3

 

 

I really wanted to use the titles “Hidden Secrets Of The BRS!!” or “Shocking Urban Legends Of The BRS Revealed– #4 Is Jaw-dropping!!”

But this is a serious life-changing decision.

I’ve had a ton of reader BRS questions and feedback. The good news is that a group of us military personal-finance bloggers have tracked down the answers with the Department of Defense.

This post is going to dig into those details. There’s also a little tough love here for those who “have not had the training”.

Hint: go get the training.

 

Teach yourself about the Blended Retirement System

If you don’t know about the BRS yet, then go find out. Stop waiting on the military to explain it. Don’t depend on your friends or fellow servicemembers who claim “We’ve heard that…”

The opt-in period for the military’s Blended Retirement System begins on 1 January 2018. You’re eligible to opt in if you have less than 12 years of service before then. (Reserves and National Guard members must have less than 4320 points.) You have all of 2018 to opt in, but you should make up your mind now. All of the info you need has been published.

If you opt in during the first half of January and contribute at least 5% of your base pay to your Thrift Savings Plan account, then DoD will also start contributing 5% in January.

The longer you wait to do the math, the more you could lose. There’s enough information now to make the decision on 1 January. Stop putting it off.

Image of links to more data about the military Blended Retirement System from the BRS website. | The-Military-Guide.com

Click on the image and scroll down.

If nobody has told you about the BRS yet, then go do your own research. Don’t depend on your chain of command or mandatory training or a financial counseling session. You don’t need a CAC or a special computer or individual counseling. Go to that link up there and start reading. Your leaders are supposed to understand the system (they’ve already been told to do the training) but feel free to ask questions here too.

Note for military spouses: do your own research. It’s your responsibility just as much as your spouse’s. You can gripe about the military all you want– and you have plenty of reasons to gripe– but learning about your retirement planning is all on you. You’re doing most of the financial management in your family, right? Maybe you should know the most about the BRS too.

Don’t wait on your spouse’s command or the base support center or the Family Readiness Group. You have enough information at that link up there to learn about the BRS and make a choice.

You and your spouse have to review the info together, figure out any differences in what you’ve learned, and make a joint commitment. Don’t depend on what your spouse “thinks they heard during the training” or “need to go find out” or “saw on a Facebook group”. The information is at that link up there, and I can help answer your questions. It’s not only your spouse’s job to understand the BRS– it’s yours too.

There’s a lot of misunderstanding (and even misinformation) out there. However tens of thousands of servicemembers (and their spouses) testified to the Military Compensation and Retirement Modernization Committee that they wanted the BRS.

People are happy to trade part of a defined benefit pension for a defined contribution retirement account because they don’t plan to stick around for 20 years. DoD is also happy to cooperate with this plan because they can stop putting billions of dollars into low-yield Treasuries and put some of that savings in your TSP account.

 

You probably won’t retire from the military

If you’re active duty then you have a 19% chance of retiring. (That’s 1 chance out of 5.) If you’re in the Reserve/Guard then your odds drop to 14% (1 out of 7!).

Those numbers come from a credible source: the actuaries who have to pay the pensions.

It’s on page 5 of the latest actuarial analysis of the military pension system:

12. Actuarial Assumptions:
[…]
B. Demographic:
[…]
3) Percent of a Typical New Entrant Cohort Serving 20 Or More Years (including
the effect of re-entrants):
Full-time (FT) personnel: 19% ||| Part-time (PT) personnel: 14%

The officer retirement data skews those averages, and that means the enlisted odds are even lower. A sentence at the bottom of page 20 states:

Specifically, 49 percent of new officers and 17 percent of new enlistees attain 20 years of active duty service. It should be noted that some military personnel who begin their careers on active duty move to the Reserves and retire from there.

Officers may retire more often, but it’s still a coin flip. “Retirement” is only going to happen for you if you’re in a service and a specialty where you feel challenged and fulfilled. Maybe that happens more often in the Air Force than in Marine infantry, but you can’t count on making it to 20 in either one.

That footnote on page 20 is even more pessimistic. The actuarial data doesn’t count training drops (before the end of the first year) and broken service:

As in past valuation reports, these percentages are stated from the perspective of a new entrant cohort still in active service at its first fiscal-year boundary (i.e., September 30). If losses prior to the first fiscal-year boundary are taken into account, the percentages would be reduced by approximately 15 percent (19 percent would become 16 percent).
The stated percentages also reflect the effect of re-entrant, i.e., members who appear in the active duty population one year without having been there the year before, who are not new entrants. Without the effect of re-entrant, the proportion of a typical group of new entrants who attain 20 years of active duty service is reduced from 19 percent to 15 percent.

The actuaries just dropped their “1 out of 5” to “1 out of 6”. The odds are clearly stacked against your likelihood of serving to 20.

Image of the iconic Las Vegas sign "Welcome To Fabulous Las Vegas Nevada" at the city limits | The-Military-Guide.com

You’ll have better odds here.

Statistics might predict the behavior of a large group, but they can’t predict your individual choices. You can’t count on getting an active-duty pension, but you can decide to take it one obligation at a time.

In the Reserves and National Guard, the statistics are even worse. At the top of page 21:

Based on current Reserve decrement rates, 14 percent of a typical group of members entering the Reserves for the first time (including members with prior active or non-drilling reserve time) become eligible for a Reserve nondisability retirement (46% for officers, and 13% for enlisted).

This means that the Reserve/Guard enlisted retirement odds are closer to 1 out of 8.

Those actuarial quotes have been confirmed with the Air Force major who’s the Assistant Director of Military Compensation Policy in the Blended Retirement System/Strategic Communications section of the Office of the Under Secretary of Defense for Personnel and Readiness.

 

Visual learner? Then watch the video

Frankly, even if (like me) you enjoy nerding out with actuarial documents then you should still watch the videos. (They’re way more entertaining than DuffelBlog.) Let me introduce you to Robyn, the hypercaffeinated DoD spokesperson for the BRS:

 

Robyn has a whole series of related videos in the right-hand sidebar. C’mon, you can’t break it down more simply than “Love Actually”:

I’m so sorry, Coast Guard.

The Air Force’s 452nd Air Mobility Wing must still be wincing about this one:

Robyn even takes on the National Guard and NOAA. I haven’s seen her do a version for the Marines or the submarine force yet, but please comment below if you find one.

On a more serious note, the “Show More” links under those videos go to other social media resources. You can learn about the BRS in smaller daily doses from Facebook or from Twitter. You can even wait for BRS tips to show up in DoD’s Instagram feed.

 

Exactly how soon can we sign up?

Some of you have already made up your minds and you’re ready to opt in.

I thought DoD’s webmasters would roll out a gradual ramp up to the opt-in date, with applications taken before 1 January. But nope, despite the threat of tens of thousands of people pinging the servers in the same microsecond, DoD won’t flip the switch until 1 January. Because, you know, Congress passed the law to take effect then and DoD couldn’t possibly take any IT initiatives that might be perceived as subverting the law.

I’ve confirmed with the BRS office that the servers will light up at 0001 EST 1 January 2018. (That’s in MyPay, or Marine OnLine, or Direct Access.) You can stay up a little later on New Year’s Eve and celebrate by being one of the first to opt in to the BRS. That’s only 7 PM Hawaii time, so I’ll still be up and browsing MyPay by the light of the neighborhood fireworks.

There’s a practical side to that snarky advice: the matching Thrift Savings Plan contributions. If you opt in early enough in January (and contribute at least 5% to your TSP account) then you’ll get the full DoD BRS matching contribution in January.

Your TSP matching contributions will also vest immediately. (That link opens a PDF of the DoD BRS implementation memo.) Those matching contributions are yours and they’ll stay in your TSP account even if you leave the military on 1 February. This is only for those who opt in to the BRS– everyone else who joins the military in 2018 has a two-year vesting period on their TSP contributions. Those two situations are covered in paragraph 7.b.(8).(b) of the implementation guidance (at that link in this paragraph) and in federal law Title 5 U.S. Code section 8432(g)(2).

If the DoD BRS servers start crashing on 1 January then it’s going to be a long, frustrating opt-in process. You’ll have to persist, though, because if you wait until February then you’ll lose the DoD match in January. In fact, most of the services process their payrolls during the third week of the month. If you wait past 15 January then you’re jeopardizing your January match.

 

The BRS calculator

Thanks to Alert Reader Mark for pointing out the issues with the DoD’s Blended Retirement System calculator. If you’re a calculator nerd like me, then take a look at his comments below the post at that link.

Image of the splash screen of the Department of Defense calculator for the Blended Retirement System.

Click on the image to use the calculator.

If you’re not a calculator nerd, then be aware of how the calculator’s assumptions are determined. For example, it assumes that base pay rises by 3.25%/year, not including promotions and longevity raises. On the other hand, inflation is assumed to be 2.75%/year and the TSP’s returns are assumed to be 7%/year. (You can’t adjust the assumptions for pay or inflation, but you can tweak the TSP’s return.) You can also adjust the assumptions for how quickly you’re promoted and how much you contribute to the TSP.

Note that you can contribute the Continuation Pay (described below) to your TSP account. If you invest all of the CP (in your TSP or IRAs or taxable accounts) then you’ll have that much more compounding with the BRS retirement system to beat the High Three pension.

Because you’re dealing with a broad range of assumptions, your values for the <High Three pension> compared to the <BRS pension + TSP> might vary as much as $100K. Play around with the numbers to see how sensitive they are to your changing assumptions.

Image of the actor Clint Eastwood in the first Dirty Harry movie, pointing a gun at a bank robber and asking if he feels lucky.

Did he stay for the pension?

Even if the difference is a total of $100K, ask yourself these questions: Is it a lifetime of value? Look back at the probabilities section of this post and wonder: “Do you feel lucky?”  Well, do you?

Is it worth locking yourself into a 20-year commitment to earn a High Three pension for “only” an extra $100K over the rest of your life? Or would you rather have the BRS flexibility while knowing that you have plenty of ways to earn $100K after the military?

Nobody can predict your longevity, let alone how your life is going to turn out in 10 years. It’s unreasonable to ask anyone with less than 12 years of service to confidently predict that they’re going to serve for 20.

I know a servicemember who reached financial independence and left active duty for the Reserves when they were just short of 18 years. It was absolutely the right choice for their situation. If you opt in to the BRS and have more money in your TSP account then you can have that flexibility too.

I’ll leave the calculator discussion with one more anecdote. One servicemember has done the math for his career as if the BRS existed in 1997. He’s tracked the 20 years from then through 2017 for his pay tables, promotions, and TSP contributions. Admittedly it’s just one data point, but his BRS resulted in a higher final value than the High Three. He had a smaller pension yet a higher net worth which more than made up for the smaller pension, and it was growing faster than the pension COLA.

Why not try your own BRS? Look up the pay tables from 20 years ago, make some assumptions about your career promotions, and build your own spreadsheet. See how you do along the way.

 

What about the Continuation Pay?

The Continuation Pay programs are up to the individual services. (They have to publish their own programs and notifications.) The law provides for the pay to be awarded sometime during 8-12 years of service and requires at least a three-year obligation. The good news is that the minimum bonus is 2.5 months of base pay for active-duty servicemembers and at least 0.5 months of base pay for Reserve/National Guard members. The obligation can be served concurrently with other obligations and bonus programs (as long as the other program allows concurrent obligations). That’s all in paragraph 8 of that link on page 17.

Image of dollar bills falling into a pink piggy bank, just like the Continuation Pay bonus going into the military Thrift Savings Plan account. | The-Military-Guide.com

“Feed the TSP.”

The service memos and messages are starting to come out. So far all of the services require signing up before 12 years of service for an obligation of four years. The continuation pay amounts are the minimums required by federal law. The Navy, Marine, and Coast Guard instructions are linked from that page. The Army memo is out but not yet linked there (you’ll have to track it down at HRC). The programs for the Air Force, NOAA, and USPHS are still missing, but we’ll update this post when they’re published. (Thanks for the AF update, Military Dollar!)

One more note about the CP timing, because this is different from the BRS. If you’re eligible to opt in to the BRS on 31 December 2017 then you have all of 2018 to opt in. However you have to sign up for Continuation Pay before you reach 12 years of service. If you’re at 11 years and 11 months of service on 31 December then you’re eligible for the BRS, but you’d only have one month to sign up for CP. See the fine-print FAQs at the bottom of that link.

Note that you can deposit the Continuation Pay bonus in your TSP (because it’s a type of pay). You could deposit all of it into the traditional TSP and defer the taxes for decades, or you could deposit it in your Roth TSP (after paying taxes) and enjoy all of the gains tax-free. However (and this is important!) you have to make sure that you still have room to contribute at least 5% of your base pay to the TSP every month of the rest of the year. If you hit the TSP contribution limit too soon ($18,500 in 2018) then your DoD match will stop for the rest of the year.

If you’re deploying to a combat zone then your traditional TSP limits are much higher. If you’re contemplating signing a continuation pay contract from a combat zone then contact me to discuss the tax tactics. Continuation pay is a terrible reason to deploy to a combat zone, but if you’re going to be there anyway (and if you want to serve an additional four years) then you can save a lot on taxes.

One last note about Continuation Pay: the contracts could change as the services tailor the payments for various communities and specialties. CP will be used as a retention incentive. If you think your community will offer more money then keep in touch with your assignment branch and watch for changes.

Now that you know more about Continuation Pay, enter it into the BRS calculator and see how that changes the math. It’s possible that your TSP could grow fast enough with the BRS’ CP boost to reach a higher balance than the amount of the High Three pension you gave up for the BRS pension.

 

There has to be a catch.
This is too good to be true.
What else is DoD not telling me?!?

Yeah, you know there’s a few more unwritten details. Let’s write them here.

DoD can tell you all about the BRS, but they’re not going to do your financial planning for you. (They’re not even going to recommend which retirement plan you should choose.) This is a highly individual decision, and everyone has different life goals.

Image of the words "CONSPIRACY THEORY" as a red rubber stamp over a white background. | The-Military-Guide.com

“Why is DoD so nice to us?”

The biggest advantage of the BRS is its flexibility of getting money in your TSP even if you don’t serve to 20 years. You’ll be that much closer to financial independence.

However there are a few other financial advantages to having more money in your TSP.

First, you’ll have more money to pass on to your heirs. Your pension will stop with you (both under BRS and High Three) but your heirs can inherit your assets– including whatever you had in your TSP account.

You’ll still want to consider the Survivor Benefit Plan (for your pension to convert to a survivor’s inflation-adjusted annuity) and life insurance (for a lump sum). However now you have a bigger estate to leave behind, so you might not need as much SBP or insurance.

Which brings me to the second point: SBP premiums. If you fully “insure” your pension then you’ll pay 6.5% of your pension for at least 30 years of premiums. (When you make your 360th payment, you’ll also have to be at least 70 years old.) Those premiums are a substantial sum of money, and they rise every year with your pension COLA.

However under the BRS, your pay base multiplier is 2.0% for your years of service, not 2.5%. Not only is your BRS pension 20% smaller than the High Three (starting 10 percentage points lower, at 40% of your pay base instead of 50%), but your SBP premiums will be 20% smaller too. You’ll still have to pay 30 years of premiums and be at least 70 years old before it’s paid up, but in the meantime you have 20% more SBP premium in your pocket or in your investments. Your survivor still gets an inflation-adjusted life annuity, but they’ll also inherit whatever you’ve piled up in your TSP and your other accounts.

Third, there are taxes. Your military pension is subject to federal tax (every year) and it might be subject to state/local taxes (every year). When military retirees start bridge careers along with their pensions, they’re shocked by how much more they’re paying in taxes. They’re frequently in the 15% personal income-tax bracket and rise rapidly into the 25% bracket. These are good #FirstWorldProblems to have, but they’re still taxed.

The smaller BRS pension will reduce your taxes. Meanwhile the BRS DoD matching contributions in your TSP may never be taxed.

Instead of getting a High Three pension that’s taxed every year, you’ll have the DoD matching contributions in your traditional TSP account. You may have to pay taxes on them someday, but you’ll only pay tax on them once. (You might even be able to avoid those taxes by a Roth IRA conversion ladder.) Instead of being taxed on your High Three pension every year, you’ll be taxed on a smaller BRS pension and you’ll have more options for withdrawals from your traditional TSP account. You’ll control your income (and your taxes) with more precision.

Let’s dig into the Roth IRA conversion ladder that I mentioned in that last paragraph.

When you leave the military, you can roll your Roth TSP account over into a Roth IRA. This means that (under current law) it’s free of taxes for the rest of your life and you don’t have to take Required Minimum Distributions.

When you leave the military, you can also roll your traditional TSP account into a traditional IRA. While you’re enjoying your post-military life, you can gradually convert your traditional IRA into a Roth IRA (a little every year), paying less taxes when it makes sense. Eventually you’ll convert all of your traditional IRA (with its higher personal-income tax rates and its RMDs) into a Roth IRA (no more taxes, no RMDs). This tactic has saved hundreds of thousands of dollars for financially-independent people with large balances in their tax-deferred accounts. Roth IRA conversions have personally saved tens of thousands of dollars for my spouse and me, and we’ve been converting our traditional IRAs for nearly 15 years. We’re almost finished and we may never need to tap our Roth IRAs.

 

“Easy for you to say, Nords, you’re already retired!”

Yeah, but I regret it. I should’ve left active duty for the Reserves at the 12-year point (when we started a family and my career priorities changed). The money would’ve worked out about the same, and we would’ve reached FI within a year or two of when we did, but our quality of life would’ve been way better. I should not have grimly clenched my jaw and gutted it out to 20.

This opt-in decision is personal in my family. I’m being held just as accountable for my advice as you are for your opt-in choice. By 2018, both my daughter and my son-in-law will have three years and seven months of active duty. They’re financially literate and they can do math. They also understand the probabilities and statistics of the retirement systems. They might even be smarter than me.

They’re opting in to the BRS on 1 January 2018. They’ll also be celebrating New Year’s Eve with us in the islands, so maybe we should do the opt-in on Facebook Live.

 

 

 

Related articles:
Nine Things To Consider Before You Choose The Military’s New Blended Retirement System
The Military Blended Retirement System: “Dude, Where’s My Calculator?”
USAA’s Military Retirement Comparison Tool And The 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.

23 Comments
  1. Reply
    Alex December 12, 2017 at 12:36 PM

    What percentage of officers that make O4 retire? I could not find that information in the study, do you know if that info is out there?

    • Reply
      Doug Nordman December 13, 2017 at 10:51 AM

      Alex, that information is locked away in the databases of the Defense Manpower Data Center, and it’s not public. The best we know is that about 50% of officers, across all of the services and specialties, will serve for 20 years. I suspect that percentage is the lowest for infantry officers.

      We’ve asked DoD to publish information on retirement eligibility broken down by rank, service, and community. We’re probably going to have to submit a Freedom Of Information Act request to get it.

  2. Reply
    ghall24 December 8, 2017 at 7:42 PM

    Thanks for all of the info on your site!

    Employee contribution and max annual addition limit is something nobody is really talking about with the BRS. Having government match now allows members to have the ability to put in >18,500 per year in to their TSP (respecting the Roth vs. Traditional rules regarding matches). Unfortunately most members aren’t able to max out their TSP, but for those who are and are looking for more tax-advantaged ways to save, this essentially opens up that avenue. (As long as I understand it correctly).

    i.e. if I choose to put 18,500 in to TSP (roth or traditional), the government will match 5% of my base pay (lets say 2000 government match in to traditional TSP). That essentially means I am now able to contribute 20,500 dollars per year to my TSP since employee contributions apply to max annual addition limit and not elective deferral limit.

    Is this correct?

    • Reply
      Doug Nordman December 9, 2017 at 11:34 AM

      As SITM says, absolutely. You’re still contributing $18,500/year but DoD is kicking in another $2000 of free money that does not count against this lower limit.

      When you’re in a situation for the annual addition limit (combat zone or direct support), then the math gets more complicated. However several active-duty military personal-finance bloggers are already doing this during their deployments, and I know several more readers who are working through it. When you approach a deployment, contact us to go through the details and make it work for you.

    • Reply
      Still In The Military December 8, 2017 at 7:48 PM

      Yes, that’s correct!

  3. Reply
    Phil December 3, 2017 at 5:50 PM

    Doug,

    Thanks for taking the time to reply. I know this is a difficult time for you. It is very gracious for you to offer your advice and help to others via this website.

    I agree about the deployment being a leadership issue vs a pay or TSP issue, but he’s not in a position to alienate higher ups for an issue that’s no ta concern for them. Sometimes in life we just have to make the best of a situation that’s not to our favor.

    So if my understanding (and math) is correct, the best way for me to calculate the maximum Roth TSP contribution he can make for 2018 is to take his base salary for the year and prorate it for 7 months (his anniversary raise will occur in August), calculate his new pay rate for 5 months, and also calculate the pay rate for a possible promotion (a long shot but still possible) for the months of the year that may be in effect, and that would give me the maximum possible base salary he would have for 2018. If I divide $18,500. by that amount I will arrive at the percentage to set his Roth TSP contribution rate at to insure he does not exceed the cap.

    I recognize that this will more than likely leave him not quite at the max contribution rate if the promotion doesn’t occur, but I think that might be somewhat alleviated by the new Roth IRA he opened this weekend. If he contributes the max to the Roth IRA he will be investing more overall than last year in just the Roth TSP and getting the match, so he wont be in bad shape, just missing a small amount by being slightly under the max for the TSP.

    As to the “set it and forget it” aspect, that’s EXACTLY my frustration with this whole thing. My son will tell you I am constantly telling him that’s why we set his TSP up with a higher than normal contribution rate. We knew he would exceed the cap early in the year but then all he had to worry about was diverting the larger end of year paycheck monies to a taxable brokerage account after his deductions for the year stopped.. We would never have to change the TSP contributions since there were times it was not convenient or possible to do so.

    Again, I’m hoping my match is correct. If you see a better way of handling this issue I’d appreciate your suggestions. Thanks for taking the time to answer my questions. And thanks for your service to our country.

    PS – The continuation pay is a whole other matter. My math is nowhere near good enough to calculate that mid way through the year. That might get diverted to the after tax brokerage account in its entirety. Money is fungible, right? LOL

    • Reply
      Doug Nordman December 4, 2017 at 5:38 PM

      I’m happy to help, Phil, and this is good keyboard therapy while I’m working on my father’s estate.

      Your method should work. He’ll contribute at least 5% of his base pay per month (which will ensure the maximum DoD matching contribution of the BRS), he’ll space the contributions through all 12 months, and he’ll still hit $18,500 for the annual limit. When that promotion comes through he can keep saving at least 80% of that pay raise to accelerate his journey to financial independence.

      You’re also right about the Continuation Pay bonus. However if he signs the contract in a combat zone then his TSP annual addition limit is $55,000 (which now includes the DoD matching contributions). In that situation, a lot of that continuation pay could end up in the TSP. And if he’s not in a combat zone then you’re right– it’ll flow over into a Roth IRA and a taxable account. All of that makes the BRS a revenue-neutral (at least) choice over High Three, and offers an opportunity to save enough to compound even more than the bigger High Three pension.

      I hear you on the leadership issue. You’d hope that a command financial specialist could help, or that there’d be enough bandwidth to log in via smartphone or workstation.

  4. Reply
    Phil November 30, 2017 at 4:08 PM

    Does the government “match” count towards the annual contribution limit? If a service member is currently contributing the maximum allowed for the year ($18,500 for 2018) will said member have to reduce their contribution by 5% to allow for the government match portion?

    • Reply
      Doug Nordman December 3, 2017 at 2:26 PM

      Good question, Phil, and it causes a lot of confusion.

      The DoD match does not count toward the annual elective deferral contribution limit ($18,500 in 2018) but it does count against the annual addition limit ($55K in 2018). See those details at this TSP link:
      https://www.tsp.gov/PlanParticipation/EligibilityAndContributions/contributionLimits.html
      Note all the fine print below the table explaining the limits in the traditional TSP and Roth TSP accounts.

      The annual addition limit only kicks in for deployments to combat zones (or similar areas)– those are designated by DoD and listed by the IRS. You can see those areas here:
      https://www.irs.gov/newsroom/combat-zones
      A servicemember in this area could contribute a total of $55K/year, but servicmembers enrolled in the Blended Retirement System would have to reduce their contribution by $2750 (5% of $55K) to make sure that they receive the full DoD matching contribution. As you mentioned in another comment, that’s more MyPay percentage math to make sure the servicemember’s TSP contribution stayed below $4354.17/month.

      And yes, we do hear from readers in combat zones who contribute 60%-92% of their base pay (and other incentive pays) to their TSP in order to reach the $55K annual addition limit. They do it by living off a spouse’s income or by drawing down their taxable investment accounts. See this post:
      http://The-Military-Guide.com/maximizing-tsp-contributions-from-a-combat-zone/

    • Reply
      Michael December 3, 2017 at 11:58 AM

      No, the $18,500 is what the service member can contribute. The government match is above and beyond.

  5. Reply
    Phil November 30, 2017 at 7:27 AM

    So if one wants to max their TSP contribution and ensure receiving the full match, the contribution percentage will need to be recalculated / submitted every year to insure the annual TSP cap isn’t reached before the end of the year? My son spent 8 months deployed to a very forward base in 2016 and couldn’t take advantage of the savings deposit program because no one from finance ever travelled to his area of operations, I’d expect the same frustration if he needed to change his TSP contribution.

    • Reply
      Doug Nordman December 3, 2017 at 2:13 PM

      That’s partially correct, Phil. If you wanted to maximize the 2017 TSP contribution of $18,000 then you’d need to figure out the percentage of $1500/month in base pay. (Because $1500/month x 12 months = $18K.) In 2018, with a TSP contribution limit of $18,500, it’d need to be $1541.67/month.

      The good news is that $1541.67/month is far more than 5%/month for everyone. (Even for an admiral or general it’s still nearly 10%.) Every servicemember putting in at least 5% of their base pay will still maximize their BRS match from DoD without going over the contribution limit. (The matching contributions do not count toward the $18,500 annual limit.) However a servicemember putting a re-enlistment bonus, an annual incentive bonus, or a Continuation Pay amount in their TSP would have to make sure that they leave enough room for a full year of contributions in order to earn a full year of DoD matching contributions.

      And yes, that contribution percentage needs to be checked every year to make sure that the servicemember is going to reach the limit. The good news is that if the member goes over the limit then the TSP will accept part of the contribution (up to the limit) and then kick back the rest to DFAS. We’ve verified this several times through personal experience with other milbloggers in various services.

      The reason that the TSP contributions have been changed to percentages (instead of fixed dollars) is to allow enough remaining income to pay federal & state income taxes. Traditional TSP contributions are limited to 92% (the other 7.45% goes to FICA) and Roth TSP contributions are limited to about 60%-65% (varies by service) to allow for regular income taxes (because Roth TSP contributions are made before taxes).

      Another reason that the TSP contributions are in percentages is to make it easier for servicemembers to “set and forget”. Even if they get a pay raise, a longevity raise, or a promotion then they’ll still contribute the same percentage (yet a higher dollar amount) to the TSP. Sadly, many TSP account owners have never changed their contribution percentages from the day they signed up.

      I understand the access problem of being at a FOB. (During my submarine sea duty I would be locked out of communicating for up to 90 days at a time.) On the FOB, however, this is a situation requiring the command to send message traffic or an e-mail to a finance office to have them take care of the servicemember. It’s not a problem with the TSP or the SDP– it’s a problem with the leadership.

    • Reply
      Michael December 3, 2017 at 12:05 PM

      I don’t understand the question. 5% of $18,500 is $925. You want to put enough in to get the full match each month. I haven’t seen a dollar cap on how much matching funds one can earn each month.

      TSP elections are all self service through Mypay. SDP does require assistance from Finance, but I’m not aware that it has to be done in person.

  6. Reply
    peter gregory November 20, 2017 at 7:00 AM

    I have stated a number of times that if the BRS existed when I joined the Navy in 1985, and with foreknowledge that I would serve 23 years, yes I would have chosen the BRS over the 20 year cliff vesting, all things being equal.

    That stated though the core issue with BRS is not the BRS, it is people. Behavioral psychology is that when you offer people a complexity of info or choices, they default to the most simple and clear. Hence the vast majority of BRS military will default to the TSP govt. bond fund, hence lose money over time. Also most 18, 20 year olds do not possess the ability or conceptualize the principle of delayed consumption or delayed need gratification required for successful investing and financial independence. We will see over time, but I think at the 12, 15, 20 career mark, many will be disappointment as to where they stand in their financial lives.

    • Reply
      Doug Nordman November 21, 2017 at 11:05 AM

      Thanks, SITM, exactly.

      As for the rest of your comments, Peter, I don’t think that future servicemembers’ financial behavior can get much worse than that of todays’ servicemembers. At least those new young adults will *have* a TSP account and some actual contributions. Today’s hope of cliff-vesting at 20 is not a plan.

    • Reply
      Still In The Military November 20, 2017 at 12:28 PM

      If they choose not to manage their investments, the TSP defaults to the most age appropriate Lifecycle Fund, the military’s version of target date funds, instead of the low-risk G fund, which is the default in the current system. This change alone will likely force service members to take on additional but appropriate investment risk and (hopefully) will allow them to achieve increased investment returns.

      • Reply
        peter gregory November 26, 2017 at 2:25 PM

        The real acid test of the BRS will not be how many do take the option when presented, but how those folks will behave in the next bear market or recession. And neither has been outlawed to the best of my knowledge. For the average 20 year old recruit, the 2008-10 experience provides them no frame or reference or experience. The Vanguard 2020 target date fund (as example) lost about 35% of its value over an 18 month period last recession. Its when those folks who open their TSP statements and see the value of their investments drop over a reporting period that the decisions will be either too keep the course, or redeem/sell at a loss and flee to the govt. treasury fund. At times investment discipline and lessons are only learned the hard way. As I did the early 80’s and 2001.

  7. Reply
    Military Dollar November 16, 2017 at 8:07 PM

    Thanks for the great post, Nords. I’ll be sharing it on Saturday…a day I hope people will sit down and really absorb what it says. My BRS series has proven pretty popular and I’m working on another post about it now. You are right, people have a lot of questions – and the time to get those questions answered is NOW.

  8. Reply
    Still In The Military November 16, 2017 at 4:37 PM

    Great article! We’ve got a resource center with links to all things BRS that you might find useful. I’ll be adding this article to it as well. You can find it here:

    http://www.militarymillions.com/brs/

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