Are you ready to make your choice about the military’s Blended Retirement System?
USAA can help with that.
The Department of Defense is
feverishly hustling building a calculator that will analyze which retirement system is better for servicemember careers and finances. The calculator was supposed to be launched back in January 2017 but it’s run into delays. (The contractors are fixing the last few bugs.) A few of us bloggers with DoD’s BRS roundtable are helping with the beta testing, and it’s expected to go live at the end of March.
Meanwhile USAA’s Military Retirement Comparison Tool is ready now. It’s available to anyone through both their website and the USAA app. You don’t have to login, and you don’t even have to be a USAA member to use the website version.
The MRCT can help you put numbers on the BRS question and make your informed choice.
It’s a big effort: over a million servicemembers have joined the military after 2005. In 2018 they’re eligible to stick with the existing High Three pension (if they stick around for at least 20 years) or to choose the new BRS (and serve as little as just one obligation).
1 out of 6 (roll the die)
To make this choice even more complicated, only ~15% of servicemembers even stay in the military for the 20 years needed to “cliff vest” in a pension. Anyone serving today may have only a 1 out of 6 chance of reaching their military retirement. Retention is more than a financial decision, but it helps to put the numbers on it.
I spoke with USAA’s Josh Andrews, a Certified Financial Planner and their Director of Military Advice. More importantly, he’s a drilling Reservist. He’s not eligible to opt in to the BRS, but he spends a lot of his time (at USAA and in uniform) explaining it to people.
Servicemembers & families are finding the MRCT even without a publicity campaign. It first went live on 6 January 2017, and then DoD made some minor changes to the BRS implementation policy. The MRCT was pulled for a re-code and put back up on 17 February. It’s had over 6000 visits in less than a month since then, and that traffic is doubling almost every day.
The MRCT is designed to show you two sets of numbers:
- Your possible TSP balance, depending on your contributions. (At least 5% for the full match!)
- The amount of your High Three pension and your BRS pension (20% smaller).
It emphasizes the conclusion:
If you retire from the military, you maximize your retirement benefits in the High-Three system. However, since 81% of service members don’t retire from the military, most will benefit by switching to the BRS.
Can you beat the High Three? That’s not the point. Will you want to stay for 20 years, regardless of the pension system? Would you like to have a portable defined contribution account?
Can your higher TSP balance with the BRS make up for the smaller pension? Maybe.
Mr. Andrews explained that USAA tried to add a feature to help servicemembers understand what it would take to grow their TSP balance faster than the 20% reduction in pension. It can be done, although it takes a
fearless bold investor to accept the risk of putting all of their TSP balance into an aggressive stock allocation.
The deeper issue is that the calculator can’t handle the more complicated scenarios of the typical military family’s finances, and that requires a sophisticated individualized financial planning tool. The most important point to take away from the MRCT is the portability of the TSP matching contributions. Personally, I’d advise servicemembers to focus on their aspirations for a challenging and fulfilling career– don’t join the military just for the pension, let alone to get rich. You can reach financial independence on your own high savings rate and you won’t even need a pension.
Those who want to level up their TSP performance to beat the High Three pension should contact a fee-only CFP (or a USAA CFP) to discuss the options.
If you want to learn more about the assumptions behind the MRCT, scroll all the way to the bottom of the final screen for the link “Learn more about the assumptions we use in the MRCT.” Spreadsheet pros can adjust those assumptions to design their own analysis. Feel free to start with this BRS spreadsheet contributed by another milblogger.
Building an easy user experience
USAA designs their calculators for ease of use, and the MRCT is also racking up the typical high completion rate. Mr. Andrews mentioned that one O-3 has already reported that it “makes the decision so simple”. Another O-3 is leaving active duty but was on the fence about drilling in the Reserves. They quickly grasped the benefits of persevering to 20 good years while contributing their drill pay to the TSP.
Another USAA member, whose daughter was unsure about leaving active duty after 10 years, discovered a crystal-clear understanding of what it means to “cliff vest” at 20 with the High Three pension. She keenly appreciates the portability of the BRS matching contributions, and she suggested that her daughter take the BRS no matter which retention choice she makes.
See for yourself: toggle the box on the final screen labeled “How many years do you plan to serve in the military?” The pension immediately disappears for any number <20, but your TSP contributions and the DoD match are still there for you.
Please share your experience with USAA. If you’re a member then log in to use the “Provide Feedback” link at the bottom of the final screen. While you’re there you can also click on the link to “Get Your Financial Readiness Score” and jumpstart your transition planning.
Better yet, when you’re a USAA member then you can use the MRCT on the USAA app. Mr. Andrews reports that the app is already seeing 55% of the daily total MRCT traffic, and that’s expected to grow as servicemembers & families tinker with the numbers. The next time you’re running errands or waiting in line, whip out your smartphone and do a little financial planning.
Just the FAQs.
Mr. Andrews travels the country speaking to servicemembers & families, and USAA’s Military Affairs representatives get asked a lot of questions. Here are the top two with my personal responses:
1. “If I choose the BRS, will I get back pay matching contributions to my TSP for the time I’ve already served?”
Hahahahahaha! (Sorry.) No. I wish that was the case, but DoD can’t afford the stampede of servicemembers who would benefit from this retention incentive.
Speaking of retention incentives, the BRS includes the prospect of continuation pay at 8-12 years for an obligation of at least three more years. Each service has the discretion to create their own retention programs in their various specialties. Take a look at paragraph 8 of the DoD BRS Implementation Guidance (a 31-page PDF) and start watching your service’s personnel websites for a continuation pay instruction coming to you.
Better yet, the continuation pay obligation can be served concurrently with any other obligation or bonus program, as long as the other program allows it. (Nuke bonuses and aviation continuation pay could still be on the table!) If you’re near the middle of your career then it’s worth considering the BRS continuation pay alongside the transfer of your GI Bill benefits to your family.
2. “If I opt for BRS but then get a promotion and decide to stay to 20, can I revert to High Three?”
Sorry, no again. The BRS decision is irrevocable. That’s a great financial question, but keep in mind that every promotion puts you closer to the pointy top of the billet pyramid. You may find that as you approach the second decade of service, your career options might be limited. More importantly, your priorities could change– and gutting it out to 20 won’t be as important as family time.
Again, remember that the portability of your retirement account is the biggest feature of the BRS. Stay on active duty as long as you’re feeling challenged & fulfilled, but when the fun stops then it’s time to consider moving to the Reserves or National Guard. If you’re in the BRS then you could even quit the military completely– and you’d still have more money in your TSP account than you would have if you’d stayed with the High Three 20-year cliff vesting.
Mr. Andrews wrapped up our interview with this (paraphrased) quote:
“As a CFP, even I’m a procrastinator in some things. People procrastinate in their financial planning, but we want them to consider the BRS decision as part of their overall plan”.
Call to action
Are you eligible for the BRS? Are you a leader who’s advising others on the decision? Run some numbers through the MRCT and share your thoughts in the comments.
(Thanks to CFP Daniel Kopp at MilitaryLifePlanning.com for the BRS opt-in graphic.)
(Cover image of MRCT courtesy of USAA.)