“11 Years Of Service: How I Chose Legacy High Three Over The Blended Retirement System”

[Nords note:  You have five weeks to decide about opting in to the Blended Retirement System.  Get it done before 31 December 2018.  We’ve had some strong pushback on my last post, “Your BRS:  It’s Not About The Money”, and I offered Warner25 the opportunity to explain his legacy High Three perspective.  He’s reminded me that we first met on an early-retirement forum way back in 2009.  He totally understands financial independence, and this is why he thinks High Three is a better solution than BRS.

Here’s Warner25:]

How I Chose Legacy High-3 Over BRS

It’s the eleventh hour for eligible troops still trying to choose between the legacy High-3 retirement system and the new Blended Retirement System (BRS). I’ve decided to emerge from the comments section here because I think I can offer a centrist opinion along with an actionable line of reasoning to help make the choice.

Summary of the Discussion So Far

It looks like we have two camps.

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We have the camp that is convinced that anything being sold by the government is a bad deal. More specifically, if DoD is saying that BRS will save money and forcing all new recruits into the system, then it can’t be in our favor.

Admittedly, this was my initial reaction a couple of years ago, with the obvious exception for folks who already had plans to exit. Since then, I’ve amended my thinking to include the possibility that BRS is a good idea for lots of troops who would like to serve 20 years.

The second camp, which appears to reside on this and related blogs, is unambiguously telling everyone to choose BRS, and saying that anyone who doesn’t is either delusional or doesn’t understand the system. The foundation of their argument is that you probably won’t (or maybe shouldn’t) serve 20 years. And even if you do, they argue that BRS is just as lucrative as the legacy system. Much of what I will write is a counter-argument to this.

My Method – Part 1

I took a systematic, data-driven approach to making my choice that you can follow. Let’s first recognize that there are two options, and two possible career outcomes, so we can construct a matrix.

Serve 20 Years

Leave Service Before 20

Choose BRS

Choose Legacy High-3

Now we fill in the matrix with our calculations under each system, based on our own circumstances. The official DoD BRS calculator can do the work for the first column. [1]

I’m an O-3 in my 11th year of service, 32 years old, already contributing more than 5% of my base pay to the TSP. I have a balanced asset allocation of about 60% stocks and 40% bonds so I use 3% as my assumed real rate of return. I’ll assume 2.5x base pay for the BRS continuation bonus, and I wouldn’t take an early lump sum. Pulling out the “Gov Retirement Benefit” in today’s dollars gives the sharpest picture. I’m rounding to two significant digits because more than that is false precision for our purposes.

Serve 20 Years

Leave Service Before 20

(in 5 years)

Choose BRS



Choose Legacy High-3



Filling in the second column is tricky because if we don’t serve 20 years, then how many? I’ll suggest two ways to do this. The naive way is to consider that you could leave any time between now and 20 years, so pick a point in the middle. That’s 15 years of service in my case, or 5 more years. You could also look at natural exit points that coincide with the end of your current obligation or promotion board schedules. In my case that would be 16 years of service; not a big difference. Now I add up the government TSP contributions for the next 5 years, available under the “All Payments” tab for the calculator results, and compound them at 3%. Again, I round to two significant digits so we don’t need to be too precise.

A quick aside on investment returns

Image of Army Blackhawk helicopter landing on runway at military base in the desert. | The-Military-Guide.com

[“Insert investment metaphor here”…]

7% keeps getting thrown around, and 7% is the default value in the DoD calculator. This is troubling to me because it really tilts results in favor of BRS. In the BRS Calculator Technical Reference, DoD explains that it chose 7% because that’s the annualized return of the C Fund (the TSP’s S&P 500 index fund) since its inception in 1988. [2]

The calculator is not explicit on this point, but it appears to be a real (net of inflation) return. Two problems: First, holding a portfolio of 100% stocks with no international diversification is controversial. Second, 1988-2018 was a rewarding, albeit volatile, period for US stocks.

According to the 2017 Credit Suisse Global Investment Returns Yearbook, which uses data from Dimson and Marsh, US stocks have returned only 6.5% annualized since 1900, and that’s better than 20 of the 22 other markets studied. [3] The global stock market has returned only 5.1% annualized. My 3% figure is therefore based on a portfolio that includes some bonds, and assumes the global average for stocks instead of cherry-picking the US. The difference between 3% and 7% over several decades is enormous.

My Method – Part 2

After filling in the matrix, we need to think about probabilities.

DoD is apparently unhelpful here, only saying that 85% of troops exit prior to 20 years. Nords likes to apply that figure to everyone and implies that we’re delusional if we assume that we’re special snowflakes who will be among the 15%. This will vary depending on your personal situation, but the best data I’ve found, relevant to my situation, comes from an Army War College study published in 2010.[4]

The authors show some raw data and state that “As [Army officers] approach 10 years of service, the probability that officers will remain on active duty until retirement eligibility climbs to more than 80 percent.”

That’s a bit dated, but I’ve known a lot of field-grade officers and senior NCOs, and very few have left the Army (voluntarily or not) before serving 20 years. I also know that I’m already selected for O-4, and the typical promotion rate to O-5 is 70% with many non-selects retiring at 20 years anyway. So I’m not buying the 15% figure for my particular situation. If you’re a first-term enlisted Marine, on the other hand, 15% is probably more realistic based on data I’ve seen and comments from senior Marines.

Serve 20 Years

(80% chance)

Leave Service Before 20

(20% chance, in 5 years)

Choose BRS



Choose Legacy High-3



A quick aside on probabilities

We can model the probabilities of events as either independent or not. If events A and B are independent, then the probability of B is entirely unaffected by whether A occurs. The classic example is flipping a coin: the outcome if your next flip is independent from all previous flips. If events are not independent, then we can express a conditional probability in which the probability of B changes based on whether A occurs.

For Army officers and NCOs, strong evaluation reports and chances of promotion are a good example: selection clearly depends on the number of “most qualified” evaluation reports in your file. Nords has alluded to an opinion that one’s chances of serving for 20 years is 15%, independent of the number of years already served.

As explained above, I think these are not independent events. With each year of service, I believe the chances of serving 20 years increase due to a demonstrated aptitude, mindset, comfort with the lifestyle, etc. In my mind, the War College data and anecdotal observations confirm this.

My Method – Part 3

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Fulfilling career? Or flexibility?

Now it’s time to interpret the matrix and think about the marginal utility of money. I interpret mine as follows: In choosing the legacy option, I have an 80% chance of gaining $400k, and a 20% chance of losing $35k.

In terms of marginal utility, $400k does a lot for me. It could buy our dream home or send all my kids to college. $35k is nice, but I’ve saved more than that in most years of my career, and I’ve seen my portfolio fluctuate nearly that much in a month. If I’m exiting the Army involuntarily at 15 or 16 years, I think that leaving $35k on the table will be the least of my concerns.

Marginal utility is also why I disagree that BRS provides any significant sense of career flexibility. If I become unhappy with my lifestyle and I’m considering a voluntary exit from the Army after 15 years of service, just short of a $2M pension, an extra $35k in my TSP is not going to make that decision any easier.

This, ultimately, is where everyone will differ. I recognize that I’m an edge case as an officer who’s almost too senior to be eligible for BRS, and with substantial personal savings. The analysis will be radically different for that first-term enlisted Marine and might be really difficult for anyone in the middle-ground. Just do the analysis for yourself with my method and the considerations I’ve discussed. And if you come up with the legacy option, don’t feel like you’ve done something wrong. BRS is not for everyone.

[1] https://militarypay.defense.gov/Calculators/BRS/
[3] https://realestateforums.net/uploads/default/original/2X/6/6f507e741488a2f154402274203eaff68330d40f.pdf
[4] https://drive.google.com/open?id=0B4s0Qz-qpOSCTmRhLXhkWFVKaU0

The Military Guide to Financial Independence and Retirement Price: By Doug Nordman: This book provides servicemembers, veterans, and their families with a critical roadmap for becoming financially independent. The Military Guide to Financial Independence and Retirement All Author royalties donated to military charities. Last Updated: 10/10/2018

Related articles:
Would I Have Switched To BRS If Given The Option? Part 1 (From Airmen MilDollar at Military Dollar)
Would I Have Switched To BRS If Given The Option? Part 2
USAA’s Military Retirement Comparison Tool And The Blended Retirement System
Military Spouses: What You Should Know About The New Blended Retirement System
How to Maximize the BRS If You Decide to Opt-In
DoD’s FAQ Page About The Blended Retirement System
Tricky Details Of The Military Blended Retirement System (What DoD Won’t Tell You!)
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32 Other Posts About The Blended Retirement System By Military Bloggers
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“Should I Opt-In To The Military’s Blended Retirement System?”
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Thrift Savings Plan:  Q&A About Opting Into The Blended Retirement System

For visual learners:
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Thrift Savings Plan:  Opting Into the Blended Retirement System

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.

  1. Great article. My situation is somewhat similar to yours and it helped to see your method in making the decision. I am in year 10, O-3, age 33, but not up for the O-4 board for another couple years yet. I decided a few months ago that I would stick with the high-3 for many of the same reasons you stated.

  2. Nords: This blog, your book, your willingness to help us along our unique paths toward FI—all of it is game changing. Thank you.

    Warner25: Thank you for offering your perspective. Very well written. My spouse and I are 10.5- and 11-year aviators (FGOs) with a very high savings rate, goal of FI within 10 years, and zero desire to leave the service. We couldn’t find an analysis that applied to our life situation and your decision factors rang so true with us. Confidence in moving forward with High 36 is what we have now. Appreciate it!

  3. I want to thank you both (Nords and Warner25) for the excellent information that has been provided here over the past several months with regard to the BRS implementation and the factors each servicemember should consider when making a decision. I recognize you each have a significant difference of opinion about some of the considerations regarding the High 3 / BRS decision but the discussion has provided me with some insights that would have otherwise went unmentioned and unconsidered and I’m grateful that you were each able to express your opinions with such courtesy and decorum.

    My son, an O2 with 3.5 years service who maxes his TSP and IRA contributions and also makes significant deposits to a taxable brokerage account has opted to stay in the High 3 / current retirement system. We have discussed the BRS system and its pros and cons at length and he has decided that he believes it’s best if he stays in the High 3 system. He argued “I will decide at year 7 if I want to stay in or not. If I leave at 7 years the BRS wont have added a significant amount to my TSP and if I decide to stay it will be with full knowledge that I’m in for 20. Events beyond my control requiring me to leave between years 8-20 will make me angry about the loss of pension / health care benefits regardless of which system I am in. At year 10 I have an 80% + chance of making it to 20…. I’ll take that chance for the higher payout.”

    I understand his thinking and logic and agree with him with regards to his particular situation.

    • You’re welcome, Phil!

      There’s one more round coming in December…

    • Some other factors that entered into the decision were:

      (1) His high savings / investing rate into the TSP and IRA stock funds made for some reluctance in diverting from a stable and more secure retirement source to the higher risk of stock market exposure. He felt like he is investing plenty into stock funds and he didnt feel he needed to increase that exposure and would prefer the certainty and security of the military retirement.

      (2) Comparisons in the High 3 / BRS calculators all used a return rate that made the BRS seem to be the more attractive option. As Warner25 has argued those projected returns may or may not be appropriate. I’m not convinced that it’s appropriate to compare a guaranteed retirement “annuity” (for lack of a better term) to a 100% stock / equity investment. It might be a better comparison to the less risky and lower returns of a government bond fund and when running the calculator at that rate of return the High 3 retirement is the clear winner, with a valuation of well above a million dollars.

      (3) Several strategies have been mentioned regarding the availability of spendable money between the early retirement age and 59 1/2 years old. There’s no guarantee those strategies / loopholes will exist in 16 1/2 years. The High 3 military retirement will start for him at 42 years old and is more guaranteed and that was a very important consideration.

      My son’s decision was not entirely financial and this was the path that seemed best to him and for his particular situation. Recognizing the need to “tough it out” between years 10 and 20 if things change for the worst is a realistic possibility, but for an additional $1 million in retirement dollars he’s willing to accept that risk. I’m sure there are several purely financial reasons why this might not have been the best choice but given his personal situation and position it made sense for him.

      • Sticking to High-3 with only 3 years of service is a more difficult choice, but his line of thinking sounds very similar to my own. The key element is the high savings rate. I was the same way at that age, already contributing the maximum to my TSP and IRA and sending leftover savings to a taxable account. That rate of savings, not a 5% TSP match under BRS, is what will provide a sense of career flexibility. For others who can only contribute 5% in total to their TSP, the matching funds will have far greater marginal utility, but they’ll never enjoy much career flexibility.

        I also prefer my higher savings rate to a more aggressive portfolio in order to reach my goals because I can control my savings rate more than I can control investment returns. I focus on the “need” side of the “need vs. ability to take risk” paradox.

  4. More ways to think about probabilities here (sorry, I’m a computer scientist):

    Say we have 100 balloons and we will pop 85 of them. At the beginning, each balloon has a only 15/100 chance of surviving. After we pop n balloons, each of the surviving 100-n balloons has an improved chance of surviving, 15/(100-n). Eventually, after popping 84 balloons, each of the survivors has a 15/16 = 94% chance of surviving. Also, if we do this over 20 rounds, knowing that we pop more balloons in the earlier rounds than the later rounds, we can correlate chances for surviving balloons with the number of rounds survived. It’s an extreme example for the sake of clarity, but if 84 balloons get popped in the first 10 rounds, any balloon making it to the 11th round has a 94% chance of making it to round 20.

    Furthermore, imagine that the person popping the balloons has some bias, instead of popping them in a uniformly random manner. Maybe they like to pop red balloons more than blue balloons. Even if we can’t see the color of the balloons, nor do we know the favorite color of the person popping them, we know that after each round, each surviving balloon has a higher probability of possessing the trait (color) that prevents balloons from getting popped. That’s what I meant about “demonstrated aptitude, mind-set, comfort with the lifestyle, etc.”

  5. Hi Doug and Warner25. I don’t really have an opinion from the numbers stand point as to what makes the most financial sense — High 3 or BRS. I’m sure at an individual level a lot of that depends on personal and career circumstances. Warner, your system looks as objective as anyone can devise, and I’ll certainly mention it to any of the remaining service members at my command who’ve yet to make the BRS decision.

    All I can add is life has a funny way of throwing you curve balls. At 11-years in the service, if someone had mentioned the idea that I might not make it to 20-years, I would’ve laughed them out of the room. Fast forward to 16 years in, a PTS-linked mental break down, and the realization that I had to grind it out 4 more years; and I wasn’t laughing anymore. I’ve reflected on my blog in my money-mistakes series about the role my ill-advised investment and home buying mistakes played in my decision to grind it out. “Decision” isn’t even the correct word. There was no decision to be made. As much as I desired to exit the service, and even with the money my family and had saved, without my pension I wasn’t FI. With my pension I was. Decision made for me, grind away I did.

    I’d hate for anyone to find themselves in the same circumstances I did. It’s one of the reasons I started my blog. However, should they be so unfortunate as to go through something similar, the financial flexibility a system like BRS may allow them to make a different “decision” than I did. Maybe they transition to the reserves, maybe they depart the service altogether, maybe they transition to some other form of government work. That’s the reason I give, and the story I tell, when anyone asks me about BRS. I tell them to think long and hard on the likelihood that all goes according to plan, when so much of their future has yet to be written.

    • So, would an extra $35k in your TSP have enabled you make a different decision at the 16-year mark? Because that’s all BRS is offering me in the way of flexibility.

      • The short answer is no. 35K would not have made the difference. The opportunity costs of my money mistakes were far bigger. Then again, I’m not usually counseling SVMs with 11years on this decision. Also, had I chosen to walk away at 16 years, 35K wouldn’t have hurt.

        That said your article mentions using a 2.5 percent multiple for your continuation bonus. Is that all your service is offering you?

        • 2.5x monthly base pay at 12 years was the most recent figure I saw for all services, and I haven’t heard any noise about plans to actively start using BRS continuation pay for targeted retention. Maybe Nords can shed some additional light on that?

          This raises the question of how big the BRS benefit would need to be for me to jump on it. It makes sense to think about it in terms of a wager: Will I pay $35k for an 80% chance to get $400k? Yes. If the continuation pay were set to the maximum of 13x, then things start to get interesting, but I’d probably still pay $120k for an 80% chance to get $400k. The problem is that it’s really, really hard to walk away at 16 years, as you know, which would be the obligation for taking continuation pay at 12 years. It seems like a lot of people in these discussions about BRS are overlooking that detail. Services can offer continuation pay as early as 8 years, and that’s what I would have wanted to see. Walking away at 12 years feels a lot less crazy, and my chances of completing 20 years felt a lot lower at the 8-year mark prior to selection for O-4.

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