On January 1, 2018, the Department of Defense (DOD) will be rolling out a new retirement system called the “Blended Retirement System” or “BRS”. It is a big change to the current military retirement system and focuses on benefiting service members who do not plan on staying in the military for the 20 years that it takes to become eligible for the military retirement pension. The system applies to all service members who join the military on or after January 1, 2018. Current service members who meet certain qualifications also have the option to “opt-in”.
The BRS still includes the retirement pension, but reduces the monthly payment by 20%. To offset this reduction, the BRS will make contributions to the Thrift Savings Plan, the federal government version of a 401(k). An automatic 1% of a service member’s basic pay will be contributed along with a dollar for dollar match up to 3% of basic pay that the service member contributes. For every dollar over 3% and up to 5% that is contributed by the service member, 50 cents will be contributed. This all adds up to a maximum of 5% that will be contributed by the DOD to a service member’s account under the BRS. Once a service member completes 2 years of service, all contributions from the DOD are 100% vested.
Another new change with the BRS is that it is set up with a couple of good “nudges” to encourage participation among new participants. New participants will automatically be signed up to contribute 3% of their basic pay into the TSP. Combined with the DOD contribution of 1% and the 3% match they will have 8% of their basic pay going into the TSP. The other nudge is that the default investment option will change from the “G Fund” which invests in government bonds to an age-appropriate Lifecycle Fund which invests in a mix of stocks and bonds that are appropriate for the service member’s age. These two nudges should make a big difference in getting service members on the path towards saving enough for retirement.
Some current service members can opt into BRS starting in 2018 but the decision of whether to do so is specific to each individual’s personal circumstances. The DOD has created a website with a number of great tools designed to educate service members on the BRS and help guide them through the decision of whether to opt-in. The website is http://militarypay.defense.gov/BlendedRetirement/ .
Email your questions in to info@milestonefinancialplanning.com , and we may address some of the topics raised in a future blog post.
