Recently, an article in the Military Times noted that many of the 1.6 Million eligible servicemembers have not yet converted to the Blended Retirement System. Earlier surveys had shown the conversion numbers should be higher. Since the first of the year, only 16.5% have converted with the opt-in deadline of December 31st rapidly approaching.
For the 16.5% that have converted to BRS, the numbers by military branch break down as follows:
As shown, the Marines are leading the way at 36.6%. Why is that branch converting at a much higher percentage than the other branches? Most likely it is due to them presenting the facts to each eligible Marines and then forcing them to make a decision if they want to convert or not.
The other branches are taking a more standoff approach and letting their servicemembers opt-in or not at will. Consequently, it is believed either servicemembers are waiting until just before the deadline to convert or they have already decided to stay with the Legacy system.
But as with all decision making, it is based on the accuracy of information at the time. What the other branches are finding out is what may be the right decision for an older servicemember, may not be the best one for a younger member, especially if that member does not plan to stay for at least 20 years.
However, without a process in place like the Marines have, the other military branches just don’t know the status of their servicemembers as far as converting to BRS or not. And once the deadline of December 31st has passed, it will be too late to make or change their decision.
here’s how the blended retirement system could work for you
For eligible servicemembers not having made their decision yet, here are three scenarios to consider. Our assumptions for the scenarios are that the sample servicemember is 24 years old, has 5 years of service, has a life expectancy of 85 and receives a rate of return of 7%.
Scenario 1: Retirement Age 39, with 20 years of service; 5% Annual TSP Contribution, Pension starting at age 60. | ||
Legacy | BRS | |
First Full Year of Retirement | $40,017 | $32,014 |
Total Pension | $3.6 million | $2.9 million |
TSP (Thrift Savings Account) | $62,873 | $125,746 |
TSP Lifetime Value | $539,390 | $1,078,780 |
Total | $4.1 million | $4.0 million |
NOTE: Includes 5% TSP Matching contribution under BRS | ||
Scenario 2: Retirement Age 39, with 20 years of service; 0% Annual TSP Contribution, Pension starting at age 60. | ||
Legacy | BRS | |
First Full Year of Retirement | $40,017 | $32,014 |
Total Pension | $3.6 million | $2.9 million |
TSP | $0 | $12,574 |
TSP Lifetime Value | $0 | $107,870 |
Total | $3.6 million | $3.0 million |
NOTE: Includes 1% TSP Matching contribution under BRS |
For the first two scenarios, the only difference is the TSP contribution. If the servicemember contributes, TSP makes an equal matching contribution up to 5%; if the servicemember does not contribute, TSP still contributes 1% per year.
Scenario 3: 13 years of service; 5% Annual TSP Contribution, Pension starting at age 60. | ||
Legacy | BRS | |
Total Pension | $19,970 | $39,940 |
TSP | $62,873 | $125,746 |
TSP Lifetime Value | $275,118 | $550,236 |
Total | $275,118 | $550,236 |
NOTE: Includes 5% TSP Matching contribution under BRS |
Data source: Military Times
However, the real value of BRS is the last scenario – the servicemember getting out with 13 years of service. Under the old Legacy system, they would only get TSP and their return on their investment as their pension. Under BRS, their total pension value would almost double from just over a ¼ million to more than a ½ million, due to the 5% TSP matching contribution.
It is important to note that none of the scenarios include the Continuation Pay or Lump Sum Options discussed in this article, which could affect your decision to convert if eligible for either one. If in doubt whether you should convert before the end of the year or not, consult a finance expert experienced in military retirement systems. It could be the best money you ever spent.