On Jan. 1, 2018, the military modernized its retirement plan by moving to the Blended Retirement System (BRS). But what exactly is the BRS, and how will it impact you as a military member? Read on to find out and discover how to make the most out of your retirement.
Understanding the BRS
Before the BRS took effect, there were two ways you, as a servicemember, could prepare for retirement. One was by serving in the military for 20 years and receiving an annuity provision upon retirement (an annuity provides monthly payments for life). The second was by contributing to the Thrift Savings Plan (TSP). Both are great programs, but the key point is they were separate.
The BRS, on the other hand, essentially blends the two old retirement programs into one. Specifically, the BRS uses the military’s current annuity formula—annuity provision times years of service multiplied by the average of the highest 36 months of pay—and combines that with an automatic 1% Department of Defense TSP contribution. Additionally, after serving for two years in the military, the DoD will match your TSP contributions up to 4%:
|Personal Contribution||DoD Auto Contribution||DoD Matches||Total|
Differences Between the Old and New Retirement Programs
Previously, if you left the service before the 20-year mark, you received nothing from the military toward retirement. Under the BRS, if you serve for at least two years, but less than 20, you keep the DoD TSP contributions. You still have to serve 20 years to receive annuity payments. Besides blending the old retirement programs, the BRS is different in these ways:
- Combined annuity and TSP benefit: The old annuity provision for retired military personnel was 2.5%. The new annuity benefit is 2%. However, with a blended retirement plan, you get the added benefit of the DoD Auto Contribution of 1% to your TSP, which offsets the change in annuity benefit.
- New option for continuation pay: When you reach between 8 and 12 years of service, you’re eligible for Continuation Pay. This is effectively a cash bonus that you’ll receive when you commit to four more years of military service.
- New option for lump sum distribution: When you retire from service, you may be eligible to elect to receive a 25% or 50% discounted lump sum payment of your estimated retirement pay in exchange for reduced monthly payments. At Social Security retirement age (currently age 67), your monthly payments return to the full amount. This option shouldn’t be taken without first talking to a financial advisor, like those available through Navy Federal Investment Services, as there are many factors to consider.
Who’s Covered Under the BRS?
If you joined the military before Jan. 1, 2018, you’ll automatically be grandfathered into the old retirement system. However, if you have fewer than 12 years of total service as of Dec. 31, 2017, or less than 4,320 retirement points (for Reserve and Guard members), and want to participate in the BRS, you can opt in during the 2018 calendar year. Anyone who joins the military on or after Jan. 1, 2018 is automatically covered by the BRS.
Getting the Most Out of Your Retirement
It’s no secret that the military has one of the best retirement plans around, and the BRS continues that tradition. Of course, if you want to make sure you’ll have enough money saved to retire in style, it’s always a good idea to stay on top of savings strategies and consider supplemental retirement savings plans. An advisor from Navy Federal Investment Services can review your financial situation, plus how much money you’ll get from the military upon retirement, and help you plan out a strategy to work toward your retirement goals. Find a financial advisor who can help you understand your options.