There's a big change coming to the military retirement system called the Blended Retirement System (BRS). Essentially, the monthly retirement pay received will go down but the government will now start matching TSP contributions.
Who qualifies:
- Anyone over 12 years of service (YOS) cannot take part in BRS
- Anyone who joins after January 1, 2018 will be automatically enrolled in BRS and a TSP account will be created for you.
- Anyone with less than 12 years of service as of January 1, 2018 has the option to opt-in, or opt-out and keep the current retirement program.
What changes:
- The DoD will automatically create a TSP account for service members starting January 1, 2018.
- They will automatically match 1% of your base pay into your TSP, whether or not you contribute to TSP at all.
- In addition, they will match up to 4% of your contribution (with the 1% automatic match, this comes to 5% total).
- Retirement pay reduces from 2.5% to 2% of your base pay per year of service.
- You can either receive your retirement pay monthly or receive a lump sum of 25% or 50% and a reduced monthly payment. Lump sum was not an option in the previous system.
What are the actual benefits of BRS? A 40-year old E-6 who retires at 20 years of service currently will get about $1,925/month in retirement pay, which comes out to a total of $577,755 by the time they're 65.
Conversely, an E-6 under 12 YOS who opts-in for BRS will, after retirement, receive $1,540/month plus the government's automatic 1% TSP contributing, which--after the remaining 8 years until retirement and 25 more years of compounding interest--comes to $491,310.
If the service member decided to contribute the 5% to take advantage of the match, they would accumulate $291,062 in TSP by 65--half of which would be from the government's contribution. This--plus the retirement pay--makes for a $29,980 increase in benefits received from BRS vice the legacy retirement program.
None of this is taking into consideration inflation or the difference in military pay in the next 8 years. I'm also using an E-6 as example, so someone higher ranking would obviously get more.
If the member does not move their TSP balance into a different fund, the default will be the appropriate Lifecycle retirement fund for their age--which in this case is L2050. For my example, I used the interest from that fund's performance, which is 7.18% (since its inception in 2011).
For those of you not retiring, there is literally zero reason not to opt-in for this program. ZERO. The government will put free money into TSP for the entire time you're enlisted and you lose nothing in return.
I, unfortunately, will only have 18 months left in the military once this program starts since I won't be retiring, but you can bet your ass I'm getting that 5% match for that last year and a half.
The program also applies to government civilians and reserves, so you'd have to look into the details for them specifically.
If you want to read more, here are some resources to check out:
Sorry if the formatting sucks, I'm on mobile.
Edit: Sorry guys, I had my math wrong on some of it. If you opt-in to BRS and don't contribute at all, in the end you would have about $100,000 less than if you stayed with the legacy system ($491k from BRS vs $577k). If you did, however contribute 5% and the government matched that you would end up with $753k compared to $577k with the legacy program. Not counting profit made from your own investment, it would be about $30k more from the government's investment than with legacy.
Regardless, the point of the post was mostly for those who are not going to retire. That part stays the same. You don't lose out on anything and the government will put that extra 1-5% into TSP for you.
Submitted April 26, 2017 at 05:38PM by jerdub1993 http://ift.tt/2q7t2jn
