The military retirement system changed on Jan. 1, 2018. Some say the change is better; some say it is worse.
We will explain the changes here and hopefully give you the resources to make up your own mind.
What Is The New Retirement System?
The new retirement system is known as the "Blended Retirement System" or BRS. The “blending” in BRS comes from the blending of two major sources of retirement income: the existing annuity provision for those who retire after 20 or more years of service, PLUS the Thrift Savings Plan (TSP). The TSP is a government run 401(k) retirement account that allows members to invest their own money in either stocks or government securities and also get a contribution to that account from their employer.
What Is New About This Retirement System?
BRS will use the annuity formula currently in place: the average of the servicemember's highest 36 months of basic pay times 2.5% of their years of service -- but the 2.5% is adjusted downward by half of a percentage point, from 2.5 to 2%.
To make up for this reduction the government will contribute to a member's TSP. After the first 60 days in the service, all members will be enrolled in TSP and receive an automatic government contribution of 1% of basic pay into their account each month. Additionally, the servicemember will be automatically enrolled to contribute 3% of their basic pay to the TSP each month. After two years of service, the government will match the member's contributions up to an additional 4%. So, after 2 years members can get up to a 5% government contribution on top of what they contribute each month. Therefore if a a member contributes 5% of their basic pay the government will match it, making a total contribution to the TSP of 10% of their basic pay.
For an E-4 with 4 years service that equals almost $3,000 being saved each year. Add in contributions and interest over several years and you are talking serious savings, hundreds of thousands of dollars over a military career!
Why Is Adding The TSP To Retirement A Good Thing?
The best part of having a TSP contribution really applies to those who don't stay in the military long enough to get a retirement check. The government says that 83% of people who join the military don't stay long enough to retire, so when they leave after 5 or 10 years of military service they basically get nothing towards their future retirement. This plan changes that. By contributing to the TSP, military members can leave the service at any time and have an existing retirement fund that they can take with them anywhere. Even if they get out of the military before completing 20 years they would keep the money they have in their TSP fund.
What Else Is New About the Blended Retirement System?
BRS also includes a mid-career continuation pay at about 12 years of service, as a further incentive to continue serving toward the traditional 20 years to qualify for monthly military retired pay.
When you retire (at age 60 for guard/reserve members), you will be given the option to take your full retirement pay or you can take a lump-sum payment of either 25% or 50% of your gross estimated retired pay and receive a reduced monthly annuity until the age of 67 when your retirement pay goes back up to the full amount.
Active Duty Member Eligibility For The New Retirement System
Current members who have less than 12 total years of service when the new plan is effective in 2018 will be able to switch over to the new system. There will be no back pay but matching contributions will begin on enrollment.
If you joined active duty:
- Before January 1, 2006 - you will remain in your current retirement system
- After December 31, 2005 but before January 1, 2018 - you can choose either your current retirement system or the BRS
- After December 31, 2017 - you will be enrolled in the BRS
The opt-in/election period for the Blended Retirement System begins January 1, 2018, and concludes on December 31, 2018.
Reserve Component Member Eligibility For The New Retirement System
Reserve Component members with more than 4,320 retirement points will remain under their current retirement system. Reserve Component members with less than 4,320 retirement points as of December 31, 2017, will have the choice of whether to opt into the new Blended Retirement System or remain in the legacy retirement system. New accessions after January 1, 2018, will automatically be enrolled in the new Blended Retirement System. The opt-in/election period for the Blended Retirement System begins January 1, 2018, and concludes on December 31, 2018.
The mid-career continuation pay for reserve component members is 0.5x monthly basic pay (of active duty).
The New Blended Retirement System Summed Up
The new system is made up of 3 specific components:
- Defined Benefit:
- Retired pay will be 2% times number of years of service. If you retire at 20 years service you get 40% of your final base pay. If you retire at 30 years service you get 60% of your final base pay.
- You can either get your full retirement when eligible or opt to get a lump-sum benefit at retirement. If you take the lump-sum you will get a reduced monthly retirement check until age 67.
- Defined Contribution:
- The military will contribute 1% of your base pay to your Thrift Savings Plan (TSP) account.
- You will be automatically enrolled with a 3% base pay contribution to your TSP. (You can raise or lower contribution or terminate individual contribution.)
- The military will match up to 5% of your contribution, after 2 years of service.
- You can always stop contributing to the TSP, get a loan of your TSP balance, or withdraw your money from the TSP account.
- Continuation Pay:
- When you reach 12 years of service you and commit to 4 more years of service you will be eligible for a cash incentive of 2.5 to 13 times your regular monthly basic pay if you are Active Duty and 0.5 to 6 times you monthly basic pay if you are in the reserves.
For More Information About The Blended Retirement System
DFAS has several resources that explain the BRS on their website. Members should also receive BRS training at their units. The DOD also has a BRS calculator online.