• Making decisions about blended retirement

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  • Rodney S. Morris | Special to the Fort Leavenworth Lamp
    By the end of this year, many soldiers will have to make a key decision regarding the Blended Retirement System.
    Active-duty soldiers who have less than 12 years of active federal service (e.g., those whose service started after Jan. 1, 2006) must decide by Dec. 31 of this year if they want to enroll in the BRS. Current cadets will have the option to select the BRS or go with the current retirement system. Reservists and National Guard soldiers who have less than 4,320 points will also be able to opt into BRS. Soldiers who join the military after Jan. 1, 2018, will automatically be enrolled in the new BRS.
    The new retirement system, developed by the National Defense Authori- zation Act of 2016, is designed for newer members of the uniformed service to have an opportunity to leave the service with some sort of pension even if they do not reach the 20-year service mark to be considered for a military pension. It blends the existing annuity provision of the legacy system for those who serve a minimum of 20 years with the Thrift Savings Plan, also known as the TSP.
    The BRS also saves the government money, an estimated $2 billion savings to taxpayers.
    “Yes, we’re cutting military retirement benefits,’’ said Michael Meese, a retired brigadier general who is now chief operating officer of the American Armed Forces Mutual Aid Association. “But we’re doing so in a way where there’s a plan to hopefully make up for that by people investing in the 401(k)-type element. If that is managed in the right way, there’s the potential to make even more than the old system.”
    The TSP is run by MetLife and is the government’s version of the 401(k) for its members. While the BRS will use the annuity formula currently in place in the legacy system, where a service member is receiving 2.5 percent of their top three years of base pay (50 percent of base pay for 20 years of service, 75 percent of base pay for 30 years), it adjusts the percentages downward by half of a percentage point to 2 percent (40 percent of base pay for 20 years of service, 60 percent of base pay for 30 years). The TSP, which does not currently match deposits up to 5 percent for military personnel like it does its Department of Defense civilian employees, will begin matching up to 5 percent in the BRS after two years of service. At the end of a service member’s third year of service, he or she is considered “fully vested” and can depart the military anytime with 100 percent of the accumulated contributions.
    It is recommended by the Fort Leavenworth personal financial counselor that once a service member decides to “opt in” to the BRS, he or she should do so immediately. This allows him or her to begin to start taking advantage of the matching benefits offered by the TSP the following month. Once a service member commits to the BRS and officially “opts in,” it is final and irreversible.
    Page 2 of 3 - While there is much to consider for those who fall into the BRS decision-making category, there is a basic principle that most experts agree on for those certain they will remain in the service for at least 20 years — stay with the legacy system. Generally, the benefits of the additional retirement percentages outweigh the matching advantage of the TSP.
    The opposite holds true for those who are certain they will not remain in the service for 20 years — they should take advantage of the BRS. This assumes they are disciplined enough to contribute to the TSP and receive the benefit of the instant 100 percent profit of matching. The premise behind the decision is it is better to leave the service with something than with nothing, and that is exactly what will happen to service members who are under the legacy system and do not accumulate a minimum of 20 years of service. That is also exactly what will happen to those who choose the BRS and do not contribute to the TSP.
    For those who are not certain whether they will stay with the military for the 20 years required to receive a pension, keep in mind that only 17 percent of veterans are receiving a pension. That leaves 83 percent who have no retirement benefits after several years and in some cases almost two decades of service. Perhaps the BRS is the most practical way to ensure people leave the military with some financial benefit upon completion of their tenure of service. If service members elect the BRS and end up serving 20 or more years of service, they will still receive the 40 percent pension (2 percent per year) and will be able to hold onto what they have accumulated in the TSP. This is a win-win.
    Today, an E-5 with five years of service could earn up to $133 per month in matching contributions if he or she contributed at least 5 percent of their base pay. That is a 100 percent return on investment from the beginning. A total contribution of 10 percent (5 percent service member deposit and 5 percent matching) of base pay for several years can grow to tens of thousands or even hundreds of thousands of dollars if invested long enough and into the right TSP investments (see my article “Thrift Savings Plan among best investments” in the July 16, 2015, Fort Leavenworth Lamp for additional information).
    An E-8 with 18 years in service could earn up to $249 per month in matching contributions. That is nearly $500 invested a month with the service member only investing 5 percent of his or her base pay.
    A recommended five-step retirement check-list:
    Step 1: Determine your eligibility. Service before Dec. 31, 2005 — stay with the current retirement system. Service from Jan. 1, 2006, to Dec. 31, 2017 — stay or “opt-in” choice. Service after Jan. 1, 2018 — BRS.
    Step 2: Educate yourself on the BRS and use the BRS calculator to analyze your estimated benefits. Blended Retirement System training link: http://www.af.mil/News/Article-Display/Article/801649/blended-retirement-system-training-now-available/. The Blended Retirement System calculator can be found at http://militarypay.defense.gov/Calculators/BRS/
    Page 3 of 3 - Step 3: Take the mandatory J3OP-US1332 BRS opt-in course found at http://jko.jten.mil/courses/brs/OPT-IN/launch.html.
    Step 4: Schedule an appointment to consult an installation personal financial/readiness manager/counselor. At Fort Leavenworth, contact personal financial counselor Tyler Landes at 684-1717, cell (319) 371-5280 or the Army Community Service Financial Readiness Manager Marty Tydings at 684-2800 or 684-2832.
    Step 5: Make your decision between now and Dec. 31, 2018.
    The sooner the better.
    Editor’s note: When he’s not sharing financial advice, Rodney S. Morris is an assistant professor for the Advanced Operations Course, Department of Distance Education, Command and General Staff College, and an associate professor for personal finance/economics for Barton Community College.
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