Your Military Blended Retirement System: It’s Not About The Money.

[Full disclosure: On this post, I’m not about the money either. I’m not paid to write this, it’s not sponsored by anyone, and I’m not earning revenue from the links.]

Image of servicemember counting out a pile of twenty-dollar bills as though it's all about the money |

We’re focused on the wrong factors.

Our group of military personal-finance bloggers is sending out a #BRSBlitz about the opt-in decision. You may have seen some of these links on my social media before, and they’re included in the “Related articles” section at the end of this post.

If you’re just joining the BRS discussion:

For those BRS-eligible servicemembers who’ve been underwater on a submarine without bandwidth for the last two years, you have less than two months to opt in. After 31 December 2018, you’re stuck with the legacy High Three pension system, where you have a 15% chance of cliff-vesting at 20 years of service.

If you don’t know whether you’re eligible, or if you haven’t run the DoD BRS calculator or USAA’s BRS Military Retirement Comparison Tool yet, or if you haven’t heard about all the tricky BRS features that DoD won’t explain, then scroll down to the bottom of this post to read the related links. We’ll wait here!

While we’re waiting, let me share that perhaps we’re all getting tired of talking about this. A few of you have been watching the “retirement modernization” process since early 2014. Some of you more senior people have had to spend a lot of your leadership time talking with your troops about the BRS decision. (I sure hope you’ve spent the time!) Many of you financial counselors, coaches, and advisors are getting a little worn out by the repetition.

The opt-in window’s been open for nearly a year. If you choose not to decide, you still have made a choice.

Adulting so hard with the BRS

Image of a small mousetrap baited with a ten-dollar bill to represent how the military's 20-year pension traps people in uniform. |

The 20-year pension is the real trap.

I’m skeptical that I’ll change anybody’s opinions today, but I feel obligated to make the effort one last time. I’ll share three frequent (anonymous) reader comments with you and then we’ll debunk some other BRS urban legends.


First, if you truly believe that “Any good idea from the gubmint is a bad idea for me!” then you deserve to live with that analysis. The BRS does make life easier (and cheaper) for DoD’s actuaries, and this time DoD is sharing the savings with you.

The BRS is (at worst) revenue-neutral with the legacy High Three pension system for lifetime pension income– if you even get a pension– but you have far more flexibility with the BRS. DoD is all about retention. This time they’ve found a way to cut taxpayer expenses while motivating those who want to do a couple of obligations without having to gut it out to 20.

Second, please contact me if you’re worried that your company commander is going to see “BRS” on your Leave & Earnings Statement and decide that you’re an unmotivated slacker who’s leaving the military. Maybe people who opt-in to the BRS are also more likely to be internally motivated, not just hanging around hoping to get to 20.

Third, I’ve read complaints about the military’s miserable financial literacy: poor BRS training (or no training at all), and senior leaders who don’t care about the BRS.

Hey, this is your paycheck, your career– and your life. Don’t wait on your chain of command.  I’m educating servicemembers & families about financial literacy every day, and I’m happy to help you too.  Read the posts below, watch the video links down there, and reach out to me.

The BRS is a stellar opportunity to start adulting in your personal financial life. Here’s a thought: “What if the U.S. military already teaches its servicemembers more about personal finance than any corporation in the world?”  (Ask your civilian friends about their 401(k) match.) Even if your chain of command hasn’t explained the BRS to you, or you haven’t learned the details, or if you don’t know how to figure out your decision, then you still owe it to yourself (and your family) to ask us questions and take charge of your options.

I’m glad you’re reading this post. Keep educating yourself, because nobody cares about your finances as much as you do. If you hear someone complaining about the training then please send them this post.

BRS is about career flexibility, not the money.

Image of "The Crossover Point" from the book "Your Money Or Your Life" showing how lowering your expenses and saving more money will build your investments to the point where they yield more income than your paycheck. |

It feels better to build your own financial independence.

Let’s come at the BRS decision from a different angle: this time I’ll avoid talking about the numbers and the probabilities. You can get the math from the related links at the bottom of this post.

If you’ve been reading this site for a while, then you know that humans base their personal financial choices on two different heuristic algorithms:

1. Logical math, which many bloggers (like me!) love to focus on, and…

2. Feelings. Researchers call this “behavioral economics” or “behavioral financial psychology”.

You’ve probably heard all about the math of the BRS. (I’ve learned this from reading many many Facebook threads about BRS calculators & spreadsheets.  You can see those links down below.) Instead, let’s focus on the behavioral financial psychology.

While we’re talking about our feelings, let me debunk some BRS urban legends.

BRS urban legends

Here’s the worst one:

“We’re goin’ for 20!”

Image of padlock around a dollar bill to represent being locked into a 20-year career for the pension. |

This is the real trap.

I’m amazed by the number of people who say “Ooh yeah, I’m doing 20” as if that’s only based on your internal locus of control. Or even worse, “Oh yes, my spouse needs to go to 20” as though the servicemember doesn’t have a vote.

If you have less than ten years of service then… and I say this as a geezer who’s been there… you have no idea.  Even if you have less than 14 years of service then you should still be cautious about those bold proclamations.

Life happens. You can’t avoid injuries, illness, family crises, or your evolving priorities. A career is not just motivation and resilience, and it’s certainly not simple persistence.

The best advice I can offer is to take the military one tour at a time. Stay on active duty as long as it’s challenging & fulfilling. (This is not always the same as “happy”.) When the fun stops (and there will be no doubt when the fun stops) then consider leaving active duty for the Reserves or National Guard. If that’s not the work/life balance you expect then go full civilian.

Whatever you do, don’t gut it out to 20.

Here are a few considerations:

By the time you have 10 years of service, many of us have started families. As your kids grow older, you probably want to spend more time with them. Yet as you get more senior in your career, you’ll only be asked to spend more time away from your family. It might be the usual deployment routine, but it’s especially likely to be long hours of managing operations and training. If there’s any family separation worse than deployment, it’s the separation of being in garrison by working a 60-hour week. Is it really worth gutting it out to 20 for a pension?

If you start that second decade of your career, I hope your promotions are starting to pay off. Yet an unfortunate side effect of that seniority is that there are fewer billets for you. (Ask your senior enlisted… or your XO.) As you get up into the pointy end of that seniority pyramid, the choices get very limited. (We call that “breaking out” or “chance to excel”.) This means more difficult decisions for you and your family– and probably more separation. Even if you’re childless or single, it still means that you might be asked to go to places you’d rather avoid. Is it still worth gutting it out to 20 for that pension?

If you’re taking the military one tour at a time then maybe it makes sense to have a high savings rate. When you’ve saved and invested for your own financial stability then you don’t have to feel trapped by car payments or mortgages or a big bonus program. You also don’t have to feel trapped by a pension, because the BRS puts more money in your TSP that you can take with you whenever you leave the service.

Here’s another urban legend:

“Nah, we’ve already obligated for three more years, we’re staying with High Three.”

Um, you might have overlooked a different bonus. The BRS legislation includes a Continuation Pay bonus, and it’s designed to run concurrently with other bonus programs. (It’s concurrent as long as the other bonus program does not specifically say “consecutive”.)

Image of an Army tank made of money to represent the Continuation Pay bonus program of the military Blended Retirement System. |

Submarines are like this too.

Even if you’re signed up for a re-enlistment bonus or a retention bonus, you still get to sign up for the Continuation Pay bonus.

A note of warning here: unlike the BRS “less than 12 years of service and a year to opt in” qualifier, you have to sign up for the CP bonus before you hit 12 years of service. If you’ve gone over 12 during 2018 then you’re no longer eligible for the CP even if you do decide to opt in to the BRS.

If you can opt in to the BRS and you still have less than 12 years of service, then you can read all the legislative details of the Blended Retirement System Continuation Pay bonus here. (Paragraph 8.)

Your service also has their own Continuation Pay instruction, and they just might be paying more than 2.5 months of base pay. Rates should be updated soon for 2019.

Either way, if you’re obligated for a few more years, then it still makes sense to take the BRS and the CP.

Let’s explore a third urban legend:

“After 11 years of service, we have the life experience to understand where we’re going.”

Yeah, we have a plan.

I’m 58 years old. I remember expressing those sentiments at age 32, and now I understand why so many retirees smirked when I said things like that.

It’s easy to believe that every year gets you a year closer to the pension– and that it makes you more experienced and able to handle any bad stuff. Every year you’re five percentage points more likely to retire, and at 11 years you’re 55% likely to retire. Suddenly at 20 years, you’re 100%!

That’s not how probability and statistics work. Life is not linear progress toward a goal. A better (yet crude) analogy for “life experience” would be blindfolding yourself, inserting earplugs, and running across a four-lane highway at midnight. Nothing bad happened. With that life experience, let’s do it hourly for 19 more times until we’ve gutted it out to 20! Good luck with rush hours.

Image of the original cover of the classic book "Your Money Or Your Life", one of the earliest influences in the financial independence movement. |

Click the image for the eBook.

The older I get, the less I “understand” about life. It’s not black and white. Regardless of how much we can plan for the way things should be, we’re all stumbling around blind and deaf. In over 16 years of retirement, I’ve learned that life can change in a few seconds and all those carefully-laid plans could be trashed.

But enough about me. More importantly, I get those e-mails every week asking about the best way to handle bad things happening to good people. Readers tell me that they had 16 years of service when that physical exam found a problem, or their spouse had a medical emergency and ended up in the ICU. Or one of their kids needs health/educational support which is working great at this duty station and has nothing at the other duty station. Or they failed to promote and the continuation board doesn’t look good. Or the community is drawing down and the assignment officer needs a volunteer “right now” for an unaccompanied tour.

Did you know that in the 1990s, the Pentagon actually had a stress-reduction lifestyle video for Army lieutenant colonels? (One recommendation: drink herbal tea instead of coffee.) That specific cohort was having heart attacks at a much higher rate than anywhere else in the military, let alone in the Army. These are exactly the people who have significant life experience and know where they want to go, yet the career stress of a breakout tour led to hospital stays, cardiac surgery, limited duty, disability retirements, or even funerals.

I hope none of us ever has those life experiences. I sincerely hope that the back half of your career’s life experience turns out at least as good as the first. But when if it doesn’t, then maybe it makes sense to have the BRS flexibility. Instead of finishing 11 years with no pension, the BRS at least puts more matching contributions in your Thrift Savings Plan.

Everyone retires eventually.

Here’s a question for a civilian:

“Would you work for a corporation that cliff-vests their defined-benefit pension at 20 years?”

Would you do that after you left the military, or would you consider working for any of the other thousands of corporations that offer better deferred compensation plans?

That’s the insight into why the military is getting rid of the High Three pension plan. It’s all about retention. (It’s also about DoD’s actuaries cutting expenses in pension accrual accounts, but SECDEF is a lot more concerned about retention than about actuaries.) Don’t make a big bet on High Three cliff-vesting at 20 when the downside risk is getting zero.

It’s not about the money– it’s about having options. Take the flexibility of the Blended Retirement System.

While you’re at it, save and invest as much as you can for your own financial independence. You never know when you’re going to need that emergency fund, or that transition fund, or even a few years out of the workforce.

It’s not about the money.  It’s about having choices.

Call to action:

Please browse the links below, and contact any of us bloggers if you have more questions. If you want to use e-mail then I’m NordsNords at Gmail.

If you’re ready to log into MyPay now and get it done, then click here:

How To Opt-In To The Blended Retirement System

Otherwise please read the related posts down below!

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:
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!)
The announcements of your service’s Continuation Pay rates
32 Other Posts About The Blended Retirement System By Military Bloggers
Many Sample Runs Of The DoD BRS Calculator (so that you don’t have to)
“Should I Opt-In To The Military’s Blended Retirement System?”
9 Things To Consider Before You Choose The Military’s New Blended Retirement System
Thrift Savings Plan:  Q&A About Opting Into The Blended Retirement System

For visual learners:
The Robyn Videos: All About The BRS In Two-Minute Episodes
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. Reply
    Spencer November 18, 2018 at 10:01 PM

    “If I chose BRS and separated a few years from now before reaching 20, the matching funds would approximately cover the cost of a new car.”

    That’s exactly the point I think Doug is trying to make in this post. If, like >80% of servicemembers, you get out before 20 years under High-3, you walk away with nothing. BRS at least gives you something to walk away with, even if it’s just “a new car.”

    Personally, I’m at 8 years and opted into BRS Jan 5 2018. I don’t know what the future holds, but I do know I have $3000 more in my TSP this year. If I make it to 20, great. If I don’t, at least I get some additional savings to take away with me.

    Just like financial independence, BRS gives you choices, options, and freedom. And that makes me much happier than a potential pay off that I may never realize.

    I believe the sign up rate for BRS is still below 20%. If more people were approaching this decision rationally, it should be closer to 80%.

    • Reply
      warner25 November 19, 2018 at 11:01 AM

      I get the point. But the 15%/85% figure is only relevant to people just entering service. The talk of a 20-year BRS retirement being of equal value to a legacy 20-year retirement is similarly only relevant for someone just entering service (getting the full 20 years of TSP matching, and making very optimistic assumptions about return on investment).

      Again, I’m not saying everyone should choose legacy. And I don’t think there’s a clear cut-off based on years of service. At 8 years you could certainly go either way. What I’m criticizing are these unambiguous statements that everyone should choose BRS; that everyone who doesn’t is delusional or has failed to do the analysis. I want people to know that the arguments are specious and that they aren’t stupid for thinking that legacy might be better for them.

      • Reply
        Spencer November 19, 2018 at 8:48 PM

        Military Continuation Rates

        Here’s a RAND chart from FY 2013. You can see on the officer side a pretty steady drop off until 11-12 years for all services and then it continues to drop off until 20 years. So that means people are still getting out after 12 years and before their 20.

        In my opinion, the default option should be to opt into BRS, for all the reasons Doug, other bloggers, and I have articulated. Once you realize the default choice should be BRS, then you get to make the argument with yourself why you should stay in the High-3.

        If you’re at 11.5 years with a 9 year USAF aviator retention bonus contract: then yes, the High-3 might be a good option for you. But again, you’re making a bet on an unknowable future. BRS gives you control and power that you don’t have under legacy.

        The arguments for opting into BRS are not “specious.” For the majority of servicemembers with less than 12 years of service, it’s the right choice. Especially on the enlisted side.

        People are not stupid for thinking the legacy is better for them. It’s just very unlikely that they are correct in choosing legacy over BRS.

  2. Reply
    warner25 November 18, 2018 at 5:45 AM

    Nords, I’ve been reading your stuff for a long time and appreciate your work, but the strength of your opinion on this topic still baffles me. You use assumptions that are just as specious as a new recruit saying that he’s going to do 20 years. Using a 7% lifetime real ROI, which DoD and others have based on a 100% US stock portfolio in a bull market, is anything but prudent. Repeatedly stating that everyone has a 15% chance of making it to 20 years, even if they’ve already done 10, is provably untrue. Citing potential “medical issues, training accidents, [and] operational mishaps” as risks to a 20-year career is disingenuous since those service members are financially cared for through medical retirement, not kicked to the curb with nothing but their TSP balance.

    But more to the core of your argument, I just don’t buy into the idea that BRS provides any meaningful sense of career flexibility or substantially reduces the “golden handcuff” effect. The 5% match simply isn’t big enough to tip the scales in the context of the decision to leave active duty and give up the 20-year retirement package. In the range of possible career outcomes, a few years of BRS matching funds are noise; a rounding error. If I chose BRS and separated a few years from now before reaching 20, the matching funds would approximately cover the cost of a new car. Nice, but that’s not going to significantly influence the most life-altering decision of my career, and it’s not free: taking that option involves giving up hundreds of thousands of dollars that I might have had under the legacy system using my more conservative assumptions and as noted in your analysis for a young O-4.

    I’m not saying that everyone should choose legacy. But you sure seem to be saying that everyone who doesn’t choose BRS is delusional, and I think that’s irresponsible.

    • Reply
      Doug Nordman November 19, 2018 at 9:52 AM

      Thanks for the compliment, Warner! If you’re baffled by the strong opinions of someone you appreciate, then maybe they have an insight. You know I’ve done the reading & analysis, and we milbloggers have shared everything that we’ve learned from our work with the DoD BRS office. We’ve even extended their analysis to areas they won’t address, and we’ve let them know our thoughts.

      I’d very much like to see your evidence for “Repeatedly stating that everyone has a 15% chance of making it to 20 years, even if they’ve already done 10, is provably untrue.” You could be conflating cohorts with individuals, and you might be assuming that future probabilities depend on the results of previous trials.

      Here’s the probability logic. The historical odds of any one individual making it to 20 years are 1 out of 6 (15%). Simply making it for 10 years in no way awards any individual a higher likelihood that they’ll make it to 20. It just reflects the survivor bias of the people who were still in after 10 years. (Hence my blindfold & earplugs analogy.) Having four of the six drop out by 10 does not mean that you’re more likely to make it to 20. It just means that you (and one other servicemember) stayed for 10. Unfortunately with High Three there’s zero reward for making it to 10. You have to keep putting on the blindfold & earplugs and running across that freeway.

      As you and I have discussed on other posts, we’ve seen a few studies suggesting that the members of a cohort with 10 years of service have roughly a 50% chance of making it to 20 (both officer & enlisted ranks). I’d love to see the DMDC break that down by rank & service. In any case, I’ll also point out that the next 10 years of every military career is very much different from the first 10 years– both in the occupation and in the family priorities.

      Surviving a career for 10 years does not predict anybody’s probability for surviving the next 10 years. It’s just the broad experience of a cohort.

      Which leads me to the point of a post which is not about the money. I think people take a huge risk to attempt to cliff-vest a pension at 20 years with zero matching 401(k) contributions. The downside is far harsher than the upside. Meanwhile BRS offers more career flexibility and an opportunity for a better quality of life. If you leave before 20, there’s no downside– the BRS matching contributions are an upside. If you retire at 20 then there’s still no downside– the smaller BRS pension is revenue-neutral when TSP matching contributions and the CP bonus are included.

      For a downside example, you have a very optimistic view of the medical/physical disability screening process. I get several e-mails per month from servicemembers who are in no way “financially cared for through medical retirement” but are rather discharged to pursue a VA disability rating. Search for the VA disability posts on this site, read their comments, and consider whether you’d prefer to be in the High Three legacy pension plan or the BRS. Those are just the public comments– the e-mails and the experiences of my relatives & friends are heartbreaking. “Disability retirement” is not the panacea it seems.

      People who pass up BRS have either not analyzed it, or have focused on the pension/TSP numbers instead of on the quality of life. They’ve fallen into the logic trap of assuming that they’ll make it to 20 years of service, and then they start counting their unhatched chickens while ignoring the reality that only 1 out of 6 makes it to 20.

      You say “… taking that option involves giving up hundreds of thousands of dollars that I might have had under the legacy system using my more conservative assumptions and as noted in your analysis for a young O-4.”

      I say that it’s not about the money. That young O-4 should stay on active duty as long as they’re feeling challenged & fulfilled. But when the fun stops, then that young O-4 is taking a significant physical, emotional, and even mental risk by gutting it out to 20. Instead of the scarcity mindset of giving up hundreds of thousands of dollars, they should consider the opportunity mindset of a better quality of life… and incidentally unlocking their human capital of many more hundreds of thousands of dollars.

      Here’s some cognitive dissonance for you. A servicemember who’s as analytical, articulate, and passionate as you might do well to consider that you could leave the military before 20 and earn far more lifetime income & benefits in a civilian career than the military pension is worth. It’s hard to look forward 10 years and see that, but I can attest that it’s certainly a lot easier to see it in hindsight. You have far more human capital than you may appreciate. In addition to my opinion, you might want to consider the thoughts of the 200+ military veterans who’ve been interviewed on Justin Nassiri’s “Beyond The Uniform” podcast.

      So yes, to answer your question down below to Airmen Mildollar, I would’ve opted in to BRS at 11 years of service. I would’ve continued maximizing my TSP contributions (as well as the DoD BRS match). I would have only signed up for Continuation Pay if I’d felt challenged & fulfilled and was willing to stay four more years. In my career at the time, though, that wasn’t happening at my 11 years of service. Within another year I would’ve opted to leave active duty for the Reserves. I would’ve been encouraged to make my leap knowing that I already had BRS matching funds in my TSP and would still have more money than legacy High Three.

  3. Reply
    Hank November 14, 2018 at 2:02 AM

    Help me out. What’s the math behind this statement: “The BRS is (at worst) revenue-neutral with the legacy High Three”? I don’t see how that works out; I understand there are various risks and lifestyle factors involved in each plan but I don’t see how it is a net tie. BRS pays out 20% less than High3. (40%/50%=0.8). A line officer will retire around age 42; enlisted around age 39. That’s 30 or 40 years of pension at a 20% reduction. For an officer, this is about $10k/yr in present dollars. In exchange you get BRS incentives of a 5% match and 2.5 months continuation pay. If at retirement age (59.5 or 60), you take a safe withdrawal of 4%, your BRS incentives would have to have grown to $250k to even match the lost pension, or nearly $500k to make up for the years between mil retirement and age 60 — but only if you ignore the time value of money. Quite unrealistic. Those values could be lower if you plan to draw on your principle instead of a safe withdrawal rate. For me, this makes even less sense because I’d like to spend more while relatively young (age 45 – 59) and slow down after age 60; High3 enables this more than BRS.

    How did you come to the conclusion that BRS is at worst a net tie and potentially could outperform High3? Even the DoD’s own calculators and charts couldn’t make that math work.

    • Reply
      Hank November 14, 2018 at 2:12 AM

      Didn’t mean to sound accusatory above. Asking for your thoughts. 🙂

      • Reply
        themilitarydollar November 15, 2018 at 12:26 AM

        Hi Hank. Like Doug, I think people are focused entirely too much on the money and ignoring the two most important aspects of this choice:
        1. The career flexibility from not feeling handcuffed to a pension
        2. The fact that the overwhelming majority of people will never get the pension

        But since people continue to talk about the money, I thought I’d show you how the numbers would’ve worked out for me if I’d been offered BRS at the beginning of my career. Doug already gave you the link to where I ran numbers for a whole slew of fictional people, but this is what it would actually look like for me, a real live person with actual investing history to model off of.

        I am currently in my 14th year of service – I commissioned in 2004. I have a spreadsheet showing what the government contributions to my TSP would’ve grown to if I started BRS as an LT – this spreadsheet only includes the government 5% contributions, it does not take into account my own money.

        I then predicted what the numbers would look like when (if!) I reach 20 years TIS.

        To calculate the results, I used my own actual TSP returns for every year I had them. During years I didn’t have TSP, I used the S&P 500 return that year. For future years, I assumed a 7% annual average return. And for future base pay, I assumed an average 1.7% increase each year. All conservative assumptions, I think we can agree. Because I’m not going to dig up the daily returns for 14 years, this is a simple annually compounded estimate. The real numbers would vary a bit.

        Now, as you said, in order for BRS to actually be revenue neutral purely by the numbers, you would need the government contributions portion of the TSP to make up for the reduced pension. If starting right at retirement, for an O-5 retiring at 20 years TIS that means we are looking at making up ~$10,000/year. Using the 4% Rule, that means the government contribution of the TSP would need to equal ~$250,000 at the time of my retirement (25x). Let’s see how it works out.

        (I apologize for not fully showing my work – that’s a function of answering in comments. I’ll put up a better, more complete answer on my own blog)

        ending balance of
        $740.39 2004
        $2,210.95 2005
        $4,501.88 2006
        $6,673.24 2007
        $5,698.20 2008
        $11,075.31 2009
        $16,289.79 2010
        $19,209.04 2011
        $25,667.65 2012
        $37,643.70 2013
        $46,162.87 2014
        $49,656.74 2015
        $58,974.70 2016
        $75,608.24 2017
        $85,758.61 2018
        $97,045.80 2019
        $109,439.62 2020
        $122,911.49 2021
        $137,536.49 2022
        $153,344.18 2023
        $167,220.88 2024

        Okay, so we haven’t quite made it. It brings us close – using the 4% rule, in year 1 it’d replace $6680 of the “missing pension.” That means it’s only a $3320 annual difference, less than $300/month, if I’d been in BRS – ensuring I’d walk away with something rather than the high likelihood of walking away with nothing. Not really a whole lot, especially when you consider the unique benefits of TSP over the pension (easily passed to heirs, can reduce need for SBP, etc)

        But wait! Continuation Pay!

        If I added in Continuation Pay under the 2018 rules (which are the worst possible scenario, at the lowest allowable amount AND the latest possible time) suddenly I have a lot more money at 20 years TIS.

        ending balance of
        $740.39 2004
        $2,210.95 2005
        $4,501.88 2006
        $6,673.24 2007
        $5,698.20 2008
        $11,075.31 2009
        $16,289.79 2010
        $19,209.04 2011
        $25,667.65 2012
        $37,643.70 2013
        $46,162.87 2014
        $49,656.74 2015
        $78,367.38 2016
        $98,766.98 2017
        $110,538.47 2018
        $123,560.25 2019
        $137,810.08 2020
        $153,267.89 2021
        $170,017.83 2022
        $188,099.22 2023
        $204,408.77 2024

        Now we are looking at $8176/year using the 4% rule – a difference of a mere $1824 from your estimated $10,000/year. That’s $152/month. And that’s using conservative assumptions! Talk about being essentially revenue neutral. Add in the benefits of lowered SBP and the other TSP benefits and now you are looking at an insurance policy that costs you less than $100/month, under conservative assumptions.

        And remember I’m talking about immediately using TSP upon retirement at 20 years, not waiting for age 59.5. Assume I’d be using some of the multiple methods available to take money out early.

        Extend out your compounding timeline, have a more generous Continuation Pay year, and/or invest well enough to get higher average returns and you can very easily end up with more money from BRS than legacy, while also ensuring more career and life flexibility.

        So that’s what he means by revenue neutral.

        But of course, it’s not about the money. We just you to get past the money to what’s actually important. Hopefully this helps.

        • warner25 November 18, 2018 at 11:18 AM

          Also, how is a 7% return a conservative assumption? Either that’s a nominal return and you need to move the goal-posts accordingly to make up for the nominal lost pension income, or it’s inflation-adjusted in which case you are assuming a 100% stock portfolio that outperforms the historical average for stocks.

        • warner25 November 18, 2018 at 6:26 AM

          But your analysis is only relevant for someone at the beginning of their career; folks for whom this discussion is irrelevant, by the way, because they don’t get a choice. Would you still opt-in if you were at 11 years of service, not having the benefit of all those prior years of TSP matching?

      • Reply
        Doug Nordman November 14, 2018 at 9:41 PM

        I get that question a lot, Hank. I guess I should highlight the irony that the very first comment on a post titled “It’s Not About The Money” is… about the money.

        Speaking of DoD’s calculator: several of us bloggers (members of the DoD BRS Roundtable) extensively beta-tested it before release. It doesn’t include the effect of your own personal TSP contributions (a hotly-debated topic at the BRS office). It doesn’t account for financial planning (income taxes) or estate planning (SBP and passing on the TSP account). You’ll have to correct for those omissions in your own spreadsheet.

        Of course that spreadsheet should also include other omissions from the DoD calculator: career flexibility and quality of life.

        If we’re going to discuss (once again) the numbers, then we have to do probabilities & statistics as well as compounding math. Let me point out the flaw in your logic: you’re unlikely to reach military retirement. Only 15% of the people who join the military make it to 20 (1 out of 6).

        In other words, you’re proposing to make a High Three bet which pays off only 1 time out of 6. Even worse, 5 out of 6 times you receive nothing… not just the dollar difference between the High Three and BRS but literally zero pension.

        Meanwhile with BRS you know that 6 out of 6 times you’ll leave the military with DoD’s agency/matching contributions in your TSP.

        Let’s go back to High Three cliff-vesting at 20. If you happen to be the 1 out of 6 who survives the career events beyond your control (medical issues, training accidents, operational mishaps, combat, downsizing, lack of promotions, family crises, quality-of-life burnout) then the question is whether the additional payoff is worth the risk.

        Another blogger has done multiple runs of the BRS calculator without accounting for Continuation Pay.
        Let’s say that the biggest difference between High Three and BRS at retirement is $440K, the case of the O-4 at 11.5 years. (It’s reasonably close to your $500K figure.) Maybe the O-4 takes the CP bonus ($21K) and also compounds it for another 26 years at 7% (like the rest of their TSP) for another $122K. Now the High Three calculation of that post yields roughly $320K more at age 59 over the BRS.

        That retiree is likely to live another 20 years, which yields roughly $16K/year out of locking themselves into a bet which only has a 1 out of 6 payoff. Five out of six times it’s zero, and the sixth time it’s a lottery win of $16K/year. The expected payoff is $2667/year.

        But this is not a poker game where you can play 40 hands a night. This is a military career that you can only do once, and the High Three poker table requires you to gut it out to 20 years. With the BRS you could quit after any hand and walk away with some house money.

        Let’s go back to the DoD calculator. The BRS office did not add financial planning or estate planning to the BRS calculator. Your High Three pension has a few issues:
        – It’s taxed every year, while the Roth TSP pays lower taxes and the traditional TSP can be gradually converted to a Roth IRA at a lower income-tax bracket– and that income-tax bracket is largely under your control.
        – The pension dies when you do, unlike the TSP account which can be passed on to your heirs.
        – The High Three SBP premiums are 20% higher, while with BRS (and an inherited TSP) you might not even want SBP.

        Finally, if we’re going to assume that you’re the 1 out of 6 who earns a High Three pension, I think it’s fair to assume that many servicemembers would be lucky enough to score a Continuation Pay bonus contract multiple of more than 2.5 months of base pay. That’s also a four-year commitment, which is a lot easier than gutting it out to 20.

        Back to the point of the post’s title: are you really willing to bet your career on a pension which forces you to cliff-vest at 20 for a speculatively higher amount of money? Or would you rather take the sure bet of career flexibility, quality of life, and more money in your TSP?

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