Which Retirement System Pays Better – Legacy or the Blended Retirement System?

Military Transition

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:

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.

Features BRS Legacy
Monthly Pension $2,600

(2.0 x Years of Service x High 3-Year Average)

$3,250

(2.5 x Years of Service x High 3-Year Average)

TSP Up to 10% total Up to 5% individual
Continuation Pay $30,752 N/A
Lump Sum $18,174 N/A

Monthly Pension

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.

Features BRS Legacy
TSP 10%

$36,445.92 contributed

$147,556.52

Net Balance

5%

$36,445.92 contributed

$73,778.07

Net Balance

Continuation Pay $30,752 N/A
Lump Sum $18,174 N/A
Total $196,482.52 $73,778.07

NOTE: the following assumption were used in the calculations:

  • Contribution: 20 years
  • Annual Salary: $30,000
  • Annual Pay Increase: 2%
  • Return on Investment: 7%
  • TSP:
    • 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. 

Kness retired in November 2007 as a Senior Noncommissioned Officer after serving 36 years of service with the Minnesota Army National Guard of which 32 of those years were in a full-time status along with being a traditional guardsman. Kness takes pride in being able to still help veterans, military members, and families as they struggle through veteran and dependent education issues.