TIP: Transition to the BRS is over!
This episode is for the military men and women who had to make a choice before December 31, 2018. Do you stay in the regular military retirement system, known as the Legacy Retirement System, or do you opt in for the new Blended Retirement System (BRS)? The answer is never quite clear but I will use a cliche, "It depends."
What really determines if you should have switched or not is not about dollars and cents but whether you want to be more “hands on” with your retirement or do you want your retirement to be more on “autopilot.” There is a case to be made for both options, so let’s see what can happen.
Under Legacy, you get a very good retirement! Basically, 50% of your pay at 20 years of military service and 75% of your pay at 30 years. Very simple and easy to figure out. You can even use the Thrift Savings Plan (TSP) for a separate nest egg, but you won’t get a matching contribution of 5%, which you get in the BRS. But that’s okay, it still grows tax-deferred and if you fund it right, you can have a very large fund if you let it grow into your 50s. Like I said, this option is on autopilot.
Under BRS, you get a reduced pension, about 40% at 20 years but the main thing is you get the 5% matching on your TSP. That starts to become a large amount of money over time. The main thing about the BRS is you want to start being more “hands on” with your TSP and learn to raise your contributions over time and determine what funds you want to use. These funds are basically the G, F, C, S, I and L funds.
The reason I said it’s not about dollars and cents is that you will make a sufficient amount of money under both retirement systems but under the BRS you have a chance to start manipulating your funds and possibly reach a $1,000,000 plus balance that would be the main objective. Then you can start using your funds for different options and this gives you more freedom with your money during retirement.
This issued happened to Federal civilian employees approximately 30 years ago, when the Federal retirement system went from the CSRS to the current FERS. It was basically the same type of situation the military is now encountering. The CSRS was more on autopilot and the FERS reduced the percentage of the pension and brought in the TSP as a more hands on approach to retirement. Any time there is a change, people get nervous or confused, but it doesn't have to be that way. Once you know the rules of the FERS and TSP, similar to the BRS, there are a lot of options for you and you can come out doing very well for retirement.
Let's look at a possible scenario of the BRS, just to see what could happen:
You proudly serve 20 years in the military. Enlisted or Officer, it doesn't matter. You max out your TSP contributions at about 10% of your pay or even better 15%, plus you get the 5% matching. At 20 years of service you get around 40% of your pay as pension but you can't touch your TSP because you have to wait until you are 59 1/2 unless you are in a public safety job in the in the government, like FBI Agent or DEA Agent, or you are an Air Traffic Controller. For these jobs you have special conditions since these positions require the Agent and Controllers to retire at age 57 and 56 respectively. Otherwise it's 59 1/2.
Now you may say, "I have to wait until 59 1/2 to get my TSP money?" Remember, if you retire after 20 years in the military and say you went in at age 18 for Enlisted or age 22 for Officer, then you retire at age 38 or 42. You are still way too young to retire for life. You will probably get another job, which may last another 20 years and bring about a second pension. Also, you could have a second TSP style account, known as a 401k, 403b, or 457, with your second job that you could max out. Plus, your regular TSP account has been growing since you could not touch it for 20 years. If you went to work for the U.S. Government after the military, you could still keep funding your TSP until you retire from your second job. Now at age 59 for Enlisted or 62 for Officers, you have 5 income streams to pull out retirement money. Yes, 5 income streams! Lets identify them:
1. Military retirement pension: After 20 years of service
2. TSP funds: Target fund balance from $500,000 - $1,000,000 at age 59
3. 2nd job retirement pension: Another 20 years of service
4. 401k fund from 2nd job: Target fund balance $250,000 - $500,000
5. Social Security, starts at age 62 or wait until age 70 to max out.
Not a bad way to retire. This gives you plenty of money to retire. The BRS give you the flexibility to manipulate your retirement and use the money for a variety of different options. That's the main point of the BRS: You can build large amounts of cash that can be accessed in different ways, for example some people may want to invest their TSP funds into a different account like an IRA or do some personal investing in the Stock Market. Some people may want to use the TSP funds to build a second home or go on vacation to some exotic lands.
The Legacy Retirement System is fine too. I completely understand why people would have stayed with this system. It's easy. Most people like easy. I like easy. However, if you are one of those people who like to be more hands on with your retirement, then the BRS makes sense for you.
I guess it really doesn't matter any more. In a little over a week it will all be over. All the new military recruits are being placed in the BRS as of December 31, 2017. I you haven't opted into the BRS, the Legacy Retirement System should take care of the military retirees like it has done for decades. You still have access to the TSP. You really need to take advantage of it even if you are part of the Legacy System. You just don't get the matching, but so what. You will have a lot of money if you contribute to it regularly.
Good luck with whatever path you choose and congratulations on your retirement. You earned it!