The Blended Retirement System (BRS) took effect in January 2018. Servicemembers already in the military when the BRS was rolled out had the option of opting into the plan. However, the chance to opt into the BRS was closed on December 18th, 2018. All servicemembers who joined service on or after January 1, 2018, are automatically enrolled into the BRS.
This article was primarily aimed at those who could opt into the BRS system to help them decide whether they would be better off opting into the new retirement plan or remaining in the old retirement system.
While it’s too late to opt into the BRS, this article offers several expert opinions on the new Blended Retirement System and whether it’s good for service members. They had free rein to give their thoughts and opinions.
New Military Retirement Plan vs. Old
Before we dive into the expert opinions let’s start with a brief overview of the old military retirement plan and the changes introduced with the Blended Retirement System.
Overview of the Old Military Retirement System
- Members receive 50% of base pay after 20 years of service, plus 2.5% for each additional year served.
- Members can participate in the Thrift Savings Plan (TSP), but there is no matching on TSP contributions.
- Military retirement pay begins the month after the member retires.
New Blended Retirement Plan Changes
- Members receive 40% of base pay at 20 years of service, plus 2.0% for each additional year served.
- Members can participate in the TSP and will receive military matching contributions after reaching two years of service.
- Members are eligible to receive a continuation pay bonus between 8 to 12 years of service.
- Military retirement pay begins the month after the member retires.
- Members can opt into a lump sum option, which allows them to receive 25% or 50% of their retirement pay upfront.
The changes boil down to a reduced fixed pension multiplier in favor of the BRS’s matching TSP contributions and the continuation pay bonus. There will be a sweet spot where the BRS may be worth more to retirees than the old plan, but only if the member diligently contributes to the TSP over a number of years and the markets do well.
Expert Opinions on the New Blended Military Retirement Plan
Here are some opinions on the retirement plan change based on a poll of fellow military bloggers. Their branches of service, website names and social media profiles are included below. Want to share your thoughts? Please feel free to start a conversation and leave a comment after the article.
Expert Opinion: Ryan Guina
Change was going to happen. This is a good compromise. The military retirement plan is one of the most generous plans around. There aren’t many places where you can work a minimum of 20 years to receive 50% of your base pay (or more) for the rest of your life and support your spouse with 55% of your pension after you pass away (if you opt into the Survivor Benefit Plan).
However, the old plan is unsustainable. Many members serve 20 years but draw retirement payments for over 30, 40 or even 50 years. Many retirees earn more in retirement than they ever earned during their years of service.
Previous proposals to change the military retirement system would have gutted the current fixed pension system in favor of switching to an almost 100% 401(k)-type retirement plan. The BRS system is a reasonable compromise.
So, who benefits the most from the new plan? Service members who won’t make it the full 20 years.
Only about 13.6% of military members reach retirement. To put it another way, with the old plan, 87.4% of service members would leave the military with only what they’ve contributed to their TSP. Now, as long as you serve 2 years, you can leave the service with all of your TSP earnings.
Who wins: Those who contribute at least up to the maximum TSP match will gain the most. Some who do this from day one may even come out ahead of those on the old system.
Who loses: The 20-year retirees who don’t make TSP contributions.
Expert Opinion: Doug Nordman
I think the new retirement system is a great deal for the 87% of military service members who will not earn a pension. However, the burden is on them (and their families) to maximize the government’s matching contributions to their TSP accounts. The best comment I’ve seen so far is, “If you don’t know how to manage the process of saving and investing for retirement, then the new blended military retirement retirement system will punish your ignorance.”
Source: Doug Nordman is a retired Navy officer and author of “The Military Guide to Financial Independence and Retirement”. Follow him @TheMilitaryGuid on X/Twitter.
Expert Opinion: Forrest Baumhover
As a taxpayer, I see the shifting of retirement responsibility from the government to the retiree as a move that every other entity considered and started to execute over a generation ago. Keeping a retirement system in place where we pay 30, 40 or 50 years of retirement for someone who served as little as 20 years . . . that’s unsustainable, given the longevity trends society is facing.
As a servicemember, I am disappointed. However, I see that two wars over the past 15 years have eroded our military’s budget. As a result, we’ve had to support our current system, which costs a lot at the expense of supporting our weapons systems.
As a result, our aircraft have had to fly longer than expected, and our ships are older than planned. We need money to keep our weapons systems up to date.
Source: Forrest Baumhover, Navy officer and financial planner. Author of “Military In Transition’s Guide to the Survivor Benefit Plan.”
Expert Opinion: Kalen Bruce
As someone who will have the opportunity to make the switch to the new Blended Retirement System, I have a few thoughts.
First off, this is great for those who don’t plan to stay until retirement and have an actual plan for what they will do after their term is up. Of course, you have the people who don’t plan to stay 20 years and end up staying the full 20. Plans change. However, the new system isn’t so different that it would ruin anyone’s retirement if they chose it.
I am planning to stay for 20. My wife supports me in this, so I believe I will, unless some unforeseen event happens, of course.
So, I will not be opting into the new Blended Retirement System. Here’s why:
I joined the military late, but I will still be able to retire at 45, which is insanely young for a career path outside of entrepreneurship. If I retire at the age of 45, I would get an extra 10% in pay immediately with the old plan. That extra 10% invested over the next 15 or 20 years — the approximate amount of time it would take for me to be able to receive TSP benefits — would make the old system the best bet for me, by my calculations.
With that said, I think the new system is the best thing they could have come up with for a military in need of retirement reform.
Of course, I think there will still be people who don’t contribute anything to their TSP, which will make the new system much worse for them. But I don’t think it’s wise to make decisions based on whether or not people have the discipline to invest.
Source: Kalen Bruce is an Air Force veteran and financial coach. He has a BA in Finance and is the founder of the Money Mini Blog. Follow him @moneyminiblog on X/Twitter.
Expert Opinion: Spencer Reese
For those who plan to serve their nation for 20 years or more in the armed forces, the new plan is a bad deal. It shifts much of the responsibility for retirement income from the government to the service member and the market (domestic and international equities, corporate and government bonds).
However, for the over 87% of service members who do not receive any sort of retirement benefit, the new plan adds civilian-style 401(k) matching in the TSP and a continuation bonus at 12 years. This is a good deal.
The Blended Retirement System puts more cash in the retirement accounts of those service members who choose to save for their retirement. Invested in a diversified portfolio of 80% stocks and 20% bonds, the returns from a matched TSP account can nearly replace, and in some cases exceed, the difference between a 2.0% pension in the new system and a 2.5% retirement in the old system.
I urge every service member to carefully consider whether you will make it to 20 years or whether the chances are high that you will leave before then. If you think there is a chance you won’t make it to 20 years and earn a pension, switch to the new system and start contributing to your TSP account today.
Source: Spencer Reese, Air Force veteran. Founder of Military Money Manual.
Expert Opinion: Rob Aeschbach
For service members planning on doing 20+ years, you have to ask yourself, “If the Department of Defense is doing this to save money, how could it possibly be good for me?”
On the other hand, something is better than nothing for the one–or two-termers.
Source: Rob Aeschbach, retired United States Marine Corps officer, financial planner and founder of The Military Financial Planner.
What are your thoughts on the new blended retirement plan? Please feel free leave a comment below!
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S.E. Gallagher says
I understand the importance of sustainability when it comes to systems – especially retirement systems. In the past 20 plus years, the trend has been to move back toward where we started; that is, placing the retirement onus back on the worker as opposed to the institution. Retirement plans were essentially designed as retention plans by companies and governments. Over the past twenty years these systems became unsustainable and have very quickly gone away. The federal military pension (a deferred benefit plan) is/was the last bastion where one could receive an annuity for life.
I guess what bothers me the most is that a very limited number of people serve in the military (the statistic of less than 1% is thrown around a lot, but I would have to qualify that). And according to this article, only 17% of those 1% actually retire. Now admittedly I have not penciled out the numbers, but at first blush it appears that the numbers just don’t add up. Is it really that costly to provide the High 3 pension plan to those that have given up so much for this country? Or did we simply mortgage the future pensions of our warriors along with our national security for 15 plus years of war in Iraq and Afghanistan?
The harsh reality is that defending this country is a people business. Given we need, guns and ships and plans and equipment, but without good people, we place our national security at risk. And without retention, we will not have good people. If a person can get a similar retirement plan in the private sector, why should they continue to make sacrifices and place themselves in harm’s way in the military? Now one could make the nationalistic argument. Nationalism will carry the day when America puts out the call. True. Americans will enlist and support the war effort, but that will only take us so far. There is a limit. The country still needs trained warriors standing by, ready to answer the call.
Another question I have is where did the 83% discussion come from? I have been in the military for almost 20 years and in that time have never heard a troop complain that they served their country for 2 or 3 or even 6 years and they were not getting a partial retirement. When this new retirement program was first socialized, there were a lot of comparisons made to the private sector. First, one must first consider that is not even a fair or reasonable argument considering the major disparities between the two worlds. However, let’s say for a minute that this were true and the two were actually comparable. Does a person that worked at McDonald’s or Coke for 2 or 3 years walk away with a partial pension other than what he/she put into his/her 401k plan and whatever vested monies were included in said number? The short answer is no. Now I am not saying that service members that serve less than 20 should get nothing, but at the same time, people who you do not retain should not serve as the basis for your new system… unless of course they are required to serve as the anchor for that very system to exist. From my foxhole it would appear that a non-issue was made into an issue in order to justify a program that the architects knew would be unpopular.
In closing, I realize that change is inevitable. It will come to every system at one point or another. Often times it is required for a system’s very survival. However, if you look at the changes to the military pension system since it was first instituted, none of the changes have been in the service members’ favor; High 3, REDUX? Unfortunately, it does not appear that this change will be much different.