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The Blended Retirement System (BRS), also known as the “new military retirement plan,” is a type of military retirement pension offered to eligible service members by the United States government. It’s called the “blended” system because it combines aspects of the traditional military pension system with the Thrift Savings Plan (TSP) — a defined contribution plan similar to a 401(k).
The Blended Retirement System offers complexity compared to past plans. In this article, we’ll cover BRS eligibility and benefits, discuss the differences between the BRS vs. High-36, and BRS pros and cons so that you can navigate your benefits confidently.
Blended Retirement System Eligibility
All servicemembers who entered the military on or after January 1, 2018, are automatically enrolled in the Blended Retirement System. This applies to active duty military and National Guard and Reserves.
Servicemembers who had already retired and those who joined the military before January 1, 2018, were grandfathered into the current military retirement systems (High Pay, High-36, or REDUX).
Many servicemembers had the choice of opting into the Blended Retirement System, however, the last day to opt in was December 31, 2018. Servicemembers who did not opt into the plan by that deadline remained enrolled in the High-36 retirement program.
Why was the Blended Retirement System created?
The Senate Armed Services Committee passed the Blended Retirement System as part of the FY 2016 National Defense Authorization Act (NDAA). The 2016 NDAA featured several major proposals, including military retirement reform, personnel reform, as well as headquarters and management reform. Perhaps the biggest changes were those made to the military retirement system, which had seen little change in the past several decades.
There were several reasons the DoD wanted to change the military retirement system. The annual fixed cost to the government was certainly a concern, as it is growing every year with more retirees and COLA increases.
But there was also a desire to make the military retirement system closer to what people might find in the civilian sector. Many civilian employees have portable retirement plans they can take when they leave their jobs, often in the form of a 401k or similar retirement plan.
Military Retirement System Overview
Before the creation of the Blended Retirement System, prior military retirement plans all relied on a “cliff-vesting” strategy, meaning the benefits operated on an all-or-nothing basis. With the old plan, you were only eligible for lifetime retirement pay if you reached the required 20 years of service or an eligible amount of Guard/Reserve points. You would get nothing if you failed to meet these requirements (barring early military and medical retirees).
A study by the Department of Defense (DoD) found that only 10% of Enlisted personnel and 30% of Officers reach military retirement, while a 2022 study revealed that Officers made up 18% of all military, with Enlisted comprising 82%. This data suggests only 13.6% of all servicemembers make it to military retirement. To put this in perspective, under the old military pension system, 87.4% of servicemembers wouldn’t receive long-term retirement benefits for their military service.
To better compensate servicemembers who don’t complete all 20 years of service, the DoD created the Blended Retirement System. Unlike old military pensions, the Thrift Savings Plan under the BRS is portable and includes contribution matching. Now, members can typically transfer their TSP account and contributions upon leaving the military.
Blended Retirement System vs. Legacy
While it is too late to opt into the Blended Retirement System, comparing it with the Legacy (aka High-36) plan sheds light on how military retirement options have shifted. This comparison helps servicemembers understand their financial choices for the future.
Under the High-36 retirement system, you receive no retirement benefits if you leave before 20 years. If you do make it to military retirement, you receive a pension that is calculated by multiplying your years of service and the average of your 36 highest months of pay by 2.5%. For example, retiring at the minimum of 20 years of service would equate to 50% of the average of your highest 36 months of base pay. The longer you serve past retirement age, the higher the percentage of your base pay you’ll earn, up to a maximum of 102.5%.
In comparison, the BRS offers a much more layered approach to benefits, with access to certain benefits increasing as you continue service. Like the High-36, under BRS, you only get access to retirement pay for life if you stay in for 20 years, and your pension increases the longer you serve. However, the BRS multiplier is 2.0% of your base pay, instead of 2.5% under the High-26 retirement plan.
Let’s take a look at how your pension changes with more service time under the BRS vs. the High-36 plan:
| Years of Service | 20 | 21 | 22 | 23 | 24 | 25 | 30 | 35 | 40 | 21 |
|---|---|---|---|---|---|---|---|---|---|---|
| High-36 | 50% | 52.5% | 55% | 57.5% | 60% | 62.5% | 75% | 87.5% | 100% | 102.5% |
| BRS | 40% | 42% | 44% | 46% | 48% | 50% | 60% | 70% | 80% | 82% |
The reduction in pay under the BRS is a tradeoff for the portability and matching contribution benefit added to the Thrift Savings Plan. While the TSP is available for High-36 retirees, they do not receive contribution matching. These added benefits are an excellent advantage for servicemembers who leave the service before reaching 20 years.
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New Military Retirement Plan Benefits
The Blended Retirement System has introduced significant changes to military retirement benefits. Under the BRS, servicemembers have access to a portable Thrift Savings Plan with matching contributions, a career continuation bonus, and a pension.
Let’s take a look at how BRS benefits accumulate over time.
| Time in Service | BRS Benefit |
|---|---|
| After 60 Days | 1% of your base pay is automatically contributed to your TSP |
| After 1 Year | The DoD matches an additional 4% of your TSP contributions |
| Year 2 | You become fully vested in all TSP earnings |
| Years 8 to 12 | You are eligible for a continuation pay bonus |
| Year 20 | You are eligible to retire. You can choose to receive 40% of base pay for life OR opt into a Lump Sum for an advance of 25% or 50% of your pension |
Now, we’ll review a detailed breakdown of each of the benefits offered as part of the Blended Retirement System.
BRS Pension
The Blended Retirement System’s monthly pay is calculated very similarly to the High-36 retirement plan, except it uses a 2.0% multiplier instead of a 2.5% multiplier, meaning at 20 years of service, your monthly payout is only 40% of your base pay instead of 50%.
To find your estimated retirement pay under BRS, take (years of service) x (2.0%) x (average of your highest 36 months of base pay).
BRS Thrift Savings Plan
The Thrift Savings Plan is not a new military benefit, but under the BRS, servicemembers receive Service Matching contributions from the government.
Once you’ve served for 60 days, 1% of your base pay will automatically be added to your TSP account each month. The DoD provides this 1%, meaning it doesn’t count toward the amount you contribute. After you’ve served two years, you will start receiving “Service Matching Contributions,” which match what you put in up to 4%.
If you opted into the BRS, you began receiving Service Matching Contributions immediately.
| Amount You Contribute | Service Matching Contribution | Automatic Contribution | Total |
| 0% | 0% | 1% | 1% |
| 1% | 1% | 1% | 3% |
| 2% | 2% | 1% | 5% |
| 3% | 3% | 1% | 7% |
| 4% | 3.5% | 1% | 8.5% |
| 5% | 4% | 1% | 10% |
| More than 5% | 4% | 1% | Your % + 5% |
If you joined the service on or after January 1, 2018, you are also automatically enrolled into the TSP lifecycle fund, an investment option that automatically adjusts its investment mix to help optimize earnings before the servicemember’s target retirement date. The lifecycle plan automatically enrolls a certain percentage of your pay toward your TSP each year. If you want, you can opt out of this fund.
Another advantage of the TSP under the Blended Retirement System is that you are vested in (entitled to) your contributions and earnings. However, you must serve two years before all of your earnings–including what the DoD provides–are fully portable.
If you served two full years before opting into the BRS, you were automatically vested in all contributions and earnings.
BRS Continuation Pay Bonus
The Blended Retirement System also offers eligible servicemembers a continuation pay bonus if they re-enlist between years 8 and 12 of service. The servicemember’s Pay Entry Base Date (PEBD) determines their years of eligibility.
Every branch can set its own reenlistment time requirements, but they will all require a minimum commitment of 3 years. The typical requirement is 4 years.
The continuation pay rate also varies by branch. Each branch determines continuation pay rate multipliers based on their specific retention needs, specialty skills, and more.
Generally, active duty continuation pay bonus is between 2.5x to 13x the member’s monthly base pay, while Guard / Reserve continuation pay is between 0.5x to 6x the monthly basic pay of a member of the equivalent pay grade serving on active duty.
Servicemembers can decide whether to receive the continuation pay bonus in a lump sum or as an annual payment during their reenlistment. Like all reenlistment bonuses, the continuation pay would be subject to being recouped if the servicemember fails to finish their enlistment.
BRS Lump Sum Option
Under the Blended Retirement System, retirees have a “lump sum option,” where they can receive a portion of their pension in a lump sum advance once they have met the minimum military retirement service requirements.
Retirees can either choose to receive their retirement pay normally (without a lump sum payout) or select one of two lump sum options:
- Receive a 25% lump sum of the discounted present value of your future retirement payments in exchange for a 50% reduction in monthly retirement pay.
- Receive a 50% lump sum of the discounted present value of future retirement payments in exchange for 75% reduction in monthly retired pay.
If you choose a lump sum payout, you will begin receiving your full retirement payments again once you reach age 67.
To receive a lump sum payment, you must opt into it by a specific deadline.
Lump Sum Election:
- Active duty members have up to 90 days before retirement to elect the lump sum payment.
- National Guard/Reserve members have up to 90 days before receipt of retired pay to elect the lump sum payment.
Remember, active duty retirees are eligible for the lump sum after 20 or more years of service, while National Guard and Reserve retirees are eligible at age 60 – or earlier with creditable active service.
Is the BRS Lump Sum worth it?
Whether or not it’s worth it to opt into the BRS lump sum is a loaded question. Opting into the lump sum transfers investment risk to you, whereas the normal monthly pension payments provide a guaranteed stream of income.
If you’re disciplined with investing and confident in your ability to manage the lump sum wisely, it could potentially grow more over time compared to receiving monthly pension payments. The lump sum could also be helpful if you have immediate financial needs like paying off debts or helping you transition to the civilian sector.
Consider meeting with a financial advisor to fully consider the tax implications and opportunity cost of opting into the lump sum.
Pros and Cons of the Blended Retirement System
For review, let’s discuss some of the pros and cons of the BRS:
| BRS Pros | BRS Cons |
| Increased Access to Retirement Benefits | Reduced Pension |
| TSP Matching Contributions + Portability | Variability of the TSP |
| Continuation Pay Bonus & Lump Sum Option | Complexity |
Increased Access to Benefits vs. Reduced Pension
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 13.6% 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 were sent on their way with whatever they had in savings and whatever they could put into their TSP or their own investments.
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.
TSP Matching Contributions & Portability vs. Variability
The BRS gives members a greater incentive to save money in their Thrift Savings Plan since the matching funds equate to receiving free money.
The DoD estimates that at least 85% of servicemembers will receive some retirement benefits under the BRS. The difference comes from the Thrift Savings Plan contributions made by the government, which are portable.
The biggest question mark around this new plan surrounds the variable nature of the TSP.
Trading a fixed monthly payment for a lower fixed payment and some money in your TSP 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. However, that is a problem faced by most of the population and is certainly not unique to military members.
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 (suddenly, you have to consider tax implications, the need to balance a portfolio, etc.).
Continuation Pay Bonus & Lump Sum Option vs. Complexity
The continuation pay bonus is also an incentive to remain in the service and is a nice bonus for those already planning on staying in the military. That, plus the lump sum option, are pretty strong incentives to stay in longer.
However, adding these benefits also introduces complexity. Maximizing your BRS benefits can mean the difference between tens of thousands of dollars, but effective management requires basic investment knowledge. Understanding factors like contribution rates, investment options, and the impact of time on your investments is crucial.
Additionally, consider seeking guidance from financial advisors or utilizing resources provided by your branch to make informed decisions tailored to your financial goals.
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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:
https://www.tsp.gov/PlanParticipation/EligibilityAndContributions/contributionLimits.html
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.
https://www.dfas.mil/dam/jcr:4a30221a-c554-4f01-b9f4-9e22378aa0ef/MilPayTable2018_2.pdf
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.
Austin says
Doug,
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.
Phil says
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.
https://the-military-guide.com/early-withdrawals-from-your-tsp-and-ira-after-the-military/
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.
Phil says
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!
Alex says
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?
ghall24 says
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?
Phil says
Doug,
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
Phil says
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?
Bethany says
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.
Phil says
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.
Michael says
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.
Michael says
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:
https://www.tsp.gov/PlanParticipation/EligibilityAndContributions/contributionLimits.html
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:
https://www.irs.gov/newsroom/combat-zones
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:
https://the-military-guide.com/maximizing-tsp-contributions-from-a-combat-zone/
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:
http://www.militarymillions.com/brs/
Doug Nordman says
Thanks, MM!
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.
Ross says
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
Jon says
Ryan,
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!
Jon
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.
cb says
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.
Bret says
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.
Bret says
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.
Mike says
Ryan,
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.
jim says
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.
John says
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.