Military's new retirement system: Big deal, big decision
By Mike Causey
November 8, 2017
Next year, the uniformed services will adopt a new "blended retirement system" that will cover everybody entering the military on or after Jan. 1, 2018. The BRS will include a 401(k)-like defined contribution plan that vests at two years. Also a continuation bonus around 12 years of service, plus a defined-benefit pension at retirement after 20 years. So what if you are already in the service? Do you want into the BRS? Is it right for you?
We asked Michael Meese, the chief operating officer of the American Armed Forces Mutual Aid Association (AAFMAA), to talk about the pros and cons of switching. He's a retired general, so he's been there, done that. Here's his report:
"On Jan. 1, 2018, everyone entering the military will be part of the new BRS.
Current retirees, as well as those with more than 12 years in the military, will remain in the existing 'legacy' system. However, more than 1.1 million current service members who entered the military less than 12 years ago have a big decision to make. They can 'opt in' to the BRS or remain with the legacy system. The difference can have a significant impact on future retirement savings.
In the Blended Retirement System, nearly everyone who serves in the military will get some retirement savings deposited for them in the government's Thrift Savings Plan (TSP). The catch is that the military pension (available only after 20 or more years of service) will be 20 percent less in the BRS than it would have been in the legacy system. This is good for the taxpayer: the BRS saves taxpayers approximately $2 billion per year, largely because of the reduced pension.
If you are a service member, should you 'opt in' to the new system?
In general, if you are sure that you are staying in the service until retirement, then the old system will likely be better. The 20 percent higher pension over a projected 30 or 40 year retirement will likely be more than what you would earn from the military's automatic, matching and continuation pay throughout your career.
On the other hand, if you are sure that you will leave the service before retirement, then the blended system would likely be better because it provides some retirement funds rather than nothing.
The decision is most difficult if you are, like many service members, not sure whether or not you will stay until retirement. Families in this scenario may want to consider the impact of making the 'wrong' decision, which could happen in one of two ways:
• If you decide to stay with the legacy system, but end up leaving the service, then you will leave the military with no retired pay and no government contributions to your TSP. You will have plenty of earning years ahead, but you will be behind on retirement savings, compared to what you could have had under the BRS.
• On the other hand, if you decide to 'opt in' to the BRS, but stay until retirement, your retired pay will be 20 percent less than you would have received if you had remained in the legacy system. That retirement, however, is still generous — 2 percent for each year of service. Additionally, the government will have paid at least 1 percent, and up to 5 percent, of your base pay into a 401(k)-type retirement plan, which could earn a competitive return in the TSP. You will also have received a continuation bonus at 12 years, equal to at least 2.5 months' pay. So, it is not such a bad result, even if you make the 'wrong' decision.
It is a difficult choice, but one that 1.1 million service members will have to make starting on Jan. 1. To help service members with this important decision, AAFMAA provides more detailed information at their Intel Center, and you can tune into the Your Turn broadcast today at 10 a.m. today, either streaming at Federal News Radio or on 1500 AM in the Washington area. The show will be archived on the Your Turn page, so you can listen later, listen again or pass it on to a friend."
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