What you missed by clicking through the Blended Retirement System Opt-In CBT
Lesson 1: Opt-In Basics
You can only opt in during between 1 Jan 2018 and 31 Dec 2018
If you are a re-entrant, you may be able to opt in during 2018
You can only opt in with less than 12 years Active Duty or less than 4320 points reserve
If you are in ROTC or at the Academy during the transition, you should have a period after going active duty to opt-in
Only 19% of service members will get to 20 years
BRS is 2% x years served x retired base pay
1% automatic government contribution to the TSP
4% matching to TSP contributions
Lesson 2: The Importance of Lifelong Financial Security
Saving for retirement is important (but you already know that if you’re reading this blog)
Many people don’t have ANY retirement savings
Experts claim you’ll need 80% of your income to retire (readers of this blog know better)
Don’t rely on Social Security
Investments aren’t guaranteed
Health care becomes an increasingly important factor as you age
Build a retirement budget, including essential needs and your wants, and save with that in mind
Apparently, most people spend $6,700/year on food in retirement, nearly $600/month!
There are four streams of income according to the expert Dave: Personal savings and investments, Employer-provided pensions, Social Security retirement benefits, and Earned income if you choose to keep working or if you have to work
Lesson 3: Financial Planning Concepts and the TSP
This section had basic definitions
Pension: “a retirement account that an employer maintains to give to you a fixed payout when you retire”
Defined Contribution Plan: “A retirement plan under which the Service Member, Military service, or both, contribute to an individual account in the Federal Thrift Savings Plan that invests in equities and bonds. Benefits are based solely on the amount contributed to the participant’s account, plus investment earnings on the money in that account.”
Government Matching: “Contributions made by the Government to the Thrift Savings Plan accounts of the Service Members who opt into the BRS and contribute their own money to the TSP.”
Portability: “The ability to transfer an account when you retire or leave Federal service.”
Vesting: “Vesting is the right an employee has to keep the money, and the interest earned on that money, their employer contributed to their retirement account. Usually, vesting is based on the length of time you work for that employer or participate in the retirement plan. Once vested that amount of money in your retirement account is yours to keep and the employer cannot take it back.”
Compound Interest: “The addition of interest to the principal is called compounding. Compounding makes it possible for your retirement savings to grow exponentially.”
Thrift Savings Plan: “A defined contribution plan currently available to government workers. TSP is portable and, once vested, all contributions and earnings stay with the employee even after leaving government employment.”
The vesting period for the new government contributions to the TSP, both the automatic 1% and the matching 4%, is 2 years. If you already have 2 years time in service when you opt in, the matching contributions will be automatically vested.
If you are receiving tax exempt pay, you can contribute it to the TSP with added benefits. If you contribute the tax exempt pay to Roth, you can later withdraw both the contribution and earnings tax free. If you contribute to Traditional, you can later withdraw the contributions only tax free. The earnings will still be taxed.
Lesson 4: Differences in the “High-3” System and the BRS
The BRS will allow 85% of service members have “some” retirement savings vs the less than 20% who make it to the pension with the High-3 System. This seems like comparing apples to oranges.
Somehow, they make the claim that service members under the High-3 “don’t get the TSP account”. This is patently wrong, but I assume what they mean to say is that you don’t get any matching. The claim that it isn’t a part of your retirement plan is also just wrong.
The High-3 System used the average of the highest 3 year’s pay to decide final retired pay.
You will automatically get 1% contributed to your TSP by the government no matter what if you opt-in to BRS. The government will also match up to 4% more contributions. Total 5% additional contribution to the TSP by the government.
Continuation pay is essentially a bonus at the midpoint of your career based on service needs. The amount will vary, according to the CBT, “For our Active Duty members it'll be a minimum of two and a half months' worth of pay, all the way up to thirteen months of pay…For our Reserve members, the range is anywhere from a half month's pay, as if that member was serving on Active Duty, all the way up to six months' worth of pay.”
Continuation Pay comes with a 3 year additional commitment.
If you are in the Reserves, are past 12 years of service, under 4320 retirement points, and decide to opt-in to BRS, you will not be eligible for continuation pay.
The Lump Sum Option:
You can choose to take a Lump sum of 25% or 50% of your pension between retirement and age 67.
However, the Lump Sum is given at a discount of the present value.
That means you will receive some percentage less than what you would have actually gotten in your monthly pension payments.
You also have the risk of inflation that is not there with the regular monthly payments.
You still get 75% or 50% of your pension payments, depending on which option you took.
Reservists can take a lump sum between retirement eligibility (generally 60) and full social security eligibility (67) that works fundamentally the same at the active duty, but with a shorter time horizon.
You would have to pay tax on your lump sum payout. You can take 4 lump sums over 4 years to mitigate the tax burden.
The lump sum could impact your disability pay.
Lesson 5: Important Factors to Consider
Career goals and family situation should be considered when deciding whether to opt-in to BRS.
This section had 8 case studies to show how many different factors there are to consider when deciding between High-3 and BRS.
If you retire from Active Duty, you might not be able to sustain your lifestyle without working another job. Health care and housing cost money in retirement, unlike while active duty.
Talk to your spouse if you’re married.
Lesson 6: Tools and Resources
Only you can decide whether to opt in or not.
You can talk to all kinds of professionals about retirement planning. There will also be (mandatory) training about retirement.
There is a BRS calculator to see what kind of results different options would have.
Unfortunately, the BRS calculator is “coming soon”. Oh well.
Using the mythical calculator, the case studies from before made their decisions whether to stick with High-3 or change to BRS. If people were planning to get out before 20, they decided to do BRS. Makes sense.