The Military Blended Retirement System: “Dude, Where’s My Calculator?”

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[Ah, good, the DoD BRS calculator has been officially released.]

A reader asks an outstanding question:

Does it make sense to opt in to the military’s new Blended Retirement System in 2018?

One of our NCOs has a pessimistic view of the BRS, especially since they’re over 12 years of service and don’t see how the BRS will benefit them. In fact, they don’t see how it will benefit any servicemembers. I think the best way to decide whether there’s a benefit or not is to actually show them numbers, via the calculator.

Image of three servicemembers. Two of them joined the military before 2018. One of those has more than 12 years of service and is not eligible for the Blended Retirement System. One of them has less than 12 years and has a choice of the old High Three or new Blended Retirement System. The third joins in 2018 and is only eligible for the new BRS system. |

Are you eligible for the BRS?

I’m getting a lot of questions on both sides of the BRS debate, and we’re still comparing the answers. Both sides have their points.

Remember that in 2018 you can opt into the BRS if you have less than 12 years of service (joined the military after 2005) or less than 4320 points in the Reserves or National Guard.

Let me make the most important point about the BRS right now:

It’s not about the pension. It’s about having extra money in your Thrift Savings Plan account.

Image of the sign "Welcome to Fabulous Las Vegas Nevada" |

Can you gamble on your 20-year future?

Here’s the only numbers you need to consider:  just one out of six servicemembers stays in uniform long enough to earn a pension.

Take a look at a picture of your recruit training class or your officer basic class. Who’s still in uniform today? Do you feel lucky? Do you?

We’ll return to this point after we answer the calculator question.

The DoD Blended Retirement System calculator

First, here’s the link to the Department of Defense’s Blended Retirement System calculator.  (When you’re finished checking it out, please remember to come back here and read the rest of this post!)  It was released in early May, several months behind schedule. (It was beta-tested by a few of us military bloggers in January.) Unlike the old DoD CSB/REDUX calculator, this one allows you to set more realistic assumptions for your TSP account’s investment returns.

The calculator’s expected to get another revision in June. Here’s the plan from the DoD BRS staff update:

We also have a few more changes planned for the interface, a print report function and accompanying pop-up boxes and hovers that will increase usability. We are concurrently ramping up the server capacity and ensuring platform stability to handle heavy internet traffic, and thus too many users too quickly may cause the BETA calculator to be slow and unresponsive. You may experience sluggish response, but the calculator is working. We would like the opportunity to complete this work before a full push to servicemembers by the DoD.

The calculator’s biggest flaw is that it doesn’t display what you’d contribute to the TSP if you stayed with the existing High Three pension system. For now, you’ll have to calculate your TSP contributions in a spreadsheet or another investment calculator (see below) and then compare them to your TSP balances under the BRS.

DoD’s BRS staff responded to our blogger feedback:

Yes, we have been discussing the topic of comparison frequently and spiritedly. The school of thought is the calculator is a comparison calculator. It compares one system to the other. Under the legacy retirement system, TSP by law is NOT part of a service member’s retirement. A service member’s retirement is only the defined benefit. It’s no different than a private 401K or government savings bonds. However, under the BRS, you are required to contribute to TSP if you want to receive any government match and thus, TSP by law, is an integral part of the member’s retirement. Believe me, it’s a split discussion in the hallways. On the plus side, another calculator is being developed (planning stages now) for after BRS opt-in; it’s more of a retirement calculator and it will include TSP and 401K, among other savings and bonuses that can be entered and calculated.

USAA’s BRS calculator (easy to use)

Second, USAA has a simple BRS calculator. It’s not as detailed but it’s very easy for people to use. (USAA designed it to have a high completion rate.) When you run that calculator, decide how you’ll feel about having matching funds in your Thrift Savings Plan when you’re near the end of your enlistment contract or your service obligation.

Other BRS calculators

Third, another blogger has put together a Google Sheet that can be downloaded to run your own numbers.

Finally, a very creative National Guard servicemember has built a “What if?” spreadsheet that pretends the BRS started 20 years ago. He used the military’s historic pay tables to simulate how someone would have done. At worst, the BRS servicemember breaks even after a long bear market. In most of the scenarios, the 5% matching contributions grow faster than the High Three pension. Daniel Kopp at MilitaryLifePlanning is putting that spreadsheet into a blog post for more people to use, and we’ll let everyone know when it’s published.

The numbers you really care about

Now let’s get back to the basic question: people are looking at the wrong numbers. Stop focusing on the size of the pension and start thinking about the size of the TSP account.

Is the BRS a bad deal?

The logic flaw is the unspoken assumption that servicemembers will make it to retirement. DoD is publicly stating that their records show only 14%-19% of active-duty & Reserve/Guard servicemembers earn a pension.

Image of DoD presentation PowerPoint slide showing that only 19% of active duty and 14% of Reserve/Guard servicemembers will be eligible for a pension.

From a DoD BRS presentation

This means that five out of six people will get no pension at all, no matter whether it’s High Three or BRS. In 2015, that’s the public commentary the Military Compensation and Retirement Modernization Committee got in hundreds of thousands of verbal & written statements from servicemembers and families.

However, if those servicemembers opt-in to BRS then they can earn a 5% match on their TSP contributions and leave the military with more money than they’d have if they left today under High Three. Take a look at those old photos again: how would those vets feel about an extra 5% matching in their TSP?

Is the BRS a good deal?

The logic flaw is assuming that people can do math and will maximize their DoD match. DoD is putting the burden of saving for retirement squarely on the shoulders of the servicemembers and families. New servicemembers in 2018 will encounter mandatory enrollment in the TSP, and mandatory 3% contributions to the L2050 fund, and eventual DoD matching… but you know that some of them will still find a way to not contribute.

If you’re reading this post and you’ll have less than 12 years of service on 1 January 2018, then you have the knowledge and discipline to squeeze DoD for every last penny of your 5% matching.  Judging by similar policies in the federal civil service, about 90% of the rest of the military will probably do that too, largely by autopilot– or by good leadership.

A few of the military will somehow never get around to maximizing DoD’s match, for what might seem like very good reasons at the time.

If DoD thinks it’s a good idea, then why should we?

Then there’s the paranoid question: “Why is DoD being so nice to us?!?”

It’s not paranoia if they’re actually exploiting you. However, the BRS lets DoD reduce their contributions to a very conservative pension system. The High Three retirement law makes them set aside far more money for the pension. (It takes a lot of money to compound the pension savings at a very small yield.) The BRS requires DoD to set aside far less money because servicemembers can invest the TSP’s matching contributions in the stock market (with hopefully a higher yield). Some of DoD’s savings is shared with you.

DoD will save a lot of money by dumping matching contributions into your TSP instead of into the current pension accrual system. Instead of setting aside much more money in special-purpose Treasuries paying a ridiculously low (but very safe) yield, DoD will simply put some of it in your TSP account and make it your problem. Servicemembers will have to assume equity risk in the TSP’s C, S, and I funds to grow those contributions as quickly as they’d get from a High Three pension.

DoD is also being “so nice” to a few servicemembers more than to others. If you serve for at least 20 years to earn a BRS pension, then you’ll almost certainly take the continuation pay at 8-12 years of service– in exchange for 3-4 more years of service. (Download the BRS Implementation Guidance PDF and read paragraph 8 of the attachment.) If you’re still not absolutely sure that you’re sticking around for a pension (even in the Reserves/Guard) then you’d pass up that continuation pay and have a smaller total compensation. If DoD has a low demand for your skills then you’d get a much smaller continuation pay amount, too.

You would only take the continuation pay if you’re feeling challenged & fulfilled and you already planned to stay in uniform for four more years. But that money will jumpstart your TSP (and your IRA) and could compound the value of the BRS to more than the High Three pension.

One final caveat: the worst feature of the BRS is the optional lump-sum pension. (This time it’s not DoD’s fault. That lump-sum law was created by the Senate.) Servicemembers give up a gigantic part of their future cash flow in exchange for a 25% or a 50% lump sum. It’ll sucker a lot of people (“the math tax”) just like the Career Status Bonus of the REDUX pension system has suckered retirees for the last 17 years. In effect, Congress just licensed DoD as the nation’s biggest retirement payday lender.

Let’s add those extra variables into the calculators and see how the numbers turn out.

In most cases, people will do better with BRS (even when they don’t earn a pension) because they’ll have more money in their TSP.

In some cases, people will do worse with BRS— mostly due to large doses of bad financial behavior or conservative asset allocations.

We’re both right– but at least five out of six people who opt in to the BRS will leave the military with more money.

That’s better than we have today.

Your Call To Action

If you enjoy working with calculators, please run your scenarios through the different ones and let us know how the numbers turn out!

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. Can someone please tell me how the DOD BRS Calculator gets the Max TSP Account Value value? This is supposedly the value of the TSP prior to turning it into a fixed income stream through retirement. I am unable to replicate it in excel and there doesn’t appear to be any commentary on the tool to describe how they arrived at that value.

    • Good question, Mark, let me see if we can figure it out. It’s possible that an assumption needs to be clarified… or a bug needs to be fixed.

      • Doug, have you been able to find out anymore info on the TSP Max Account Value part of the calculator? How do they calculate this value from which the fixed annual payments are based off?

        • Mark, here’s the answer from the DoD Blended Retirement System staff on the Max TSP Account Value number:

          “The max account values for the TSP SM and TSP Gov are the account values for the month prior to when payout begins. It’s a similar methodology to TSP PV account values at separation or retirement, we just take the account value as computed. If a user is trying to recreate those values then they would need to ensure that all computations are done with monthly rates, computed monthly. The pay table updates and the servicemember’s grade progression would have to be the same.”

        • Great, thanks. Now, the issue is how to come up with the fixed annual payments. The only way I can get to those figures is to assume that the Max TSP Value CONTINUES TO EARN at the rate assumed in the illustration and a fixed annual payment is calculated. This seems a bit extreme. In the default example, it is assumed to be earning 7%. I don’t believe it is reasonable to assume a straight line 7% return on a portfolio that is distributing a high % (approx 8.5% first year rate of withdrawal) amount and expect the portfolio to last. Let alone if the user chose a much higher assumed rate of return on the TSP. In summary, I think this illustration tool is way over-estimating the income that the retiree should assume will be generated on the TSP accounts. Thanks for looking into my questions.

        • Mark, I have an e-mail in to DoD. Our milblogger huddle hasn’t come up with any answers yet. This question is on my tickler list and (as many of my XOs used to tell me) it will be tracked to completion.

          However there’s speculation about the calculator’s assumptions and their cumulative effect. ( You may have already seen this, but for the rest of the readers here’s a few of the non-intuitive ones:
          1. Basic Pay Table and Growth Rates
          As of December 2016, the Board of Actuaries’ annual across-the-board basic pay assumption is 3.25% per year. [Note: this assumption excludes promotion and longevity increases]

          5. Thrift Savings Plan (TSP) Elective Deferral
          The calculator assumes the annual cap is increased, on average, $500 annually to account for anticipated IRS cap increases. In reality, IRS maximums are not increased at a set rate each year, but have averaged approximately $500 annually since 1996. The cap will be adjusted accordingly each year, no later than December 31, based on the actual IRS elective deferral set for the following year, resulting in subsequent adjustments to all future years as a consequence.

          7. Thrift Savings Plan (TSP) Continuously-Applied Rate of Return
          The default rate of return for the BRS Comparison Calculator is 7% (in nominal economic terms). This is based on the TSP C-Fund average 10-year annual return, which is currently 7.36% after expenses.

          (and, since that’s a nominal return,)

          2. Cost of Living Adjustments (COLA)
          As of December 2016, the Board of Actuaries’ annual inflation assumption is 2.75% per year.

          (So DoD appears to be assuming that annual pay raises (3.25% in #1) will exceed inflation.)

          9. TSP Withdrawal Age
          TSP withdrawal age is set to age 67, the federally-defined full Social Security retirement age for the majority of current Service members.

          15. Continuation Pay Contribution to Thrift Savings Plan
          The default is set to 0%. Total user contributions, including individual contributions from basic pay combined with the continuation pay, cannot exceed the annual IRS Elective Deferral limit.

          16. Continuation Pay Installment Payments
          The default is set for continuation pay to be paid in one installment.

  2. This thought just jolted me out of a nap, so I figured I’d ask the scenario here to see if any of the bright folks who have already tooled around with the calculators and their own spreadsheets had a take or could do a sanity check.

    The basic idea is this: could a smaller pension payment actually work out in favor for folks who plan to retire right around 20 years and utilize a Roth conversion ladder? A lower pension payment would allow more traditional TSP funds to be converted to a Roth IRA at a lower tax rate. You’d essentially swap the additional pension income for additional conversion funds. If you have the investment income coming in to still make early retirement work, which most early retirement minded folk do, you could still call it a day at 20 years and continue to grow your wealth.

    I think it’d come down to a comparison between the additional value of the TSP with matching contributions versus the NPV of the difference in pension payment at retirement to determine whether the difference in pension payment or conversion amount is more valuable. I’m going to play around a bit with some numbers to see if I can make some models work, but before I completely nuked it, I wanted to throw it out to the group to see if anyone else had given this thought.

    • Kevin, that seems like a brilliant insight! I’m also going to pass your thoughts on to other milbloggers and on social media… as well as back to the BRS staff at DoD.

  3. Just for knowledge purposes I decided to play the BRS game and see what my outcomes would be if the blended system existed during my active duty years, 1985-2008. To make a long story short, based on the average salaries over the years, 0-1 to 0-5, 10% contribution over the 23 years, expected returns based upon the average of the S/P over those years the surprise was I could have come out ahead under the BRS, than the 20 cliff version I had. $4500 per month in 2008 dollars vs, the $4200 or so final I actually got in 2008, assuming a 4-5% draw on my expected TSP balance at the time. But here’s the rub, I retired at 52, I do not think I could access any of my TSP until 591/2. so I just do not know.

    Now here’s the real wild card, the average return on the S/P over those 23 years ’85-“08 was over 10% a year, and that took into account two major recessions, ’01 and ’08. Can a TSP investor get or even plan on 10% return on their money going out in the 2030s to 2050s? Ahh, that would be a no. Vanguard tells us to expect at best a 4-6% return on investments the for the next 20 years or so. Considering Millennials still smarting from the 08-09 collapse are probably going to put their TSP money in the default govt bond funds or Treasuries, which do not even keep place with inflation. Invest well my friends, and the counsel remains true, start early and max out asap and keep up the pace.

  4. A recent article in Military Times indicates the likelihood of reaching 20 years is not the same for everyone. With respect to the percentage of service members who reach 20 years, there is quite a difference between enlisted (13%) and officers (43%) across all services. This seems to me an important distinction to consider, but one that does not replace the need to do one’s own math.

    If we ignore the pension as suggested here and look at only the value in the TSP at the end of service, whenever that is, the authors seem to conclude that the BRS is the way to go. They write:
    “The best way to summarize the difference between the two retirement plans may be as follows: The current system could be described as ‘all-or-nothing,’ while the blended system could be called ‘most and/or something.'”

    Here is the link to the article:

    • You’re absolutely right, Erin, and we’re asking DoD to release the retirement data on file with the military’s Defense Manpower Data Center. Retirement likelihood varies quite a bit by service and specialty as well as by rank. For example Marine infantry (officer and enlisted) should immediately opt in to the BRS because their retirement rates are very low– reputedly in the single digits for Marine enlisted infantry.

      Of course those statistics are for the demographics and don’t apply to the individuals, which is why I suggest the “challenging and fulfilling” criteria for a military career.

  5. I ran a bunch of different scenarios for 7 fictional people using different contributions and average rates of return as part of my series on the Blended Retirement System ( Instead of adding personal TSP contributions to the High-36 comparison, I just ignored them for both sides of the equation. I’ve also used the calculator for a bunch of other scenarios that didn’t make it into my post, so I’ve probably used it 100+ times already! I like it much more than the USAA calculator.

    Before the DOD calculator went live, I’d also created my own spreadsheet simulating if the BRS had been available in the past. It’s cool to hear I’m not the only one that had that idea! I look forward to Daniel’s post!

    • Thanks for the analysis, MilitaryDollar! I’ll pass your link along on my social media, too.

      The USAA calculator is expressly designed for simplicity and a high completion rate. Most calculator nerds find it “too easy”, but it’s a great starting point for people who only want a quicklook.

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