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Paycheck Chronicles

Don't Put Off Making Your Decision About The BRS

During a recent presentation, I asked a group of airmen and their spouses how many were going to opt in to the new military Blended Retirement System, or BRS. Even though there were 150 folks in the room, I got nothing but crickets — not even a detectable move to raise a hand.

Uh-oh.

The good news is that the Defense Department’s comprehensive BRS education plan should be kicking into high gear this month. I hope it’s effective. After my presentation, an airman told me she wouldn’t be choosing the new system because she wasn’t going to serve for 20 years.

Ouch! She’s part of the vast majority of those serving — those who won’t complete 20 years of service — who could benefit from signing up for the BRS.

Since we’re in the homestretch before the new plan goes into effect, let’s review five key points you and your spouse should understand before choosing the right retirement path for your family:

Your Monthly Military Retirement Check Is Not Going Away

A monthly, inflation-adjusted check for life has tremendous value. Just check out the Defense Department’s Statistical Report on the Military Retirement System and you’ll understand what I’m talking about. DoD actuaries calculated the value of military retirement for an O-5 retiring in 2016 after 20 years of service at more than $1.3 million. For an E-7, the number was just shy of $700K. Even though the new BRS cuts the retirement annuity by 20%, it still amounts to a large potential benefit. Retiring under either system — the legacy or the BRS — will continue to offer tremendous benefits.

Something Is Better Than Nothing

I’ve received feedback from folks who aren’t fans of the BRS. It may not be perfect, but the new plan offers a much wider group of service members tangible retirement benefits in the form of DoD automatic and matching contributions to the Thrift Savings Plan. Remember, you can keep the entire TSP account — your contributions and those made by Uncle Sam — as long as you serve at least two years. Once you separate, you can leave the account in place or transfer it to a new employer’s plan or an IRA and keep it growing for retirement.

Do Your Homework Early

You have until the end of 2018 to decide, but the longer you wait, the more DoD contributions you will miss out on. There are no retroactive DoD automatic or matching contributions. Don’t rush to judgment because the decision is irrevocable. But, you and your spouse should spend 2017 evaluating your options so you can make the choice early in 2018 — and if you choose the BRS — reap nearly a year’s worth of DoD contributions to you or your spouse’s TSP. Remember, for those who joined or contracted to serve between 2006 and 2017, you have to opt-in to the BRS. Taking no action means staying in the legacy plan.

Ease Into The Change

If you learned your income would be cut by 5% starting tomorrow, you’d probably have a few choice words. After that, you’d scramble to figure out how to make things work. If you’re considering the BRS, you must contribute a minimum of 5% to the TSP to take full advantage of the DoD match. With that in mind, it’s critical to factor that into your budget now. Start contributing today. That way, in 2018, you won’t feel a serious financial disruption. Plus it won’t hurt you, even if you bypass the BRS. You’ll still be saving for the future and building your retirement.

Numbers Can Be Made To Dance

By the time you’re reading this, both DoD and USAA calculators should be available to help you make a decision. Check them out and run the numbers. I’ve evaluated both plans, built countless spreadsheets and had numerous conversations about the change, and one thing’s clear: You can make the numbers support either side of the “Which is best?” argument. There are assumptions about rates of return, discount rates and life expectancy — just to name a few. All of these assumptions can have a dramatic effect on the outcome of the calculation. So, consider them carefully and with some skepticism.

If you serve 20 years, the BRS is not probably not as lucrative as the legacy system if measured in terms of DoD’s contribution to your retirement.  However, it serves the greater good providing retirement benefits for more people. Also, it’s hopefully going to encourage a larger number of service members to save for their future, perhaps even creating a new generation of savers.

Take advantage and encourage those you know to make the most of the DoD’s training. Check out information and tools from other trusted sources, and be prepared to make the decision early in 2018.

When it comes to your financial security, educate yourself and say goodbye to those “crickets.”

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