How Your Service Member Will Benefit From the Military’s New Blended Retirement System

The military recently adopted a new retirement plan called the Blended Retirement System which extends benefits to a lot more service members than the old plan. The good news: the BRS can put your service member on the path to long-term financial security. And, the more a service member contributes to their own retirement, the more the Department of Defense matches it.

Anyone who enlisted after Jan. 1, 2018 – whether active duty or reserves – was automatically enrolled in the BRS, and they are already covered by its benefits. Your family member or friend may not be thinking about military retirement right now. But, by encouraging them to fully participate in the BRS, you can have a big impact on their financial well-being down the road.

How the Blended Retirement System improves on the old military retirement plan

Under the old retirement plan, you had to serve 20 years to qualify for a military pension. That was a challenge because if you left the service before completing 20 years – which many people do – you did not receive any government-provided retirement benefits.

The BRS improves on the old plan by combining a pension with a 401(k)-like savings account. Now, most service members will get some retirement benefits – even if they don’t finish 20 years.

How the Blended Retirement System works

1. Pension:
   The BRS starts with a pension – a fixed payment – that the government pays a service member if they complete 20 years of service. The monthly pension payment is based on this formula:
   • 2% x number of years served x the “high 36” (the average of the highest 36 months of basic pay received) = monthly payment
   • For example: 2% x 20 (years) x $6,250 (high 36) = $2,500 per month

   If your service member qualifies for a pension, he or she will receive it for the rest of their life once they retire.

2. Thrift Savings Plan:
   As part of the BRS, your service member is enrolled in a retirement savings account – similar to a 401(k) – called a Thrift Savings Plan. To start with, all service members contribute 3% of their basic pay to the TSP each pay period.But it gets better. The government also automatically contributes 1% of their base pay to the TSP. Plus, they’ll match your service member’s own contribution up to 5%.
   • Here’s an example: 3% (member basic pay) + 1% (government contribution) + 3% (government matching contribution) = 7% contributed to TSP each pay

   Service members can increase their contribution as much as they want up to IRS retirement account limits, and the government will contribute 1% plus up to a 4% percent matching contribution. As their TSP account grows, they can choose to invest it in stocks or government securities.

   Here’s how you can really make a difference: Encourage your service member to contribute as much as possible to their TSP account. The more they save, the more the government puts in too. Over time, those contributions can add up to a big nest egg.

   After three years of service, service members are fully “vested” in their contributions – the money is theirs and they can take it with them when they leave military service. However, if they hang in there for 20 years, they will receive both the money in their TSP account and a monthly pension as their military retirement. That can add up to a nice retirement income and comfortable financial future for your service member.

3. Continuation bonus:
   But wait, there’s more – they’ll get a cash bonus, too. When a service member reaches 12 years of service and commits to four more years of service, they can get a cash bonus called Continuation Pay. For active duty, the bonus equals 2.5 times monthly basic pay. For the reserves, it is 0.5 times their monthly basic pay. However, Continuation Pay varies by each service, so service members are encouraged to speak with their pay/finance office for more detailed information.

Options for collecting military retirement benefits

Say your friend or family member makes the military their career. When can they start collecting those retirement dollars?

Active duty can get retirement pay at any age when they choose to retire after 20 years of service. National Guard and reserves can begin receiving retirement pay at age 60.

When your service member retires, they choose from two options:

1. Take their full retirement pay.
2. Take a lump-sum payment of either 25% or 50% of their gross estimated retired pay.
   • If they take a 25% lump sum payment, their monthly retirement pay will be 75% of their full retirement pay. If they take the 50% lump sum, they will get 50% of their full retirement pay.
   • But when they reach age 67, their retirement pay goes back up to the full amount.

Want to take a deeper dive into the military’s retirement system? Then check out these resources. And subscribe to the Friends & Family Connection eNewsletter to get military life information like this sent straight to your inbox.