Military Retirement: High-3 vs. BRS

When it comes to military retirement, there is often no right or wrong answer. There is, however, a right way to make the choice… and that starts with knowing yourself and knowing your options! For the sake of keeping the article concise, we are strictly discussing active duty options and we are not comparing reserve duty benefits.

The new Blended Retirement System (BRS) shifts a portion of the retirement savings burden onto our service men and women. Therefore, it’s very important to understand your goals, risks, and options when deciding which system is best for you. Whether you’re planning to stay in for 20+ years or you’re unsure, you’ll want to create plans A, B, and C. No matter how certain you may be on your future, plans A, B, and C will provide risk reduction for the potential uncertainties.

Hypothetical Plan A: Stay in for 20 years
Hypothetical Plan B: Stay in for 20 years, but you don’t make it to 20 years for whatever reason
Hypothetical Plan C: Decide to transition early

Plan A will give you the most reward; if you’re willing to accept the ‘all or nothing’ risk of cliff vesting that is associated with the current High-3 retirement system, then I believe this is the most beneficial retirement system. I tend to ask myself, “is the military changing its retirement benefits to positively benefit ME or them?”

From a risk reduction standpoint, preparing for B and C by using the BRS will likely reduce your risk because it will give you that ‘something is better than nothing’ protection if you do not complete 20 years of service.

More Obvious: If you plan to separate from the service prior to serving for 20 years, then the new system will give you something. For a majority of service members, the old retirement system has a cliff retirement which only gives you something when you reach 20.

Less Obvious: The intangibles… so what’s beyond the surface of High-3 vs. BRS?

  • It’s good to have options
    • Investing the ‘10%’ difference (stock market, real estate, business, education…)
    • TSP has set investment funds, whereas fund options are endless outside of the TSP
      • Fees aren’t everything… but it’s important to note that TSP wins on fees
    • Flexibility
      • Money at military retirement (High-3) vs. civilian retirement age 59.5 (TSP investments)
        • TSP investments may benefit from additional growth, the longer you wait to use the funds (example: compare funds available at age 60, 65, and 70)
      • Ups and Downs
        • I don’t like to call anything a guarantee…but your TSP investments will likely fluctuate much more than your military retirement pay
      • Time saved
        • Less moving pieces to think about with High-3 vs. the time, emotion, and energy with investing more heavily in the TSP
      • Age is not just a number… it’s a lot of numbers!!
        • The sooner you start investing, the better: the closer you are to 59.5, the less time your money has to grow, which means the less your money will grow

Common Example: You’ve recently been promoted to Captain. Your goal is to stay 20 years. You’re not sure which retirement system is right for you.

Answer: Run the numbers. Consider your future needs, wants, goals, and risks. Speak with a financial planner to analyze your options.

Hot tip: Many military bases now offer Certified Financial Planners to help you with these retirement choices. While they cannot advise you on which system to choose, they can definitely help you identify a plan forward that best meets your needs and goals.

Here’s the heartburn for switching to the new system if you’re under the 12 year mark: you’re trading in a potential 50% retirement check for a 40% retirement check and you’re also giving up the matching from your pre-BRS years of service. In the BRS, you will likely receive a continuation bonus of 2.5x basic pay at the completion of your 12th year of service.

The Blended Retirement System may only be beneficial if you (1) ALWAYS contribute 5% to receive the Government match (2) invest most of your pay raises/promotions and (3) invest your 12-year continuation pay bonus. The BRS option puts the onus of retirement saving on YOU, therefore YOU must exhibit more control over your lifestyle and planning. The problem is, most people are not ready for the responsibility.

Overall opinion, the BRS is great for the majority of military service members who will not serve 20 years. Something is better than nothing. For those who wish to stay in for 20 years, you must remind yourself that the DoD is changing the retirement system to save money. While the match may sound enticing, you should consider giving yourself a 5% match by investing 10% to help off-set the risk of not making it to the 20-year military retirement. When comparing the High-3 and BRS, I like to consider:

  1. Flexibility in the form of larger annual retirement salary – may be valued upwards of $10,000 per year in retirement which likely starts at an age less than the typical 59.5 retirement age
  2. Relaxation because you have more of a guaranteed payment that increases diversity from common market fluctuations – whereas your investments in stocks, bonds, real estate, etc. will cost you time, energy, and emotion
  3. Safety in the form of yearly COLA adjustments based on rise and fall of the Consumer Price Index – whereas your investments need to make money for you to stay ahead of inflation

By running the numbers, using my age (1990 birth year) and commission (2013), the retirement pay [in today’s dollars] is as follows:

  • Legacy Retirement Benefit (High-3): $49,471
  • Blended Retirement System (New Plan): $39,576

Assumptions associated with the Government Retirement Benefit, pictured above:

  • O-5 for 3 years
  • 5% TSP contribution rate throughout career (+5% govt match)
  • 6% average return on investments over your lifetime
  • TSP withdrawal starts at age 60
  • Invested 100% of continuation pay at completion of year 12

In this example, you’ll receive an additional $10,000 per year for the time between military retirement and age 60. At age 60, you’ll receive a total salary of $56,736 per year as a result of pulling from your TSP retirement account.

Answer: It still depends on YOU. So, run the numbers. Analyze your spending habits, wants, goals, and risks. Then, create a pros/cons list and determine your plan. At the end of the day, your best bet is to understand your options and make the most comfortable and appealing choice for your future.

3 thoughts on “Military Retirement: High-3 vs. BRS

  • July 17, 2017 at 7:06 pm

    Hey, this was an extremely informative and helpful article. Please continue to keep up the good work.
    It’s good to see someone cares about helping out the men and women of the US military financially.

  • July 18, 2017 at 9:41 am

    Dang that was a great article. I was full throttle blended retirement until I read your article. It definitely got me thinking, and I want to take a second look at the numbers between the two options again before settling for one or the other. Thank you!

  • December 22, 2017 at 6:13 am

    Well written, and a thorough look at the many pieces contributing to the choice of retirement systems. In talking over the BRS calculator with a friend recently, he pointed out that if you plan to stay in for, you should still strongly consider contributing 5-10% each month to the TSP (Roth) anyway, since this gives you a bit of the best of each world.

    For those thinking about getting out, I agree with you that something is definitely better than nothing. And throwing in 10% to the TSP over your career in addition to the 5% Gov match makes the BRS even more enticing…


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