 days of active-duty orders, or 12 drill weekends and 96 days of active duty.
You can check your TSP balance in your TSP account (both traditional and Roth TSP). You can check your percentage contribution settings in MyPay (MOL for Marines, Direct Access for USCG and NOAA). Each month’s LES will also have fields reflecting the DoD BRS 1% agency automatic contribution, the DoD BRS 4% agency match.
The TSP only accepts contributions from federal government pay (federal civil service and military). You can’t contribute civilian corporate pay directly to the TSP, although your employer might have a civilian 401(k) plan. (The TSP is based on the same Section 401(k) of the tax code.) You could also contribute self-employment income to similar retirement accounts like a Solo 401(k). The DoD training materials don’t include this information because it’s outside of the scope of the BRS and the TSP programs.
However the TSP website mentions that you can roll a 401(k) account into the TSP (https://www.tsp.gov/PDF/formspubs/high14d.pdf). You can even roll a traditional IRA into the traditional TSP.
As for the quality of the explanations on the government websites, I can forward your (anonymous) feedback to the DoD BRS office for them to clarify the Reserve/Guard portions of the curriculum.
Question for you. It seems that the BRS did not auto-match for anyone I know on our January LES. Should we expect auto contributions starting the month after our initial contribution? Everyone I know signed up for it the first week of January and did the 5%.
Military Millions says
Yes, those who opted in in early JAN start getting the BRS match 1 FEB.
ThMil Phys says
I know people that signed up on 03JAN that saw matched contributions on January LES. I also know someone who signed up on 08JAN who did NOT see matched contributions on January LES. There seems to be a cutoff in between there where January matches stopped. I have a request in from MyPay to clarify as well as answer the “back pay” question. But if you signed up in January you should see it start in February for sure, but the question is will you see January’s match?
If anyone else has additional info, please share!
Doug Nordman says
As others have mentioned, Austin, I think we’re using different words for the same concepts. It looks like DFAS and the TSP are giving early-opt-in BRS members their January DoD match, and another week will produce more evidence.
First, military pay (and pensions) are in arrears. We have to stick around for an entire month before we get the full pay (mid-month pay is just an advance) and an LES. People who opted in to BRS in early January are getting the match at the end of January, and it’s showing up in their LES. DFAS will probably deposit the DoD match to TSPs around 2 February, and we’ll be able to check that on TSP account activity. The 2018 end-of-year match (deposited on 2 January 2019) will probably show up in 2018 summaries and tax forms.
Second, I think the different services are showing the DFAS transactions at different times. There shouldn’t be a cutoff between an Air Force servicemember who signed up at 6 AM EST 1 Jan and an Army officer who signed up six hours later, despite the lack of LES evidence. Most of the services process their payrolls during the second half of the month (~20th) so I’d opt in as soon as possible.
This is not particularly related to the BRS decision but I’d appreciate your thoughts : If I’m encouraging my son to invest heavily in the Roth TSP and IRA , isn’t that money effectively behind a wall between 45 (military retirement age) and 60 years of age? Doug I’m curious as to how you reached financial independence (or suggest others) to fund the gap years without having to work. The military retirement (current or BRS) is generous but not hardly caviar and champagne level.
As always, thanks for your excellent website and advice!
Doug Nordman says
Good question, Phil, and a very frequent one.
This post explains all of the ways to tap IRAs and TSPs before age 59.5. All of those methods are penalty-free, and most of them are free of taxes.
A number of readers have retired on their military pensions, although they prefer financial independence to caviar & champagne. FI is based on saving up at least 25x your projected net expenses, which is the tripwire for the 4% Safe Withdrawal Rate. That can be reached within 20 years (even without a pension) by a high savings rate of at least 40% and an asset allocation high in equities. If a servicemember is among the 1 out of 6 who make to a pension then their FI portfolio survival is amply protected by an inflation-fighting lifetime annuity and cheap healthcare.
Thanks for taking the time to answer. I appreciate the informative link and it looks like there are more options than I was originally aware of. I think, like you’ve posted, the best option is to kick in considerably to a taxable account once the Roth TSP and Roth IRA are maxed out.
And my choice of words was very poor when I referred to the caviar and champagne. I should have said living in a tropical island and spending a majority of time at the beach surfing. ????????????
Seriously, thanks for taking the time to help!
What percentage of officers that make O4 retire? I could not find that information in the study, do you know if that info is out there?
Thanks for all of the info on your site!
Employee contribution and max annual addition limit is something nobody is really talking about with the BRS. Having government match now allows members to have the ability to put in >18,500 per year in to their TSP (respecting the Roth vs. Traditional rules regarding matches). Unfortunately most members aren’t able to max out their TSP, but for those who are and are looking for more tax-advantaged ways to save, this essentially opens up that avenue. (As long as I understand it correctly).
i.e. if I choose to put 18,500 in to TSP (roth or traditional), the government will match 5% of my base pay (lets say 2000 government match in to traditional TSP). That essentially means I am now able to contribute 20,500 dollars per year to my TSP since employee contributions apply to max annual addition limit and not elective deferral limit.
Is this correct?
Thanks for taking the time to reply. I know this is a difficult time for you. It is very gracious for you to offer your advice and help to others via this website.
I agree about the deployment being a leadership issue vs a pay or TSP issue, but he’s not in a position to alienate higher ups for an issue that’s no ta concern for them. Sometimes in life we just have to make the best of a situation that’s not to our favor.
So if my understanding (and math) is correct, the best way for me to calculate the maximum Roth TSP contribution he can make for 2018 is to take his base salary for the year and prorate it for 7 months (his anniversary raise will occur in August), calculate his new pay rate for 5 months, and also calculate the pay rate for a possible promotion (a long shot but still possible) for the months of the year that may be in effect, and that would give me the maximum possible base salary he would have for 2018. If I divide $18,500. by that amount I will arrive at the percentage to set his Roth TSP contribution rate at to insure he does not exceed the cap.
I recognize that this will more than likely leave him not quite at the max contribution rate if the promotion doesn’t occur, but I think that might be somewhat alleviated by the new Roth IRA he opened this weekend. If he contributes the max to the Roth IRA he will be investing more overall than last year in just the Roth TSP and getting the match, so he wont be in bad shape, just missing a small amount by being slightly under the max for the TSP.
As to the “set it and forget it” aspect, that’s EXACTLY my frustration with this whole thing. My son will tell you I am constantly telling him that’s why we set his TSP up with a higher than normal contribution rate. We knew he would exceed the cap early in the year but then all he had to worry about was diverting the larger end of year paycheck monies to a taxable brokerage account after his deductions for the year stopped.. We would never have to change the TSP contributions since there were times it was not convenient or possible to do so.
Again, I’m hoping my match is correct. If you see a better way of handling this issue I’d appreciate your suggestions. Thanks for taking the time to answer my questions. And thanks for your service to our country.
PS – The continuation pay is a whole other matter. My math is nowhere near good enough to calculate that mid way through the year. That might get diverted to the after tax brokerage account in its entirety. Money is fungible, right? LOL
Does the government “match” count towards the annual contribution limit? If a service member is currently contributing the maximum allowed for the year ($18,500 for 2018) will said member have to reduce their contribution by 5% to allow for the government match portion?
The 5% match (really 4% match plus 1% auto contribution) is a percentage of your salary, not a percentage of your contribution. An E-3 over 2 years who contributes at least 5% of his pay will get an extra $1231 in matching funds. An O-5 over 20 years gets an extra $5405.
So if one wants to max their TSP contribution and ensure receiving the full match, the contribution percentage will need to be recalculated / submitted every year to insure the annual TSP cap isn’t reached before the end of the year? My son spent 8 months deployed to a very forward base in 2016 and couldn’t take advantage of the savings deposit program because no one from finance ever travelled to his area of operations, I’d expect the same frustration if he needed to change his TSP contribution.
I don’t understand the question. 5% of $18,500 is $925. You want to put enough in to get the full match each month. I haven’t seen a dollar cap on how much matching funds one can earn each month.
TSP elections are all self service through Mypay. SDP does require assistance from Finance, but I’m not aware that it has to be done in person.
Doug Nordman says
That’s partially correct, Phil. If you wanted to maximize the 2017 TSP contribution of $18,000 then you’d need to figure out the percentage of $1500/month in base pay. (Because $1500/month x 12 months = $18K.) In 2018, with a TSP contribution limit of $18,500, it’d need to be $1541.67/month.
The good news is that $1541.67/month is far more than 5%/month for everyone. (Even for an admiral or general it’s still nearly 10%.) Every servicemember putting in at least 5% of their base pay will still maximize their BRS match from DoD without going over the contribution limit. (The matching contributions do not count toward the $18,500 annual limit.) However a servicemember putting a re-enlistment bonus, an annual incentive bonus, or a Continuation Pay amount in their TSP would have to make sure that they leave enough room for a full year of contributions in order to earn a full year of DoD matching contributions.
And yes, that contribution percentage needs to be checked every year to make sure that the servicemember is going to reach the limit. The good news is that if the member goes over the limit then the TSP will accept part of the contribution (up to the limit) and then kick back the rest to DFAS. We’ve verified this several times through personal experience with other milbloggers in various services.
The reason that the TSP contributions have been changed to percentages (instead of fixed dollars) is to allow enough remaining income to pay federal & state income taxes. Traditional TSP contributions are limited to 92% (the other 7.45% goes to FICA) and Roth TSP contributions are limited to about 60%-65% (varies by service) to allow for regular income taxes (because Roth TSP contributions are made before taxes).
Another reason that the TSP contributions are in percentages is to make it easier for servicemembers to “set and forget”. Even if they get a pay raise, a longevity raise, or a promotion then they’ll still contribute the same percentage (yet a higher dollar amount) to the TSP. Sadly, many TSP account owners have never changed their contribution percentages from the day they signed up.
I understand the access problem of being at a FOB. (During my submarine sea duty I would be locked out of communicating for up to 90 days at a time.) On the FOB, however, this is a situation requiring the command to send message traffic or an e-mail to a finance office to have them take care of the servicemember. It’s not a problem with the TSP or the SDP– it’s a problem with the leadership.
No, the $18,500 is what the service member can contribute. The government match is above and beyond.
Doug Nordman says
Good question, Phil, and it causes a lot of confusion.
The DoD match does not count toward the annual elective deferral contribution limit ($18,500 in 2018) but it does count against the annual addition limit ($55K in 2018). See those details at this TSP link:
Note all the fine print below the table explaining the limits in the traditional TSP and Roth TSP accounts.
The annual addition limit only kicks in for deployments to combat zones (or similar areas)– those are designated by DoD and listed by the IRS. You can see those areas here:
A servicemember in this area could contribute a total of $55K/year, but servicmembers enrolled in the Blended Retirement System would have to reduce their contribution by $2750 (5% of $55K) to make sure that they receive the full DoD matching contribution. As you mentioned in another comment, that’s more MyPay percentage math to make sure the servicemember’s TSP contribution stayed below $4354.17/month.
And yes, we do hear from readers in combat zones who contribute 60%-92% of their base pay (and other incentive pays) to their TSP in order to reach the $55K annual addition limit. They do it by living off a spouse’s income or by drawing down their taxable investment accounts. See this post:
peter gregory says
I have stated a number of times that if the BRS existed when I joined the Navy in 1985, and with foreknowledge that I would serve 23 years, yes I would have chosen the BRS over the 20 year cliff vesting, all things being equal.
That stated though the core issue with BRS is not the BRS, it is people. Behavioral psychology is that when you offer people a complexity of info or choices, they default to the most simple and clear. Hence the vast majority of BRS military will default to the TSP govt. bond fund, hence lose money over time. Also most 18, 20 year olds do not possess the ability or conceptualize the principle of delayed consumption or delayed need gratification required for successful investing and financial independence. We will see over time, but I think at the 12, 15, 20 career mark, many will be disappointment as to where they stand in their financial lives.
Military Dollar says
Thanks for the great post, Nords. I’ll be sharing it on Saturday…a day I hope people will sit down and really absorb what it says. My BRS series has proven pretty popular and I’m working on another post about it now. You are right, people have a lot of questions – and the time to get those questions answered is NOW.
Still In The Military says
Great article! We’ve got a resource center with links to all things BRS that you might find useful. I’ll be adding this article to it as well. You can find it here:
Doug Nordman says
Doug Nordman says
Thanks, Military Dollar, I just hope people start discussing and deciding.
Military Dollar says
Hi Nords, here’s the update for the USAF Continuation Pay: https://militarypay.defense.gov/Portals/3/Documents/BlendedRetirementDocuments/Continuation%20Pay%20Rates%2011.17.2017.pdf?ver=2017-11-17-135617-183
It’s the same as the other services: 2.5x multiplier for Active Component, 0.5x multiplier for Reserve Component, offered at 12 years TIS, and with a 4 year obligation. I’m waiting to see the actual memo, which is not linked in the DOD announcement yet.
Doug Nordman says
Thanks, I updated the link! I guess the memo has to be tracked down at AFPC behind a firewall.
peter gregory says
The real acid test of the BRS will not be how many do take the option when presented, but how those folks will behave in the next bear market or recession. And neither has been outlawed to the best of my knowledge. For the average 20 year old recruit, the 2008-10 experience provides them no frame or reference or experience. The Vanguard 2020 target date fund (as example) lost about 35% of its value over an 18 month period last recession. Its when those folks who open their TSP statements and see the value of their investments drop over a reporting period that the decisions will be either too keep the course, or redeem/sell at a loss and flee to the govt. treasury fund. At times investment discipline and lessons are only learned the hard way. As I did the early 80’s and 2001.
Aaron W says
5% of pretax dollars matched on enlisted first term pay is as low as $74 and never more than $115 in those first 4 years, and assumes the member elects for a 5% TSP deposit. It’s cool, but if they stay 20 they’ve given up 10% of their retirement pay – at a high rank – for life a (which is, at a minimum of E6 pay at 20yrs of service, $1625/month) where 50% is worth $812. 81/month from 40-54.5yrs old, and $81/month continuing for life. The High-3 system allows more money earlier, as opposed to the risk/reward of a short term of 5% matching. That 5% over short-term service has very little reward (if any, depending on markets) AND cannot make a TSP withdrawal until 54.5yrs old. I think you have to weigh the opportunity cost of that 5% match vs. years of the “extra” 10% retirement pay.
WHO ARE THE BRAIN DEAD? Where do I start? There was a point when the Defense Department was concerned about retaining the professionals. I believe there are plans for a build-up of personnel. Having a professional force should be the number one objective in the Defense Department. Warfare of today, is certainly different then in the past, particularly with the situation in the middle east. It is bad enough that a soldiers should have to be deployed let alone four or five times and someone wants to decrease their benefits? I retired in 1986 and I didn’t receive all the benefits I was previously entitled too, but to cut a retiree’s pay is an over reach. I want a professional force protecting me. It appears this so called retirement package is a combination of taking from the deserving and giving a handout to a so called weekend warrior i.e. a few years for your service thank you and good bye. So where are the quality soldiers going to come from? I retired as a first sergeant with three children, I lived from pay check to pay check To think that an enlisted man is going to have additional funds to contributed to the Thrift Plan is a total joke. After leaving the service, my next job enabled me to join the Thrift Plan. Government matching funds were 5% not 1% nor 2% or 4%. So here again, it’s not only a cut in the retirement but also a cut in matching funds by the government in the Thrift Plan.
For those who might enlisted for a short time, why not just offer them the opportunity to invest in the Thrift Plan without matching funds. I had been in the Thrift Plan for over 20 years and I was able to make some money but I made some terrible choices when I was in. the Thrift Plan offers a great opportunity and I think all soldiers should have access to it whether it be matching funds or just being able to join. When it comes to a contribution from the government, it should be focused on those who sacrifice everything to serve our country as a career soldier. I would just ask how many of these brain dead people in this dream machine have served? Let’s take a look at their base pay and their retirement. God forbid we do that
Do you know much about this new retirement plan in regard to being able to pull out a portion of your retirement. The REDUX is horrible! Has anything changed? I retire in a a couple years and my wife and I have incurred some debt putting her through med school. I was looking at the idea of possibly pulling from my retirement to pay off some debt. My wife will be making decent money and I’ll be 42 when I retire and plan to work for another 15-20. Can you elaborate a little more on how that might work under this knew system? Thank you!
Ryan Guina says
Hello Jon, Thank you for contacting me. You are correct – the REDUX retirement plan is terrible. It’s almost never a good idea for the retiree.
The new Blended Retirement System will allow members to take a small percentage of their retirement up front, at a predetermined discount rate. This would reduce the member’s fixed pension. Again, the numbers generally work in favor of the government.
Also, you have to switch to the new retirement system in order to do this. It sounds like you may not be eligible to make the switch if you are already near retirement. (you need fewer than 12 years of service as of January 1, 2018 to be able to change to the new Blended Retirement System). The new retirement system doesn’t make sense for many people with a lot of service, as they won’t have time for the TSP contributions and earnings to make up the lost ground from the decreased pension (the pension is 20% lower under the new plan).
It sounds like your best option is to look for other ways to pay off the student loans. I would start by looking into refinancing to a lower interest rate, and even job placement plans that can allow for faster payoff. Look into government service repayment plans as well, as that may be an option.
I wish you and your wife the best, and thank you for your service!
Ernie Gallego says
First of all 50% of your base pay for retirement isn’t enough to survive specially if you have a spouse and kids to support, and if you are lower than an E-7 rank you are screw. Might as well find yourself another decent paying job just to survive since everything has gone up so high, and your cost of living increases are not that good. What need to be done is to lower the salaries of all congress members to a decent level and set term limits on this people. We in the military spend 90% of our lives defending this country against foreign and domestic enemies and get a misery of a retirement while this politicians serve one term and get the same salary all their lives, I don’t think that is fair, increase the military retirement pay to 100% of base pay or at least 75% and maybe it will be decent enough to call it a living, the majority of people who never been in the military believe that anybody who retires from the military are get thousands of dollars in retirement pay, very naive thoughts.
Ryan Guina says
Hello Ernie, Thank you for sharing your opinion. I agree that most military retirees will need to work another job after they retire from the military. But having the military retirement pay and health care for life reduces the amount one needs to earn to support themselves and their families after they retire. It’s an amazing piece of security that most people will never have.
I would also like to point out that Congress members do not receive their full pay for the rest of their lives after only serving one term. They follow the same rules as federal employees (Federal Employees Retirement System) and need a minimum of 20 years of service to begin receiving a pension at age 50. They can receive a partial pension at age 62 if they have served at least 5 years in the federal service. But it wouldn’t be anywhere close to heir full pay (retirement pay is capped at 80% of their highest 3 years of pay. This article gives some examples of Congressional pensions. Wikipedia also has a good explanation.
It should also be noted that Congressional representatives also pay social security and pay for their own health care. Those are common rumors about Congressional pay and benefits.
Again, thank you for sharing your thoughts on the military retirement system!
Current Officer says
I believe that those opposed to re-thinking the current system are those that are receiving or plan to receive the generous pension of either 40% or 50% after 20 years of service. This really boils down to helping those young 18-35 year olds who put their life on the line, jeopardize their family happiness, get out, and walk away with a pat on the back. I am an active duty officer and can tell you that the 20-year retirement system encourages the worst of the military to stay in because they fear anything outside the military. Once you hit the 10-year mark, one’s mind begins to shift from doing this job for your country, to doing this to hit the 20-year mark and people literally turn in to slaves of the 20-year retirement. We need incentives for good people to stay in up to the 12-year mark and give them two good options for either staying or leaving. The current all or nothing system encourages laziness and an over emphasis on getting a fat check when you retire. It needs to change.
COLA? What is the proposed COLA under the new retirement system? Is it “equally to” like the high 3 or “minus 1” like redux?
Ryan Guina says
CB, Thank you for contacting me. The COLA is the same as the High-3 retirement system. It is not a reduced COLA similar to the REDUX retirement program.
Do you have an official source for this information? I am conducting some research and have been unable to find where COLA is addressed in the BRS documentation.
Ryan Guina says
Hello Bret, Thank you for contacting me. This is a great question.
I recently participated in a Blogger Roundtable that was hosted by the Pentagon group that is overseeing the creation and release of the official BRS training. They gave us some references, including the official site. So far I haven’t heard of any changes regarding COLA. So far as I am aware, this is the same as under the High-3 system, and follows the same COLA used by the Social Security System. There is not a reduction in COLA as is found in the Redux system.
Thank you for the information. I still haven’t found any mention of the COLA calculation in the BRS documents that have been released.
However, I did find it in the DOD Actuary’s 2016 statistical report. You were right, it is full CPI. Just in case you were interested, it is on page 15 of this report.
I can’t read your long articles because they are not formatted correctly for iOS. They are cut-off on the right margin. Your newsletter page via email is okay. In your newsletter you continue to refer to military retired pay as a pension. That is incorrect and part of the problem! Military retired pay is deferred compensation. The concepts are vastly different. Retired personnel are subject to recall to active duty by their Service Secretaries. No civilian pension has that string attached. We must not continue to try to civilianize the military! It won’t work and it is dangerous to our national defense. These retirement pay changes are bad for our country. They will lead to another retention nightmare, recruitment slide, and a hollow force.
Ryan Guina says
Mike, Thanks for contacting me and letting me know about the iOS issue. I will look into this and try to get the site formatted correctly.
Regarding retirement pay: I’ve also heard it referred to as “reduced pay for reduced current services.” Here is a legal reference to that statement.
Yes, this is technically different than a pension. But they are very similar, and for colloquial use and for shorthand, the term pension is generally acceptable. Using the phrase, “when calculating your reduced pay for reduced current services,” ten times in an article would be cumbersome and a disservice to the reader.
Can military members be recalled to active duty? Yes, certainly. But it is rare, even in times of war, including recent times such as after 9/11. It is an unlikely situation for most retirees. There is no requirement that retired servicemembers maintain the physical standards or on the job training standards required for military duty. There are also age requirements for military service. After a certain point (usually age based or if they are not physically fit enough to serve), most retirees fall outside of the recall window and would not be recalled under any circumstance.
In general, the risk of being recalled only falls upon those who are recently retired, and even then, usually those where there is a shortfall in their specific skill set, job (MOS, AFSC, Rating, etc.), or rank.
Of course, this could theoretically all go out the window in the event of a large scale war. But we could always address that point if it happens.
Thanks again for your comment, and I’ll look into the site design to see if I can get a coder to help with the layout.
yes the military is less likely to call service members back to active duty, but they do it. what they will do and have done by the hundreds of thousands is use stop loss, that is to say you can not leave even if your time is up. that makes your stay as long as they want it to be, you can see your family when they say you can. there is no civilian job like that any where in the country. this new retirement will help to erode the military. there is no reason to stay for 20 years or even any longer than it takes to learn a skill and leave. that 17% would probably be 2% if there was no sure fire retirement at 20 years. these are the leaders and trainers that are going to leave, and what happens when the market crashes again like it did in 2008, everyone’s retirement accounts will loose 80% of its value or more. its just a bad bad deal for the military retirees .
Dave Phillips says
I am not too much in favor of this for 2 reasons. First: your retirement would drop from the already low 50% of your base pay to 40%. Second: It may lead to a lower retention rate in the future of qualified members. Is the government doing this to save money in the long run? If so I think its a shame.
Seeing how only 17% of all military members actually remain in the service long enough to qualify for the 20-year retirement, I don’t see the logic of your argument.
There won’t be lower retention issues under this new system. Retention issues will arise from reduction in military pay that does not keep pace with inflation or cost of living, toxic leadership, or organizational inefficiency to name a few.
Still In The Military says
If they choose not to manage their investments, the TSP defaults to the most age appropriate Lifecycle Fund, the military’s version of target date funds, instead of the low-risk G fund, which is the default in the current system. This change alone will likely force service members to take on additional but appropriate investment risk and (hopefully) will allow them to achieve increased investment returns.
Doug Nordman says
Thanks, SITM, exactly.
As for the rest of your comments, Peter, I don’t think that future servicemembers’ financial behavior can get much worse than that of todays’ servicemembers. At least those new young adults will *have* a TSP account and some actual contributions. Today’s hope of cliff-vesting at 20 is not a plan.
Doug Nordman says
I’m happy to help, Phil, and this is good keyboard therapy while I’m working on my father’s estate.
Your method should work. He’ll contribute at least 5% of his base pay per month (which will ensure the maximum DoD matching contribution of the BRS), he’ll space the contributions through all 12 months, and he’ll still hit $18,500 for the annual limit. When that promotion comes through he can keep saving at least 80% of that pay raise to accelerate his journey to financial independence.
You’re also right about the Continuation Pay bonus. However if he signs the contract in a combat zone then his TSP annual addition limit is $55,000 (which now includes the DoD matching contributions). In that situation, a lot of that continuation pay could end up in the TSP. And if he’s not in a combat zone then you’re right– it’ll flow over into a Roth IRA and a taxable account. All of that makes the BRS a revenue-neutral (at least) choice over High Three, and offers an opportunity to save enough to compound even more than the bigger High Three pension.
I hear you on the leadership issue. You’d hope that a command financial specialist could help, or that there’d be enough bandwidth to log in via smartphone or workstation.
Still In The Military says
Yes, that’s correct!
Doug Nordman says
As SITM says, absolutely. You’re still contributing $18,500/year but DoD is kicking in another $2000 of free money that does not count against this lower limit.
When you’re in a situation for the annual addition limit (combat zone or direct support), then the math gets more complicated. However several active-duty military personal-finance bloggers are already doing this during their deployments, and I know several more readers who are working through it. When you approach a deployment, contact us to go through the details and make it work for you.
Doug Nordman says
Alex, that information is locked away in the databases of the Defense Manpower Data Center, and it’s not public. The best we know is that about 50% of officers, across all of the services and specialties, will serve for 20 years. I suspect that percentage is the lowest for infantry officers.
We’ve asked DoD to publish information on retirement eligibility broken down by rank, service, and community. We’re probably going to have to submit a Freedom Of Information Act request to get it.