Paycheck Chronicles

Five Moves To Make The Most Of BRS

A new military retirement system arrives Jan. 1, 2018, and you might be looking for ways to make the most of it.

The biggest change to retirement benefits since REDUX retirement plan was rolled out in 1986, the Blended Retirement System (BRS), becomes the retirement plan for everyone entering service after December 31, 2017. More than a million current service members will have the option to switch to BRS in 2018, as well.

The Defense Department has rolled out extensive training on the plan, including a webpage with the latest information and a variety of BRS-related resources. I advise you to examine all the details there, but I’ll give you five recommendations on how you could set yourself up for success in the new world of BRS:

Take Advantage of Matching Contributions

For years, I’ve been encouraging my civilian clients with a 401(k) to take advantage of the money their employer is willing to kick into the effort.  There’s no sense in leaving that type of money on the table, right? With BRS, that message is now relevant to military members, too. The DoD will automatically contribute 1% of monthly basic pay to the Thrift Savings Plan (TSP) account of members enrolled in BRS. But here’s the big news: If service members contribute at least 5% of their own money to their TSP, the DoD will kick in an additional 4%. That’s an opportunity you can’t afford to miss! Any military member who switches to the BRS is immediately eligible for matching contributions; those that enter the service in 2018 or later will be eligible after two years of service.

Recognize The Military Won’t Do All The Heavy Lifting

Whether you’re under the old or new system, your financial future falls on your shoulders in the end. If you retire after 20 years of service, BRS provides a cost-of-living-adjusted annuity of 40% of your basic pay. That’s a fantastic benefit, but not many people can live off less than half a paycheck, especially when they have to pay for housing and other allowances the military once covered. My point? You’ll need to dedicate a portion of your hard-earned pay to retirement savings. At USAA, we think 10-15% is a good place to start.

Consider Adding A Roth IRA To Your Arsenal

Having established that the TSP is a top-of-the-list option as far as a way to save for retirement, it’s not the only one. The Roth IRA is another valuable option to consider. If you’re eligible, you can contribute up to $5,500 to a Roth IRA in 2017. Your contribution and all of the growth in the coming years are available tax-free once you’ve had the account for five years and reached age 59½ — a nice benefit. Another reason to like the Roth is that you can withdraw contributions at any time without taxes or penalties, which can give you additional financial flexibility.  I’m not encouraging you to do that, but it’s an option.

Remember, You Have Lots of Choices

Do your eyes glaze over at the thought of investing money in accounts where you may have to leave your money untouched for decades to avoid getting hit with taxes and/or penalties? If that’s how you feel, remember there are a variety of options outside of IRAs, the TSP or other formal retirement accounts. Even if you decide to invest in a mutual fund, exchange traded fund, government savings bond or other investment in a non-retirement account, you’ll still be building for the future. Of course, you may miss out on some tax benefits, but you’ll likely have more flexibility and you’ll still be fighting the good fight.

Leverage Your Biggest Ally:  Time

As I mentioned, we recommend saving 10 to 15% for retirement, but it doesn’t have to be that much. What’s important is to start immediately. Beginning now, even in a small way, puts the power of time on your side. Plus, you’ll have a program you can build on. Over the years, compounding returns can turn a small effort into big results. For example, $100 per month becomes nearly $400,000 after 45 years and a 7% average return. And if you start today with $100, next year you could bump it up to $150. Each increase puts you in better shape.

There are lots of opinions on BRS but, frankly, it has me excited. As a financial planner, I love that it’s getting more military members talking and thinking about the future. Now all that’s left is the action. Get started today!

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