March 29, 2017, by Rachael Murphey – A significant portion of military service members do not make a lifetime career out of their service and do not qualify for the traditional pension under the legacy system. For that reason, the DOD has created a new military retirement system called the “Blended Retirement System,” which will provide some benefit to shorter-term active duty or reserves. This may or may not affect the strategies military members employ to save for their retirement.
What does “Blended” mean?
The blended system mirrors private 401k plans with a small match. Due to the power of compound interest, this match can result in massive increases in future nest egg, provided that service members are diligent in contributing to their TSP. We recommend all service members contribute 15% of their take-home pay towards their TSP and roll it to a Roth IRA when they separate to avoid tax implications.
Who is affected?
Only service members who enter after 1/1/2018 will be automatically entered into the BRS. Current members are grandfathered into the old pension system and will be eligible to receive pension benefits after 20 years of active duty (or when you hit age 60 for reserves). But what’s interesting about the new system is the voluntary opt-in offered during 2017. Between 1/1/2017 and 12/31/2017, any service member who has fewer than 12 years of service on Dec 31, 2017, may choose to opt into the new system
Should I Opt In?
That depends on your circumstances. If you don’t plan on staying in active duty 20 years or reserves until age 60, opting into the blended system would be advantageous, as the current system offers no benefit to you. If you plan on remaining in the service until retirement, you will need to do some math to figure out which of the two systems will give you more financial benefit upon retirement. Defense.gov is working on a calculator to help with the calculation, but it’s moving at the same pace as the VA, and may not be ready in time to be of any benefit. In the meantime, here’s a helpful video that can provide some insight into making that decision.
Service in the military is a sacrifice for the service members and their families, especially for active-duty soldiers on deployment. Citizens of the United States owe a sacred debt to our military members. The new retirement system will be a big step towards helping service members thrive after separating and rejoining civilian life. For service members who qualify and for whom it makes mathematical sense, I strongly urge you to take advantage of the options available under the new system to secure a future for yourself and your family.