For some Service members, the BRS will not affect your retirement because they'll be automatically grandfathered into the current system due to their years of service. But for the rest, a decision will need to be made. Will you stay in the legacy system or go into the BRS? There are differences between the two systems and understand those differences are relevant to your opt-in decision. I've put together an overview of the present system compared to the BRS to help you navigate the changes and make an informed decision about your financial future.
If you joined the service before January 1, 2006, or have more than 12 years of service, the BRS doesn't apply to you. There's no decision you'll need to make—you're grandfathered into the current system. However, if you're in a leadership position, you need to be spun up on the BRS regardless, to help those you supervise.
If you join the service after December 31, 2017, the BRS will be your retirement. There's no decision you'll need to make—you will be enrolled automatically into the new system/BRS.
If you joined military service after Dec 31, 2005, but before January 1, 2018, you will be required to decide to remain in the legacy system or to enroll into the BRS.
Today's military retirement system is a defined benefit plan. The benefit is a monthly check, better known as a pension after serving 20 years. Member's monthly payment is calculated by the following formula: your highest 36 months of base pay times your years of service, times 2.5%. (NOTE: For reserve, divide your number of points by 360 to get your years served.)
Also, there's the option to sign up for the Thrift Savings Plan (TSP), the government's version of a 401k. The TSP allows you to save money in a tax-advantaged account for your retirement. In the old system, the Service members are responsible for signing up for the TSP on their own with no contributions or match from the DoD.
The BRS is made up of three components. The first part is a combination of an automatic 1% contribution and matching contributions to a Service members traditional TSP account. The max the DoD will contribute is 5%, a 1% automatic contribution to your TSP with up to 4% match from the contributions the Service member makes. The second part is continuation pay, a cash payment if the member commits to at least three more years of service at their mid-career mark (8-12 years). The third part is the pension, after 20 years of service, but at a reduced amount. In the BRS, the monthly pension is calculated as follows: your highest 36 months of base pay times your years of service, times 2%. The multiplier goes down to 2% from 2.5% in the Legacy System. In the BRS, sign-up for the TSP will be automatic for those joining the military after January 1, 2018.
If you have less than 12 years of service on December 31, 2017, and want to sign up for the BRS, the earliest you can do so is January 1, 2018. But, once you've made the decision to opt into the new retirement system— it's a done deal. Opting in can't be changed later, it's irrevocable. Once an opt-in to the BRS is selected, the Service member will start to receive automatic the contribution and match they qualify for, starting the first pay period after opt-in.
For those choosing between the new and old retirement system, have no fear. The Department of Defense knows members need all the facts before making an educated decision. Because of that, they're rolling out educational courses and financial calculators, at the beginning of 2017.
Military Saves is here to help you stay on track. Take the Military Saves Pledge to set your savings goal, and then follow the prompts to opt-in to receive text message reminders and tips. Think of Military Saves as your personal savings support system.
@FinanceLacey shares what military spouses should know about the new #BRS: http://bit.ly/2yn7ouH