In 2011 the Department of Defense released plans to address an issue for service members – retirement.
National leaders decided that the military retirement system, was in need of a revamp, and embarked on a multi-year study which analyzed all facets of the current retirement system, and led to the proposal of the Blended Retirement System in the 2016 National Defense Authorization Act.
Currently the DOD estimates that 81 percent of the 2.1 million service members leave the service without any type of retirement benefit. With the rollout of the BRS, set to take effect Jan. 1, 2018, it is estimated by DoD that upwards of 85 percent of service members that serve at least two years will leave with some type of monetary benefit.
So what exactly is the BRS? The new system blends the Thrift Saving Plan with government matching contributions and the current pension retirement pay for those who serve 20 years or more and qualify for the new system. Currently, service members have the option to contribute to their TSP with no government match. The BRS offers an automatic 1 percent government contribution to a members TSP after 60 days of service. Also, the service member will be automatically enrolled to contribute 3 percent of their pay into their TSP. After two years of service, the government will match up to 5 percent of a members contributions to their TSP.
“When started early, the TSP contributions from the service member and the automatic government contributions will add up on their own,” said Stephanie Talcott, personal financial counselor for the Office of the Secretary of Defense. “Throw in the compounding interest and you have the makings of retirement dreams come true; goals met, less stress and more choices.”
Members can choose to opt-out of their TSP contributions, but only after completing financial literacy training.
“Having been the 18-year-old newly enlisted service member, I understand the empty bank account system,” Talcott said. “Getting paid just meant money to spend. The benefit of my hindsight is that I now have the opportunity to show service members and their families what they are throwing away by not investing in their future now, while they are young. Compound interest has become a new key phrase; the key here is to understand that the earlier you invest, the more time your money has to grow, to compound.”
The formula for calculating the monthly retirement has also, albeit slightly, changed. In the old formula, a service member took their years served, multiplied that by the average salary of the highest three years of basic pay and multiplied that value one more time by 2.5 percent. The new formula decreases from 2.5 to 2 percent.
All this information aside, how does this affect service members? For some, it won’t. Anyone who has more than 12 years-of-service in the Active Component or 4,320 retirement points in the Reserve Component – regardless of the number of qualifying years of service – will be unable to opt into the BRS. Those that join the service after Dec. 31 next year will be obligated to take the BRS.
Members who joined the service prior to 2018 and have less than 12-years-of service or 4,320 retirement points will be able to choose which retirement system is best for them and have until Dec. 31, 2018 to make that choice. Once the choice is made the member cannot change their minds, so it’s critical that each person fully understand all aspects of the systems and the intricacies before making a decision.
“Wyoming, in collaboration with the Office of the Secretary of Defense, has contracted financial counselors to reach out to all units to start getting this information out to the leadership and to all of the service members and their families,” said Talcott.
Within the next 18 months the DOD will provide several BRS training courses which can be accessed at the Joint Knowledge Online portal as well as the Military OneSource website. The DOD also plans to roll out online comparison calculators in early 2017 for service members who are eligible for either retirement plans so they can gauge which system would benefit them most.
To date, the Wyoming National Guard has held two courses aimed at educating members regarding the BRS. Additional trainings are currently being scheduled to be offered to Wyoming Military Department personnel and their families. The next training is tentatively scheduled for Nov. 17.
“The information you will receive at these Blended Retirement System briefings is very important,” said Glenn Lyons, personal financial advisor for the Wyoming Military Department. “It will provide information that you need to make a well-informed decision about which retirement plan to consider, as well as overall information about how to build a successful financial future that allows your money to work for you.”
Resources are available to help members consider their options for retirement and planning for the future. Don’t wait until it’s time to retire to realize you failed to plan and save.