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Are you ready to make your choice about the military’s Blended Retirement System?

Are you a leader who has to advise younger officers and enlisted how to decide between High Three and the BRS?

Are you a veteran like me who’s asked the question several times a week by their family (and their readers)?

USAA can help with that.

The Department of Defense is feverishly hustling building a calculator that will analyze which retirement system is better for servicemember careers and finances. The calculator was supposed to be launched back in January 2017 but it’s run into delays. (The contractors are fixing the last few bugs.) A few of us bloggers with DoD’s BRS roundtable are helping with the beta testing, and it’s expected to go live at the end of March.

Meanwhile USAA’s Military Retirement Comparison Tool is ready now. It’s available to anyone through both their website and the USAA app. You don’t have to login, and you don’t even have to be a USAA member to use the website version.

Image of chart showing the U.S. military servicemember eligibility for the new Blended Retirement System based on joining active duty after 2005 or having fewer than 4230 Reserve/Guard points. | The-Military-Guide.com

Are you eligible for the Blended Retirement System?

The MRCT can help you put numbers on the BRS question and make your informed choice.

It’s a big effort: over a million servicemembers have joined the military after 2005. In 2018 they’re eligible to stick with the existing High Three pension (if they stick around for at least 20 years) or to choose the new BRS (and serve as little as just one obligation).

 

1 out of 6 (roll the die)

To make this choice even more complicated, only ~15% of servicemembers even stay in the military for the 20 years needed to “cliff vest” in a pension. Anyone serving today may have only a 1 out of 6 chance of reaching their military retirement. Retention is more than a financial decision, but it helps to put the numbers on it.

I spoke with USAA’s Josh Andrews, a Certified Financial Planner and their Director of Military Advice. More importantly, he’s a drilling Reservist. He’s not eligible to opt in to the BRS, but he spends a lot of his time (at USAA and in uniform) explaining it to people.

Servicemembers & families are finding the MRCT even without a publicity campaign. It first went live on 6 January 2017, and then DoD made some minor changes to the BRS implementation policy. The MRCT was pulled for a re-code and put back up on 17 February. It’s had over 6000 visits in less than a month since then, and that traffic is doubling almost every day.

The MRCT is designed to show you two sets of numbers:

  • Your possible TSP balance, depending on your contributions. (At least 5% for the full match!)
  • The amount of your High Three pension and your BRS pension (20% smaller).

It emphasizes the conclusion:

If you retire from the military, you maximize your retirement benefits in the High-Three system. However, since 81% of service members don’t retire from the military, most will benefit by switching to the BRS.

 

Can you beat the High Three? That’s not the point.  Will you want to stay for 20 years, regardless of the pension system?  Would you like to have a portable defined contribution account?

Can your higher TSP balance with the BRS make up for the smaller pension? Maybe.

Mr. Andrews explained that USAA tried to add a feature to help servicemembers understand what it would take to grow their TSP balance faster than the 20% reduction in pension. It can be done, although it takes a fearless bold investor to accept the risk of putting all of their TSP balance into an aggressive stock allocation.

The deeper issue is that the calculator can’t handle the more complicated scenarios of the typical military family’s finances, and that requires a sophisticated individualized financial planning tool. The most important point to take away from the MRCT is the portability of the TSP matching contributions. Personally, I’d advise servicemembers to focus on their aspirations for a challenging and fulfilling career– don’t join the military just for the pension, let alone to get rich. You can reach financial independence on your own high savings rate and you won’t even need a pension.

Those who want to level up their TSP performance to beat the High Three pension should contact a fee-only CFP (or a USAA CFP) to discuss the options.

If you want to learn more about the assumptions behind the MRCT, scroll all the way to the bottom of the final screen for the link “Learn more about the assumptions we use in the MRCT.” Spreadsheet pros can adjust those assumptions to design their own analysis. Feel free to start with this BRS spreadsheet contributed by another milblogger.

 

Building an easy user experience

USAA designs their calculators for ease of use, and the MRCT is also racking up the typical high completion rate. Mr. Andrews mentioned that one O-3 has already reported that it “makes the decision so simple”. Another O-3 is leaving active duty but was on the fence about drilling in the Reserves. They quickly grasped the benefits of persevering to 20 good years while contributing their drill pay to the TSP.

Another USAA member, whose daughter was unsure about leaving active duty after 10 years, discovered a crystal-clear understanding of what it means to “cliff vest” at 20 with the High Three pension. She keenly appreciates the portability of the BRS matching contributions, and she suggested that her daughter take the BRS no matter which retention choice she makes.

See for yourself: toggle the box on the final screen labeled “How many years do you plan to serve in the military?” The pension immediately disappears for any number <20, but your TSP contributions and the DoD match are still there for you.

Please share your experience with USAA. If you’re a member then log in to use the “Provide Feedback” link at the bottom of the final screen. While you’re there you can also click on the link to “Get Your Financial Readiness Score” and jumpstart your transition planning.

Better yet, when you’re a USAA member then you can use the MRCT on the USAA app. Mr. Andrews reports that the app is already seeing 55% of the daily total MRCT traffic, and that’s expected to grow as servicemembers & families tinker with the numbers. The next time you’re running errands or waiting in line, whip out your smartphone and do a little financial planning.

 

Just the FAQs.

Mr. Andrews travels the country speaking to servicemembers & families, and USAA’s Military Affairs representatives get asked a lot of questions. Here are the top two with my personal responses:

1. “If I choose the BRS, will I get back pay matching contributions to my TSP for the time I’ve already served?”

Hahahahahaha! (Sorry.)  No. I wish that was the case, but DoD can’t afford the stampede of servicemembers who would benefit from this retention incentive.

Speaking of retention incentives, the BRS includes the prospect of continuation pay at 8-12 years for an obligation of at least three more years. Each service has the discretion to create their own retention programs in their various specialties. Take a look at paragraph 8 of the DoD BRS Implementation Guidance (a 31-page PDF) and start watching your service’s personnel websites for a continuation pay instruction coming to you.

Better yet, the continuation pay obligation can be served concurrently with any other obligation or bonus program, as long as the other program allows it. (Nuke bonuses and aviation continuation pay could still be on the table!) If you’re near the middle of your career then it’s worth considering the BRS continuation pay alongside the transfer of your GI Bill benefits to your family.

2. “If I opt for BRS but then get a promotion and decide to stay to 20, can I revert to High Three?”

Sorry, no again. The BRS decision is irrevocable. That’s a great financial question, but keep in mind that every promotion puts you closer to the pointy top of the billet pyramid. You may find that as you approach the second decade of service, your career options might be limited. More importantly, your priorities could change– and gutting it out to 20 won’t be as important as family time.

Again, remember that the portability of your retirement account is the biggest feature of the BRS. Stay on active duty as long as you’re feeling challenged & fulfilled, but when the fun stops then it’s time to consider moving to the Reserves or National Guard. If you’re in the BRS then you could even quit the military completely– and you’d still have more money in your TSP account than you would have if you’d stayed with the High Three 20-year cliff vesting.

Mr. Andrews wrapped up our interview with this (paraphrased) quote:

“As a CFP, even I’m a procrastinator in some things. People procrastinate in their financial planning, but we want them to consider the BRS decision as part of their overall plan”.

 

Call to action

Are you eligible for the BRS? Are you a leader who’s advising others on the decision? Run some numbers through the MRCT and share your thoughts in the comments.

 

(Thanks to CFP Daniel Kopp at MilitaryLifePlanning.com for the BRS opt-in graphic.)
(Cover image of MRCT courtesy of USAA.)

 

Related articles:
9 Things To Consider Before You Choose The Military’s New Blended Retirement System
Military Blended Retirement System Spreadsheet



WHAT I DO: I help you reach financial independence. For free. I retired in 2002 after 20 years in the Navy's submarine force. I wrote "The Military Guide to Financial Independence and Retirement" to share the stories of over 50 other financially independent servicemembers, veterans, and families. All of my writing revenue is donated to military-friendly charities.

10 Comments
  1. Reply
    Lloyd Biggs April 28, 2017 at 2:38 PM

    If a current serviceman converts to BRS and stays in for 20 years, is the reduced 40% pension good for lifetime still (like the current retirement system) or does it stop at 65 years old (or some other termination event [other than death of course 🙂 ] )?

    • Reply
      Doug Nordman April 30, 2017 at 6:18 PM

      Good question, Lloyd!

      The BRS pension (40% at 20 years) is still for life, just like today’s High Three pension.

  2. Reply
    peter gregory March 24, 2017 at 8:23 AM

    I think the ultimate test for the BRS will be how the services implement and deploy the 8-12 year retention bonus feature. If it is marketed or deployed as the 30K retention gate at 15 years under the old REDUX I think there may be some buyers regret in out decades of the BRS. The other, not to beat the proverbial horse, is the state, current and future of military healthcare, especially applied to pre-Medicare (age 65 and younger) military retired or post service. Regardless the future of Tricare in its various forms, most post service military vets should plan on medical coverage/care taking 20% of whatever form take home pay they receive, high three or BRS. And that’s an optimistic posit, given where the Reform Commission wanted to take Tricare by 2035. We will see.

  3. Reply
    vanguard23 March 19, 2017 at 8:21 PM

    Nords,
    While it’s quite clear USAA’s MRCT tool is rudimentary, your assertion that was USAA’s intent to simplify and boost completion rates makes some sense. However, it would’ve been nice to have a few more levers to play with (maybe a default basic and optional advanced version and ability to adjust growth rate) various retirement accounts (TSP, Roth and Traditional IRA) and taxable account contributions and how those would look through the years leading up to 20+. This might encourage a more robust savings rate for servicemembers when they see a graphic representation of how increases in savings rate and investment in low-cost well-diversified mutual funds/ETFs (through TSP, IRAs and taxable accounts) could make up some of the lower BRS pension benefits if they are part of the 15-19% (I wonder how USAA came up with 19%?) of servicemembers who are able to retire at 20+…just to hedge bets.

    My daughter, in her 6th year as an Army officer, would have to tackle this decision sooner or later…although she is still having fun and feeling challenged and fulfilled. At this point in time, I am inclined to recommend BRS for her if she asks for my advice.

    Mel

    • Reply
      Doug Nordman March 20, 2017 at 7:37 PM

      Thanks, Vanguard!

      I agree, a more robust calculator would be good for those who want to do the additional data entry. I’ll feed that back to USAA. I’m glad you mentioned it because sometimes I feel as though I’m the only calculator nerd in their conference room.

      The numbers on the latest DoD BRS summary are 14% of active duty and 19% of Reserve/Guard making it to at least 20 years. I’ve found one chart on a 10-year-old RAND study that backs up the 14% number for active duty. I’ve asked the DoD BRS staff (yes, they do have a staff) to share their source for these numbers, because I’ve been seeing similar numbers (without citations) since 2011. They’re working on it and it’s on my followup list. Rumor is that it’s in the Defense Manpower Data Center but it’s definitely not public yet.

      My daughter and son-in-law both commissioned in 2014, and I’m also recommending that they both take the BRS. (They also have a high savings rate, so they’ll probably reach financial independence without a pension.) My daughter has pretty much made her decision to move to the Reserves in 2019, and my son-in-law is still feeling challenged & fulfilled. We’ve had the discussion a number of times, and I suspect we’ll keep talking about it during the next nine months.

  4. Reply
    John@MilitaryFire March 16, 2017 at 10:45 AM

    Also, thanks for taking the time and space to explicitly point out the variable nature of the “retention bonus.” The Navy/CG training makes it out to be a given, as in everyone who wants he 12 year cash can have it. My first introduction to Military Finance was hearing about a young shipboard Cook’s dreams of a 40K house downpayment evaporate when the CG eliminated the SRB for cooks. Don’t include that bonus in your net worth until its in your pocket…

    • Reply
      Doug Nordman March 17, 2017 at 11:02 AM

      You’re welcome! I think the services lobbied hard to use the continuation pay as a retention program.

      The only consistent correlation with retention is… bonus money.

      The issue of “consecutive” or “concurrent” obligations is also important to me. I watched the submarine force screw this up in the 1980s, and several submariners ended up with nine-year obligations instead of five.

  5. Reply
    John@MilitaryFire March 16, 2017 at 10:42 AM

    I wasn’t too impressed with USAA’s new product unfortunately. I thought it was going to be a more robust calculator where we could input our own data and assumption and see a few numbers pop out. Great visual for those who need a primer on the BRS, but as someone who saves over 10% of my pay already I found the graphic limiting. Ill leave feedback as suggested.

    Come on the DOD calculator!

    • Reply
      Doug Nordman March 17, 2017 at 11:00 AM

      I agree that the calculator doesn’t have many options, John, but that’s by design.

      “Ease of use” and “robust flexibility” tend to be mutually opposing design criteria. I enjoy having a lot of inputs to play with, but USAA has noted that those types of calculators have a very low completion rate with the general public (around 10%). Meanwhile USAA’s “easy to use” retirement calculator (with very limited inputs) has a completion rate of over 90%. It starts people on their financial planning without an intimidating hurdle of data entry, and they can go onto seek professional advice or their own advanced calculators. The BRS calculator follows the same design goal.

      Here’s another complication: the biggest issue with the BRS isn’t about the money. It’s about unrealistic expectations of serving at least 20 years for military retirement, and giving servicemembers a portable retirement account instead of cliff vesting. We shouldn’t distract people with financial comparisons between the two systems when they have completely different customers.

      And yeah, the DoD BRS calculator has more knobs & levers to tweak. It’s also brought to us by the people who brought us the REDUX/CSB calculator, so I’m staying skeptical… starting with the release date which is only two weeks away!

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