Window Closing for Service Members to Opt-In to The Blended Retirement System
by John Cooney on Nov 28, 2018
As we watch the calendar turn from November to December we may think of a few things; the holiday season and shopping for friends and family, the end of yet another year, and maybe the cold weather and snow. This year, there is something else to think about too; the window to opt-in to the Department of Defense’s Blended Retirement System closes on 31 December 2018. If you are a service member who is eligible to opt-in and still are not sure what you should do, the time to educate yourself is running out. Know your options and make an informed, intelligent decision for your financial future.
What is the Blended Retirement System?
The Blended Retirement System (BRS) is a change to the military retirement system that went into effect on 1 January 2018. All service members who join or joined after that date are automatically enrolled into the BRS, instead of the legacy retirement system that was in effect prior to 2018. For all service members who were already serving on 1 January 2018, they fell into two groups; group one was grandfathered into staying in the legacy system and they have no decision to make. To be in the grandfathered group, you must have had at least 12 years of active duty time as of 1 January 2018 or 4,320 retirement points on the reserve side. The second group, those service members who were already serving on 1 January 2018, but had not yet reached the 12 years/4,320 points mark, have the option of either staying in the legacy system or opting-in to the BRS. The BRS essentially changed four aspects of the military retirement system:
- BRS reduced the retirement multiplier for calculating the service member’s military pension from 2.5% to 2.0%, effectively reducing the pension by 20%.
- In exchange for reducing the retirement multiplier, those who opt-in to the BRS receive government contributions of at least 1% of basic pay into their Thrift Savings Plan. For those service members who also contribute to their TSP, they would receive another government contribution to their TSP of up to 4% for those service members who contribute at least 5% of their basic pay into their TSP account. Menaing, under the BRS, any service member who defers at least 5% to their TSP, will get an additional 5% contributed to their account by the government.
- BRS offers service members the option of receiving a lump sum payment at retirement in exchange for reduced monthly pension payments in retirement.
- BRS provides for continuation pay to service members as they hit between 8 and 12 years of service in exchange for a commitment of an additional four years of service.
Should I Opt-In?
I don’t know, how is that for an answer? It really does depend on your individual situation. The BRS is designed for two main reasons, to save the government money, and to provide some retirement benefits to those service members who do not serve twenty years required to qualify for the military pension. If you are just starting your military career, or are at any stage in your military career and are not convinced you will stay in for twenty years, then opting-in is probably in your best interest so that you can take advantage of the government contributions to your TSP account. The Department of Defense did create an online calculator to help with your decision, USE IT! The calculator allows you to input details specific to you and your situation and make a projection on what your military retirement would look like under the legacy system and the BRS. This allows you to compare both plans and see how each would benefit you in retirement. One big note on the calculator, while I like it, and it is a fantastic tool, whether on purpose or not, the calculator only shows TSP account values under the BRS. This is maddening! You absolutely have the ability and probably should be contributing to a TSP whether you are under the legacy system or the BRS. Understand that this is also not just a straight financial decision, make sure you discuss it with your spouse and family before ultimately deciding which retirement system is best for you.
Take Control of Your Financial Future
“If You Choose Not to Decide, You Still Have Made a Choice!” Rush – Freewill
Rush is correct, especially when it comes to the BRS. If you are eligible you don’t have to make a decision, just know that if you do not choose, the government will decide for you. Those that do not opt-in by 31 December 2018, will remain in the legacy retirement system and will not have a chance to opt-in at a later date. Also, those that do decide to opt-in, there are no takebacks, once you opt-in, you are in the BRS and can not go back to the legacy system. Bottom line, come 1 January 2019, you have made a choice, just make sure that the choice was yours, and made after looking at all of your options and choosing the one that gives you the best chance for future financial success.
Let us help you with your BRS decision!