Military Blended Retirement System Overview

Posted October 26 2018
by PenFed Your Money
Military Blended Retirement System Overview - PenFed Your Money

Military Blended Retirement System Overview

Are you up to date on your retirement options?

If you are an active duty military service member with less than 12 years of service, you may be eligible to adjust your retirement plan options. Two months remain to opt in to the new Blended Retirement System (BRS) or choose to remain on the legacy military retirement plan.

The BRS, which combines the traditional military retirement program with a new 401(k) Thrift Savings Plan, went into effect at the beginning of 2018. The opt-in period for service members with less than 12 years of service ends Dec. 31, 2018.

More versatile retirement options

The new BRS system blends two systems, the traditional retirement plan for those who retire after 20 or more years of service (the “High-3 System”) and a new 401(k) retirement account called the Thrift Savings Plan (TSP). The TSP is a government-run 401(k) that lets you save up to 10 percent of your monthly pay toward your retirement.

The legacy retirement plan paid service members the average of their highest 36 months of basic pay times 2.5 percent of their years in service. The BRS lowers that percentage to 2 percent but adds contributions to the TSP.

When you’re enrolled in the BRS, the military contributes 1 percent of your base pay to your TSP account. You’re automatically enrolled at the 3 percent contribution level, which you can change at any time.

After two years of service, the military will match up to 5 percent of your TSP contributions for a total of 10 percent of your pay—a significant retirement benefit. If you’re an E-4 with four years of service, for example, you’d earn nearly $3,000 a year in retirement savings. Multiply that over the years with interest to see the power of this retirement plan.

Portability and flexibility

The TSP could be a smart choice for those who don’t plan to remain in military service long enough to earn their retirement pay through the traditional retirement plan. TSP accounts are portable, so if you leave the military before completing your 20 years, you can take your retirement funds with you to your next job.

Your TSP account also adapts to your changing financial needs over the years. You can increase, decrease or stop your TSP contributions, take out a loan of your TSP balance, or completely withdraw your money from your TSP account.

Other retirement benefits

Another benefit of the BRS is the midcareer continuation pay that begins at around 12 years of service. This benefit is designed to keep you serving toward your 20-year retirement goal. When you reach the 12-year service mark and commit to four more years of service, you’ll be eligible for a cash incentive of 2.5 to 13 times your regular monthly basic pay (active duty) or 0.5 to 6 times your monthly basic pay (reserves).

At retirement many service members make use of the lump-sum option in the traditional retirement plan. At retirement (age 60 for guard and reserve members), you can choose to begin your full retirement pay or take a lump-sum payment of 25 percent or 50 percent of your gross estimated retirement pay.

Lump-sum payments will reduce your normal retirement pay by an equivalent amount. If you take a 25 percent lump-sum payment, your monthly retirement pay will be 75 percent of your full retirement pay; if you take 50 percent as a lump sum, you’ll get 50 percent of your normal retirement pay. At age 67, your retirement payments return to the full amount.

Choose the right option

The opt-in period for the Blended Retirement System began Jan. 1, 2018, and ends Dec. 31, 2018. This election period is for service members with less than 12 years of active duty service.

·       If you began active duty service before Jan. 1, 2006, you will remain in the legacy retirement system.

·       If you began active duty service after Dec. 31, 2005, but before Jan. 1, 2018, you may choose to remain in the legacy retirement system or opt in to the BRS.

·       If you began active duty service on or after Jan. 1, 2018, you are automatically enrolled in the BRS.

Get more information

Learn more about your retirement plan options:

Defense Credit Union Council's Blended Retirement System: Guide To Military Retirement

Blended Retirement System comparison calculator https://militarypay.defense.gov/Calculators/BRS/

The Thrift Savings Plan options https://www.military.com/benefits/military-pay/thrift-savings-plan.html

Tell us your plans

The Military Officers Association of America (MOAA) wants to help you protect your retirement pay and benefits. If you’ve already made your retirement plan decision, did you choose to stick with the legacy plan, or did you sign up for the new one? Why? Did you feel you were fully informed about your options?

Tell us about your choice and what you think: http://survey.highroadsolution.com/f/1337911/207c/

If you want further assistance on building your retirement funds but aren’t sure where to start, PenFed can help.