Being a servicemember is a courageous and fulfilling career path, but what happens when it’s time to retire from the military? The Blended Retirement System, or BRS, is fairly new. What’s it all about? Here’s what the BRS is and how it works.
What Is BRS?
The BRS rolled out in 2018 and combined the existing annuity provisions for career servicemembers and the military’s Thrift Savings Plan (TSP). Previously, the military’s annuity provisions –monthly retirement pay – were only available to servicemembers who had served at least 20 years before their retirement. Unfortunately, only 19% of career servicemembers reached the 20-year service marker before separating, meaning most would not receive any retirement pay.
To better support servicemembers, the Department of Defense created the Blended Retirement System. The BRS offers a substantial, albeit reduced, pension for career servicemembers who have completed a minimum of 20 years of service and other additional supplementary programs. For servicemembers who choose to separate from the military before their 20-year mark, the BRS allows them to leave with some savings, similar to a 401(k) in the private sector.
Tune in to walk through some core concepts of the BRS, and how you can leverage it to make the best decisions for your financial future.
Get to Know the BRS Better:
- The Blended Retirement System includes your defined benefits plan and your defined contribution plan.
- You can contribute to the BRS no matter how long you serve. Your contributions stay with you.
- Rollover to an employer plan or an IRA.
- Reach out to an on-base counselor for assistance.
Watch the full financial readiness series with FINRED here.
How Does the New Military Retirement Work?
Though not necessarily “new” anymore, BRS is essentially a blend of components from the legacy retirement system with common benefits of civilian 401(k) plans. It is comprised of four elements: Defined Benefit, Defined Contribution, Continuation Pay, and Choice of lump sum payment.
1. Defined Benefit
Retired pay will be calculated at 2% times the number of years of service. For example, if you retire after 30 years of service, you’ll get 60% of your final base pay. If you retire at 40 years service you get 80% of your final base pay.
You can choose to get your full retirement when eligible or to wait until retirement and get a lump-sum benefit. If you choose the lump-sum, you’ll get a reduced monthly retirement check until the age of 67.
2. Defined Contribution
The military will contribute 1% of your base pay to your Thrift Savings Plan (TSP) even if you choose not to contribute any of your own money. You’ll be automatically enrolled with a 3% base pay contribution to your TSP, which you can change at any time.
After you’ve completed 2 years of service, the military will match up to 5% of your contribution. You also always have the option to stop contributing to your TSP, get a loan of your TSP balance, or withdraw your funds from your TSP account.
3. Continuation Pay
Once you reach 12 years of service you become eligible for a cash incentive, which is meant to encourage you to reach the 20 year mark. The incentive amount, how many additional years of service are required, and actual time payable varies by branch of service. Different military occupations may get different amounts, too, so ask your personnel office for more details.
4. Choice of Lump Sum Pay
When you retire, you’ll be given the choice to receive monthly retirement pay checks or take a lump-sum payment of either 25% or 50% of your gross estimated retired pay, then receive smaller checks monthly.
If you take a lump-sum payment of 25%, you’ll receive 75% of the normal monthly retirement pay. If you choose a 50% lump-sum, you’ll receive 50% of the normal monthly retirement pay. Your lump-sum payment is taxable and also discounted for inflation, so the discount amount changes each year.
For example, in 2022 the discount rate is 6.54%. So if you were to retire in 2022 and the finance office determines your retirement is $250,000, you would only receive $233,650 before taxes. We arrive at this number after subtracting $16,350 (6.54%) from $250,000.
Planning for your retirement is essential. The BRS can help servicemembers save for the future, no matter when they choose to leave the military. If you’d like help reviewing your financial picture and finding solutions that can help you create a more secure future, contact an AAFMAA Member Benefits Coordinator today.