JOINT BASE CHARLESTON, SOUTH CAROLINA, –
Maintaining personal financial readiness is the responsibility of every service member. Budgeting, debt management and saving for retirement are all considerations Airmen and their families should take very seriously. Financial troubles are detrimental not only to the individual but to the mission as well.
Particularly in light of uncertainty about the future of the Social Security program, it is critical for service members think carefully about their retirement. The implementation of a new, modernized retirement system for the military in the next few years will provide an additional source of retirement income for service members, even if they do not serve for 20 years. In order to maximize its value, Airmen should understand how the system will affect them individually and be knowledgeable about resources to assist them when making important financial decisions for their futures.
The new Blended Retirement System (BRS) for the military will go into effect on January 1, 2018. Current service members with less than 12 years on active duty will have the ability to opt in to this new system or remain under the existing system. However, eligible members only have until December 31, 2018 to make this choice. A solid understanding of the lifelong potential financial effects of this decision is crucial for these service members and their families.
Approximately 81% of service members currently leave the military with no retirement benefits. Under the new Blended Retirement System (BRS), about 85% of members will receive some type of retirement benefit upon separation, even if they fail to qualify for full retirement. True to its name, BRS is a "blend" of retirement systems. The new system combines a defined benefit system, like the military's current retirement system, with a defined contribution system (such as a 401(k)).
The military currently uses a defined benefit retirement system. Under a defined benefit system, an employer promises to pay out certain benefits to an employee after retirement. Currently, service members only become vested in the plan once they reach 20 years of service. Prior to reaching 20 years of service, service members do not receive any retirement benefits.
Service members under the existing plan may also choose to participate in the defined contribution Thrift Savings Plan (TSP). Under a defined contribution retirement plan, employers, employees or both contribute to an individual account that invests in outside investments. The value of such a plan depends on the performance of the underlying investments. Currently, TSP does not offer an employer contribution.
All members currently serving will be grandfathered into the current system. However, those service members who have served fewer than 12 years on active duty or who have accrued fewer than 4,320 retirement points in the reserve component as of December 31, 2017 are offered the opportunity to opt in to BRS. Eligible members who want to opt in must do so during the designated period from January 1 through December 31, 2018.
BRS ensures members who have spent a substantial amount of time serving in the military will still receive retirement benefits, even if they do not reach 20 years of service. However, BRS requires more individual responsibility for making smart financial decisions throughout the course of each member's military career. In order to be maximized to its full potential, members must invest wisely.
Like the current retirement plan, BRS offers the traditional pension paid immediately upon retirement for those who serve 20 years or more. Under the current plan, retired base pay is calculated by taking the average of the highest three years of base pay multiplied by total years of service and then by 2.5%. The only change to this portion of the retirement system under BRS is the multiplier has been lowered to 2.0%, which could potentially result in a significant financial loss to those members who do make it to 20 years, depending on the individual's military status.
Despite this reduced percentage, BRS can offer greater yield. Under BRS, every new service member will automatically be enrolled with 3% of their base pay going into the Thrift Savings Plan. After 60 days of service, the DoD will automatically begin to contribute an additional 1% of the member's base pay until the member separates, retires, or reaches 26 years of service. After two years of service, the DoD will begin to match up to an additional 4% of the member's base pay in addition to the 1% automatic contribution. If a service member wants to maximize his contribution of base pay, the government will match up to 5%.
Finally, BRS also offers a continuation pay bonus of 2.5 months of basic pay upon completion of 12 years of service. In exchange, a member must commit to an additional four years of service. In the current system, there is no retirement advantage to staying another year other than reenlistment bonuses and pay raises. This new continuation pay benefit offers a monetary incentive for members to serve past their initial commitment but not necessarily for the full 20 years.
This important decision - whether to opt in to BRS or remain covered - ultimately belongs to the individual. Many members currently serving will not make it to a 20 year retirement, so the new system has benefits worthy of serious consideration. Rather than separating with no retirement pay to show for less than 20 years of service, BRS would offer those who serve valuable retirement benefits if they choose to invest wisely in the system. Members who separate and continue on to jobs in the private or public sector will not have to start from square one. These service members will be able to take the retirement savings that started accumulating just two months into their military service.
To help service members make this important decision, a variety of training tools are or will soon be available. New courses and calculators for comparison to educate members about their decision should be available by January 2017 and training will occur throughout that year. Appointments and office training can be organized by contacting the Airmen and Family Readiness Center and the Fleet and Family Service Center.