In this final overview of the new Blended Retirement System, we are going to look at some scenarios under the BRS program. If you don’t know what the Blended Retirement System is, or if it applies to you, review:
- Introduction to the Blended Retirement System and
- What You Need to Know About the Blended Retirement System (including a deeper dive of program options)
First let’s look at the overall differences between the legacy and BRS programs using our sample data used in the previous articles in this series.
(2.0 x Years of Service x High 3-Year Average)
(2.5 x Years of Service x High 3-Year Average)
|TSP||Up to 10% total||Up to 5% individual|
Just looking at the monthly pension alone, the difference of 0.5% between the two retirement systems over a 20-year draw period is $156,000 ($750 per month x 12 months per year x 20-year retirement period). While a half of a percent doesn’t sound like much, over the long haul, it amounts to a lot of money.
Next let’s look at how that difference can be made up with other BRS features: TSP, continuation and lump sum pay.
NOTE: the following assumption were used in the calculations:
- Contribution: 20 years
- Annual Salary: $30,000
- Annual Pay Increase: 2%
- Return on Investment: 7%
- Legacy=5% individual contribution
- BRS=10% total: 5% individual, 1% automatic and 4% matching
As noted, servicemembers in the BRS program would earn $156,000 less in monthly pension over a 20-year draw period, however, they would earn $122,704.45 more when factoring in the automatic and matching TSP, continuation pay and lump sum payments.
Investing Continuation Pay
The $33,295.55 net loss could be offset by investing the continuation pay alone. Investing the $30,752 at a 7% annual return rate compounded over 10 years, would yield an offset of $60,493 or almost double the net loss.
If the lump sum payment of $18,174 was invested between the point of retirement and age 67, the offset would be even higher.
So, is the BRS program as good as the legacy program? As shown, the answer is yes – provided individual TSP contributions are maxed out each year and continuation pay is invested for 10 years with an annual return of 7% as used in the model.
Disclaimer: The sample data used in this series is real, however, your individual results could differ depending on your data and investment strategy.